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A look at trends in medical malpractice insurance reveals something of a mixed bag, at least for physicians and hospitals. On the down side, the severity of malpractice claims continues to rise--albeit more slowly--at a rate of 7.5 percent annually.

On the flip side, however, the frequency of claims has declined, with claims growth logging in at negative 1 percent during the past year, according to the 2005 Hospital Professional Liability and Physician Liability Benchmark Analysis released by Aon and the American Society for Healthcare Risk Management.

"If you look at all the studies as a continuum," explains Gregory Larcher, assistant director and actuary of Aon Risk Consultants and author of the analysis, "we've kind of had our foot off the gas pedal, and now we're finally touching on the brake when it comes to frequency."

The downturn is not the product of any single factor, but rather the fruit of a variety of efforts in the past few years to rein in a med mal industry gone amok. Greg Morris, chief operating officer of Aon Healthcare, said in a statement that two factors played a role: heightened awareness of how quality care and patient safety affect the cost of risk, as well as efforts by health-care systems to improve quality of care.

But perhaps a more significant factor, says Larcher, was St. Paul Travelers' departure from the market, and the resulting crisis in availability and affordability.

"Many of these hospitals either ventured into self-insurance or increased their level of self-insurance," he says, "so they then had a greater financial incentive to mitigate the losses within their systems," including funding initiatives in patient safety and quality care.

Aon also attributes some of the drop off to recent efforts in med mal reform. While California's reforms have been in place for several years, significant reforms in Texas, Pennsylvania and Florida have been more recent, and are just beginning to have an impact. The true effect of those reforms--specifically caps on noneconomic damages--should begin to surface in the next few years, and a downturn in claims severity could be evident as early as next year. For now, says Larcher, there aren't enough postreform cases to show an observable difference in the severity trend.

Aon's 2005 study--representing $4.5 billion of incurred losses--was the largest analysis of its kind, examining more than 200,000 hospital bed equivalents and representing approximately 10 percent of the hospital professional liability market and 15 percent of the alternative segment of the market.

January 1, 2006

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