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Medical Professional Liability 2019: themes, topics and encroaching disruption

By Andrew Wheeler, Managing Director, Specialty Casualty 

The US healthcare industry is never one to sit still. A number of disruptive forces are at work, all of which will form the basis of the most contentious debates and discussions at this year’s MPL Association Conference. Deep and profound transformation in recent times dictate that new trends continue to emerge and reshape the environment in which we live and work. This backdrop of change will certainly provide for an extremely exciting and interesting MPL Association meeting.

Of these new trends, perhaps the most important is the shift we’re seeing in how healthcare is being delivered. The trend towards the employment of physicians has had a profound impact on the MPL Association member companies. With employment approaching 50% nationally and significantly, almost 70% of those are under the age of 40, the trend can only continue. Aside from the obvious impact on MPL premium levels, member companies have had to diversify product and geography to accommodate this shift in risk.

The latest shift in the provision of healthcare is likely to be as, if not more, profound. Take Amazon, the business that seems to permeate every aspect of our life, and its recent focus on the healthcare industry. A partnership with Berkshire Hathaway and J.P. Morgan for an employer health initiative can only suggest a significant market share play in a $3.5bn sector. The acquisition of the internet pharmacy PillPack, the investment in medical diagnostics, a project to mine patient records and the start up of its own employee health clinic lead us to believe this will be hugely disruptive for the healthcare industry. The question is how do the MPL Association members adjust in order to meet these challenges, and what will be the impact on risk?

Then there is the changing face of claims. The industry has benefited significantly from the reduction in frequency experienced in recent years. Whilst we may see pockets where frequency is increasing, it is certainly not a national phenomenon. That being said, severity is unquestionably increasing at a rapid pace. The industry is still seeking the answer to what has driven this shift and Whilst there are several considered factors, much like with frequency reduction, the industry is still seeking the answer to what has driven this shift.. Put simply, the medical profession is losing cases at trial which in the past, perhaps, would have received a more sympathetic hearing by a jury. A recent TransRe claims report found that the average value of the top 50 medical malpractice verdicts is $29.55m, which is the highest it’s been in the last 18 years. We have also seen two cases in the last 12 month where awards have exceeded $150m. Of note, there is no discernible commonality as relates to specialty, geographic location or jury demographic.

Added to this is the well-publicised opioid crisis and the mass litigation, which has reached 1,548 federal court cases involving millions ofaffected people. In 2017, the US Department of Health and Human Services declared a public health emergency and announced a five-point strategy to combat the opioid crisis.

As an example of the scale of the problem, over half of West Virginia is addicted to opioids and in Ohio, over 1,500 state municipalities are suing the pharma companies for mass over-subscription of opioids. The case rests upon who should pay the bill and it may well become one of the most complicated legal battles in US history. Whilst the immediate focus of the plaintiff bar is on big pharma, MPL Association members and, for that matter reinsurers, are closely monitoring the potential for such litigation to expose physician or facility liability carriers.

Medical professional liability is in a state of flux perhaps greater than ever before. The challenges facing the sector need swift and decisive answers but also cross-sector collaboration to tackle. As a reinsurance intermediary, we at BMS are here to help. We are looking forward to discussions at MPL Conference so that we can tailor the tools and strategies needed to provide the best capital solutions.

The most profitable healthcare businesses will be those that adapt to the new environment and adopt technological change, improved actuarial modelling and disruptive thinking into their business model. So perhaps, together, we can ease the impact of change and usher in a new era of both profitable and sustainable growth.

Approaching the peak of the severe weather season

This BMS Insight will summarize the status of severe weather across the country so far this year and what can be expected as we move into the peak of the season. Typically, Local Storm Reports for tornadoes peak in the middle of May, which is a bit early in the season compared to Hail and Wind reports. Hail reports tend to reach the maximum level around the beginning of June and wind reports peak toward the end of June. The halfway point of large insured loss events, according to Property Claims Services (PCS), tends to also peak around June 6.
There have already been some notable severe weather outbreaks this year, with the highest tornado count occurring since 2012. What makes this season interesting, however, is that, up until the last few weeks, parts of the East Coast had experienced more tornadoes than states in the Central Plains.

Severe storm reports of tornado occurrences show the majority of tornadoes have been in the southeast, with just as many tornadoes occurring in some East Coast states as in Tornado Alley

In fact, some states like North Carolina and Virginia have recorded just as many tornadoes as Oklahoma. With much of the severe weather focused along the more populated East Coast, which has a higher concentration of exposure, one might expect that insured losses would be running above normal. Although it is still early, the data suggests that insured losses are, surprisingly, running 45% below the 2008 – 2018 mean across 11 PCS events year-to-date, which is what the insurance industry would expect. Although there will likely be some loss development, the 489 tornadoes that have occurred this year have, fortunately, missed large cities, which would have increased the insured loss values. As highlighted in my March 3 Insight, tornadoes have occurred, but primarily across the southeast where there is a large concentration of lower valued properties, such as mobile homes.

With the overall count of tornadoes for the year running right at average, and wind reports running slightly above average, it is interesting to note that reports of hail, which have been grabbing a lot of the insurance industry’s attention over the last few years, are down by a significant 57%. This could contribute to the overall decrease in insured loss for severe weather. I reached out to a few hail researchers to ask what might be driving the lower-than-average hail counts this season. The response was that many storms have been centered across the Southeast, which generally doesn’t experience a lot of occurrences of hail. The storms have had relatively anemic lapse rates and less of a deep-layer sheared environment, both of which are needed for larger hail events. John Allen a Assistant Professor of Meteorology at Central Michigan University made mention that lower hail frequency over the Plains is one of the expectations in El Niño years, currently in place in the South Pacific. There also could be a simple lack of reporting of hail events this year which is puzzling in itself.

Daily reports of severe weather (green) and the Average Annual Trend and daily hail reports from 2005 – 2015.

As the insurance industry is well aware, it only takes one destructive tornado or large hail event to impact a populated area, and some of those destructive events often occur in May and June, such as the infamous Joplin, Missouri tornado and hail event of May 22, 2011. So what does the overall threat look like going forward for the next month and a half? Ian Livingston, an author and contributor for the blog site, U.S. Tornado, recently summarized the number of days through the end of June from 2009-2018 that correlate with the various Storm Prediction Center (SPC) outlook categories.

The plot of daily maximum value from 2009 – 2018 of SPC Convective Outlooks.

The plot Livingston created above demonstrates that in May and June there is a consistent probability of Slight and Marginal risk, which makes sense, given this is the overall peak of the severe weather season. He also looked at the percentage of total days with at least some type of severe weather risk and, in June, an impressive 96% of days have at least a low-level tornado threat somewhere in the country.

The forecast models suggest a decent chance of severe weather on Wednesday in Tornado Alley and the Ohio River Valley on Thursday, which could bring more severe weather into parts of the East Coast on Friday. Regardless, severe weather should push its way into the Northern Plains as summer starts to take hold and the jet stream shifts northward.

I recently reviewed the spatial areas of the SPC convective outlook to create a unique view of Severe Storm Relativity-based conditions that could produce severe weather.  Although the Southeast and parts of the East Coast have had their share of severe weather already this year, the overall climatology and longer term weather forecasts suggests a shift will likely occur into the Central Plains and further into the Upper Midwest as summer progresses.

The climatological risk of SPC Daily Convective Outlooks 2000 – 2017.

BMS appoints Pete Chandler as President of US reinsurance

BMS Group (“BMS”), the independent specialist (re)insurance broker, today announces the appointment of Pete Chandler as President of BMS’s US reinsurance operations, reporting to Steve Korducki, US reinsurance CEO. The appointment is effective 27th May and Chandler will join the BMS US Board subject to regulatory approval.

This is the latest in a series of recent high-profile hires by BMS, following the achievement of the £100mn annual revenue landmark and substantial global growth.

Chandler joins from JLT Re, where he was Deputy CEO of the US reinsurance broking arm of the Group. He joined JLT Re in 2016 prior to which he was Marsh’s Managing Director for the Western Region. Previously North American COO for Guy Carpenter and an Executive Vice President at Benfield, Chandler has been at the highest levels of US reinsurance broking for two decades.

Nick Cook, CEO of BMS Group, said:

“BMS’s independence and resolute commitment to the US reinsurance market continues to attract some of the industry’s leading talent. There is great opportunity for growth in our US operations as clients increasingly look for independence married to technical and analytical scale and expertise.

Pete is one of the most experienced reinsurance brokers in the market and will be a huge asset to the BMS US team. I am pleased to announce his appointment today and look forward to working with him and Steve Korducki to grow our US reinsurance arm.”

Chandler added:

“There is a huge opportunity in the US for an independent broker of BMS’s ambition, analytical and actuarial capability and entrepreneurial culture. The investment BMS has made in talent, innovation and analytics has made it the most significant independent broker in the market and I’m delighted to join such a formidable team.”

BMS appoints Nick Moss as Chief Financial Officer

BMS Group (“BMS”), the independent specialist (re)insurance broker, today announces the appointment of Nick Moss as CFO of the Group, reporting to CEO Nick Cook. Moss will formally join the BMS Board following regulatory approval.

The appointment follows the independent broker’s recent achievement of reaching the £100mn annual revenue landmark and substantial expansion in the London, US and international divisions.

Moss has more than thirty years’ experience in finance and joins from JLT Re, where he served as Global and UK FD. He has previously held senior finance roles at Novae, RFIB, where he was CFO from 2013-16, and Benfield (now Aon Benfield) between 2003 and 2009 where he was group head of finance. He began his career in audit and business advisory services at PwC from 1988 to 2002.

Nick Cook said:

“BMS is at an exciting stage in its growth, as the leading independent (re)insurance broker in the market, with revenue and profits increasing, our headcount growing and our operations expanding into new territories.

Nick’s experience will be invaluable as we begin the next phase of our strategic expansion. As an entrepreneurial, independent and employee-owned business, BMS continues to attract the finest talent in the market and I am pleased to welcome him to the leadership team.”

Moss added:

“BMS is a dynamic, independent and entrepreneurial business that has a robust strategic expansion plan, a clear vision and culture that is attracting many of the best brokers in the market. I am very much looking forward to working with Nick and the BMS team.”