RPS: Healthcare marketplace pressures loom amid 'irrational exuberance'

By David Bull

June 3 - (The Insurer) - The behavior of carriers in some classes of healthcare liability insurance business is at odds with the pressures facing the segment, including a rise of mega verdicts in the hospital space, according to wholesale broker RPS.

In its latest report on the segment, authored by healthcare practice leader James McNitt and his team, RPS said that the words “irrational exuberance” sum up the state of the healthcare liability insurance market in 2025.

It observed that despite the headwinds facing the segment, from growing economic instability to increasing labor costs and rising inflation, carriers in some classes of the business are still behaving “as if the future is bright”.

The report suggested that the quoting and competitive behaviors of underwriters are incongruent with their future profitability outlook.

McNitt said that healthcare as a liability line is not currently unprofitable.

“But segments of it are approaching that level. I see a lot of loss runs and claims histories, and the behavior from carriers does not appear as though there’s a focus on future profitability,” he suggested.

PROFITABILITY PRESSURES

The report said that among the looming marketplace pressures is “simple profitability.”

It noted that while a lot of other property and casualty lines have seen more tumultuous movements up and down over the hears, healthcare has been a “steady climb” from a marketplace standpoint.

Nevertheless, the majority of the top 10 carriers in the segment have been unprofitable for the past decade.

“Certainly, that cannot be sustained, driven by a focus on short-term profits over long-term gains and calendar year over accident year loss ratios,” it continued.

It noted that nuclear verdicts are not going away and have become more commonplace in recent years.

“We’ve begun to see a lot of mega verdicts in the hospital space,” said McNitt. “Records are being broken in every state across the country.”

As an example, RPS cited the hospital space, where there has been a recent wave of high-severity cases.

These have centered on abuse claims, molestation and complex deliveries, all of which carry the biggest price tags in court.

“Beyond those, the next round of mega verdicts started showing up in behavioral health, social services and senior living, as plaintiff attorneys and healthcare liability professionals are shifting focus to these newer segments,” the report said.

It added that part of this is the result of changing standards and expectations among juries, where a $10 million plus jury award that was considered a “nuclear burden” a decade ago is not viewed as a big deal anymore, as juries have become attuned to seeing large numbers.

“A couple of years ago, you might have won $1 million in the lottery and (that) would have been a major story. But now you see lottery winnings for $300 million, half a billion, and beyond. Juries don’t think a settlement for a million dollars is enough,” said RPS senior vice president Margaret Jacobs.