Two recent publications by IVASS (The Italian Insurance Supervisory Authority) and ANIA (The Italian National Association of Insurance Companies) give a very interesting snapshot of the risk of civil liability in the health care sector and the relevant insurance.
These are, the specific Focus of “ANIA Trends” (http://www.ania.it/export/sites/default/it/pubblicazioni/ COLLANE-PERIODICHE/ANIA-Trends/ANIA-Trends-Focus-RC-Sanitaria/Ania-Trends-Focus-RC-Sanitaria.pdf) and the Statistical Bulletin n. 14/2017 of IVASS (https://www.ivass.it/pubblicazioni-e-statistiche/statistiche/bollettino-statistico/2017/n14/bollettino_rc_sanitaria_2010-2016.pdf), published respectively in November and December 2017.
The topic addressed in these studies is particularly important not only for the amendments that have recently affected the industry and for the high volume of litigation generated, but also for an economic datum that cannot be ignored. In 2016, Italy health care expenditure amounted to 149,500 million, namely 8.9% of its GDP, 75% of which was covered by the public sector and the rest by the private sector.
Hence the importance of the analysis conducted by IVASS and ANIA for a Country which, heartened by the leadership acquired in the sector, aims at increasingly developing the so-called medical tourism by attracting patients willing to incur travel and lodging expenses in order to receive cutting-edge medical treatments.
It is worth noting, before commenting on the most significant findings of the studies, that, for the first time, the data analysed seem to be truly reliable because obtained from all of the insurance companies (Italian and foreign) who underwrite the insurance contracts in the sector of civil liability for medical malpractice. The data of these two publications, differently from the data used in the past in similar studies the sample of which was less representative of the targeted companies, relate to the market taken as a whole and concern all of the claims reported from 2010 to 2016.
Furthermore, the data analysed by IVASS and ANIA concern both the risks covered by more traditional policies and the so-called self-insured risks (for the latter case, the statistical source are data obtained from the accounts of public healthcare providers collected by the Italian Ministry of Health ). The new survey also encompasses, for the first time, data coming from retirement homes, medical labs, diagnostic centres and universities (in the limits of the insurance coverages provided in relation with the medical activity carried out) and, more in general, from professional engaged in the health care sector (like, for instance, nurses, paramedics, and the like).
Let’s see, in greater details, the most significant data.
Civil liability for medical malpractice is a highly concentrated market where only a few insurance companies are engaged.
Only one Italian company operates in the market of public healthcare providers, and only 3 foreign insurance companies collect 95% of the relevant premiums. The premiums of private healthcare providers are collected by only 4 Italian companies and 5 foreign companies.
In the insurance sector of healthcare professional, a higher number of Italian insurance companies are involved, and the premium collection is carried out by 11 Italian companies and 3 foreign companies.
The datum is rather surprising if we consider that in the sector of general civil liability – of which medical malpractice liability is a part – 90 insurance companies (Italian and foreign) are engaged.
The reason why the sector of medical malpractice liability looks unattractive lies, as shown below, in a loss ratio (i.e., the ratio between premiums collected and claims paid) that is far from being favourable.
Despite the lack of interest from the insurance companies, the volume of the premiums collected in 2016 in the segment of medical malpractice liability is far from being insignificant (592.3 million Euro) and represents nearly 15% of the sector of general civil liability insurance.
In 2016, the premiums were distributed as follows: 48% for policies taken out by public healthcare providers, 16% taken out by private healthcare providers, and 36% taken out by healthcare professionals.
Notwithstanding the ever-increasing trend of risk self-insurance, the premium collection, if compared to 2015, has remained substantially stable. The volume of the premiums paid by public and private healthcare providers has even grown, while the premiums related to healthcare professional insurance has decreased.
Compared to 2010, the number of insured public healthcare providers has halved, while the reduction in the policies taken out by private institutions has been less significant (–23.8%). In the same period, the number of insured healthcare professionals has increased (+76.3%) from nearly 172,000 to nearly 303,000 individuals. A reason for the increase lies obviously in the obligation, recently introduced, to insure healthcare professionals.
The data on the average premiums paid in 2016 are also interesting: 393,813 Euro for public healthcare facilities, 22,204 for private facilities, 710 Euro for healthcare professionals (and more precisely, 906 Euro for medical professionals and 189 euro for non-medical staff.
The good news is that the number of reported claims is decreasing. In 2016, insurance companies received half of the claims received in 2010 (15,360 against 29,991) and the drop has mainly involved public healthcare facilities. The number of claims reported by healthcare professionals has instead slightly increased (8,492 reports in 2016, against 8,085 in 2010).
The reason for such positive data may be found in the application of the mechanisms of co-participation of the insureds in the damages (like, introduction of uncovered losses, deductibles and SIR) which, on the one hand, has entailed greater attention to the management of the risks and, on the other hand, has contributed to exclude minor claims from the area of insured claims.
The number of undeveloped claims (i.e., claims closed but not paid by the insurers) has become increasingly higher: more than half of the claims reported in the 2010 – 2013 period, were undeveloped and closed at the end of 2016.
The datum on claims frequency, i.e., the ratio between the risks covered and the claims reported, is more positive and is definitely more indicative for assessing the trend of the experience rating in the industry than the mere numbers of reported claims. From 2010 to 2016, the experience rating index dropped more than half for public healthcare providers, nearly one fourth for private healthcare providers, and 40% for healthcare professionals.
The bad news is about promptness of claims settlement, which continues to be rather slow, and the average cost per claim that is still increasing.
Only 3.5% of developed claims received in 2016 related to public healthcare providers, were settled and paid in the same year. If we consider the claims made in 2010, the number of claims paid out is nearly two thirds for public and private healthcare providers and only 44.6% for healthcare professionals.
The datum is no surprise, as is definitely connected to the peculiarity of medical liability and the difficulties encountered in assessing the liabilities and damages. The lengthiness in this type of claims, however, inevitably affects the management of the costs and the allocation of the reserves.
The average cost per claim (i.e., the cost paid out and set aside), has continued to increase over the last few years.
In 2010, for instance, public healthcare facilities, registered an average cost of 36,746 Euro per claim; four years later, such cost had increased of nearly 60% (58,113 Euro), and has now reached 61,582 Euro.
The same goes for the average cost index of the claims reported in the same year: in 2010, for instance, the average cost per claim for public healthcare facilities had turned out to be equal to 36,746 Euro, while the value of the same claim opened in 2016 was equal to 87,067 Euro.
The results extremely negative of the few insurers operating in the sector of civil liability for medical malpractice are in fact attributable to the high average compensation costs (that have doubled in a few years). An evidence of such results can be found in the loss ratio, which represents a congruent indicator for assessing the technical results of the risk.
In assembling the data updated as at 31 December 2016 and related to public and private healthcare facilities and healthcare professionals, the value obtained is always in the range of 100% and 120% (only in 2016 the ratio dropped to 90.2%, this datum is however too recent for being treated as a relevant datum since it may be subject to how the claims managed will subsequently evolve).
A loss ratio exceeding 100% means that the cost of the claims in the aggregate is higher than the value of the earned premiums and, hence, that, on the average, the risk of the sector of civil liability sector for medical malpractice implies a technical loss for the insurers.
IVASS and ANIA have outlined a sector that is developing but that is at the same time facing difficulties in finding an acceptable balance between healthcare professionals and their insurers.
The reasons for which many insurance companies have left the market at issue stand out in the light of the aforesaid data. The high average cost per claim, their long tail effect and the loss ratio higher than 100% determine a result that for the sector of civil liability for medical malpractice is definitely negative and that the insurers may avoid by accurately selecting policyholders that are less prone to claims or using contractual adjustments (premium increases and/or introductions of higher SIRs, excesses and deductibles).
As we have seen, the number of reported claims in the last few years has decreased. This datum, coupled with the expected benefits resulting from the Gelli – Bianco reform (entered into force last year), gives grounds for hope over the gradual improvement of the economic indicators of the sector.
The implementation decrees envisaged by the Gelli – Bianco Law will be decisive for the strategic decisions that the insurers will have to take in relation to some very delicate issues that are still pending in their sector of activity like, for instance, the retroactivity and ultra-activity of the insurance policies, the minimum requirements of insurance and self-insurance, the setting-up of a Guarantee Fund for damaged patients.
A single implementation decree was expected to be issued in January but, March has ended and the formation of a new government does not seem to be close. So, let’s just wait and see what will happen in the next few months.