Aon: Hospital Pro Liability, Physician Benchmark Study Forecasts Continued Loss Cost Increase for the Year

The high trend of insurance rates experienced by hospital professionals and physicians over the past three years show no sign of slowing in 2004 as claims costs are increasing at a steady rate of 9.7 percent according to the Hospital Professional Liability and Physician Liability Benchmark Study, produced by Aon’s Risk Services.

The study, which is based on approximately 147,000 acute care bed equivalents and 8,600 class one physician equivalents, is the largest of its kind and creates a powerful indicator on the state of medical malpractice. The study reveals that trends in both the frequency (3.0 percent) and severity (6.5 percent) of claims are contributing to an overall 9.7 percent annual trend rate.

The study utilized 10 years of loss data and measured loss costs, claim frequency, claim severity, size of loss distributions and defense costs. It found that over the last three years, claim costs have grown at a steady rate of about 10 percent, and that this year’s expected increase of 9.7 percent is in-synch with that historical measurement. “The Hospital Professional Liability and Physician Liability Benchmark Analysis clearly demonstrates that while the frequency of award demands are increasing, the real problem is found as a result of the severity of claims,” said Greg Larcher, assistant director and actuary for Aon Actuarial and Analytics Practice. “Of course the marketplace is focused on premiums, however, this study speaks to the underlying frequency and severity trends that are driving these premiums. The results of this study show that claims activity is a significant contributor to the recent increases in market premiums.”

The study finds that the size of hospital liability claims for the 2004 year are expected to average nearly $150,000, indicating that claim severity has nearly doubled since 1996, when the average was $79,000. Physician liability claims for the 2004 event year are expected to average $178,000, as compared to $120,000 in 1996.

The national study provides benchmark statistics for 11 states that represent 63.9 percent of the total liability claims in the database. It also provides analysis of claim costs for hospital sub-groups including children’s, teaching, religious, single-state and acute care.

“This study shows that, in some states, tort reform laws are keeping awards sizes down,” added Theresa Bourdon, managing director and actuary. “This reinforces the fact that tort reform is still very important to this industry.”

Stephen Harri, managing director of Aon Healthcare Alliance, a group that sponsored the study, called it a “credible and valuable benchmarking tool” for hospital professionals and physicians to understand the marketplace and compare their positions within it.

“It allows them to focus their efforts on problem areas, and provides them with a useful negotiating tool,” Harri said

The 2003 study is the fourth annual study produced by the Actuarial and Analytics Practice of Aon’s Risk Services. The database underlying the study has grown to include approximately 147,000 hospital bed equivalents and 8,600 physician equivalents on an annual basis. More than 38,000 hospital liability claims and close to 3,000 physician liability claims were analyzed for the 2003 study.

Highlights from the Hospital Professional Liability and Physician Liability Benchmark Study are available at www.aon.com/actuarial.