Medical Professional Liability Pressures Shape Captive Insurance Strategies for Healthcare Providers

Medical professional liability (MPL) remains one of the more closely watched areas of risk financing for healthcare organizations, particularly as hospitals and physician groups confront rising claim severity, larger verdicts, and growing pressure in the excess insurance market. At the same time, many healthcare organizations continue to evaluate how captive insurance structures can support long-term risk financing stability and greater control over volatility.

In the following Q&A, Tim Mosler, principal and consulting actuary at Pinnacle Actuarial Resources, discusses key trends shaping the MPL market, challenges surrounding nuclear verdicts and excess coverage, and the evolving role captives may play for healthcare providers seeking stability and flexibility in a changing market. Mr. Mosler specializes in actuarial consulting for hospitals, physician groups, captive insurers, and other healthcare-related risks.

What trends are you currently seeing across both the commercial MPL market and the self-insured healthcare provider segment? 

I see at least two separate segments where a large part of MPL exposures is retained by the healthcare provider. A lot of them now are bigger than some of the insurance companies that provide coverage, and they end up retaining a large portion of that exposure. 

Then there's the commercial MPL market, where a doctor, a group of doctors, or a small hospital goes to an insurance company and purchases a policy to cover MPL losses. That commercial market is where we have a lot of the data and information readily available in terms of financial statements that we can analyze and make observations from. 

Looking at that through 2025, we generally see favorable loss development and a small underwriting loss, with combined ratios north of 100 percent but below the 110 percent range seen in prior years. That's acceptable because investment returns remain very strong relative to premium. The companies are so well capitalized that investment returns have reversed that small underwriting loss and produced a favorable operating result. 

In the self-insured market where we are dealing with healthcare systems, the limits are relatively small compared to the assets those organizations hold, so they are often retaining claims up to $50 million or $100 million. We actually saw a $1 billion verdict last year and, even though that was an outlier for many reasons, it still illustrates how large these claims can become. We're seeing a trend where the larger verdicts are getting significantly larger. 

Why do captive insurance structures continue to appeal to hospitals, physician groups, and healthcare systems for MPL risk financing? 

There are several advantages to using a captive. There can be tax advantages, and there's also a strong loss control incentive because it's the insured's own losses and their own premium dollars that are ultimately being retained if results are favorable. 

Captives can also help organizations obtain more efficient reinsurance because the funding supporting the retained layer is separated and more visible. Reinsurers tend to have more confidence that the retained layer below them is adequately funded. 

There are operational advantages as well. Because the captive has its own balance sheet, the results become more visible to a healthcare system's C-suite and board, rather than being dwarfed by other financial impacts within the organization. That often leads to greater awareness of the tort environment healthcare systems are operating within. 

But the benefit that's probably most relevant today is insulation from swings in the insurance market. In a hard market, an insurer charges the fair price plus an additional amount for profit, risk load, or market conditions. If the insured owns its own captive, it can continue charging itself what it views as a fair price without needing to add that extra market-driven margin. 

How would you characterize current market conditions for primary MPL coverage versus excess and reinsurance layers? 

In terms of the primary layer—ground-up coverage to $1 million or $2 million—it's not really a hard market. It's not as soft as it used to be, but there's still plenty of capacity available. 

For the excess layers above that, there's definitely hardening occurring. Anecdotally, we are hearing a lot of stories about reinsurers either raising premiums significantly or requiring insureds to increase their retentions in order to maintain similar pricing, and in some cases, both are happening simultaneously. 

There's considerable concern among reinsurers about MPL exposure, particularly related to large verdicts. There are also questions emerging around what types of claims reinsurers are willing to cover, including whether claims involving artificial intelligence could create new exposure concerns. 

How are captive owners and healthcare organizations managing volatility associated with nuclear verdicts and large excess claims? 

The biggest challenge, particularly in the excess market, is volatility driven by nuclear verdicts that have the potential to wipe out several years of favorable results. 

Managing that volatility is difficult because these are infrequent events, but they are very real exposures that many healthcare systems have experienced. Funding for a nuclear verdict every year can mean collecting more premium than is actually needed in most years, but failing to adequately fund for those exposures can leave an organization vulnerable. 

For example, if you assume there is a 10 percent chance of a $10 million claim each year, actuarially, you might fund $1 million annually. But if a large claim happens earlier than expected—or multiple large claims occur within a short period—that creates a significant gap between expected and actual losses. That can lead to capital calls and the need to quickly collect additional funds. 

More broadly, MPL continues to evolve alongside changes in healthcare delivery and medical practice. Those changes occur gradually, and then it takes time for them to emerge in claims frequency, litigation trends, and ultimate claim resolution. Jury attitudes, judicial decisions, and legislative developments all influence that process. 

Where do you currently see the greatest opportunities for captives in the healthcare and MPL space? 

Historically, when insureds cannot obtain coverage in the commercial market at a reasonable price, they begin looking for alternative vehicles to finance that risk. 

Right now, it is becoming increasingly difficult for healthcare providers to obtain affordable excess insurance coverage, and that creates an opportunity for captives to play a larger role. This is particularly relevant for healthcare systems and larger physician groups. 

There are also opportunities for pooling arrangements involving physicians who do not necessarily share common ownership, but who can still participate together within a captive structure to address excess MPL layers. 

What indicators are you watching most closely as you evaluate the future direction of the MPL market? 

One of the biggest things we are watching is settlement behavior. 

Following the last major MPL crisis in the early 2000s, there was a strong mindset among healthcare systems and physicians that they would defend good medicine when claims were brought against providers. That environment contributed to fewer claims being filed. 

Now, because the cost of a single claim can become so large, hospitals are in a difficult position when deciding whether to aggressively defend a case or settle early for a lower amount. If organizations increasingly choose to settle, that can incentivize more claims activity from plaintiffs' attorneys, which creates the risk of both frequency and severity increasing simultaneously. That's the kind of environment that can contribute to broader market disruption. 

Historically, there was also an assumption that very large verdicts would eventually be reduced on appeal. We are now hearing that verdicts are being reduced less frequently, even though the verdict amounts themselves are growing significantly larger. 

At the same time, there are reasons for optimism. Some states are introducing legislation intended to address factors contributing to nuclear verdicts, and those developments could influence future MPL trends.