For over two years there have been growing signs that another medical malpractice insurance crisis is imminent. Claims frequency and severity have been steadily increasing and carriers haven't been able to collect enough premium to cover their losses. Based upon recent estimates by A.M. Best, underwriters paid out $128 in claims and operating expenses for every $100 of med-mal premiums they wrote in 2001. This translates to an industry-wide loss of over $1.68 billion and the end to history's longest soft med-mal market!
The outlook for 2002 is bleak. As carriers struggle to return to profitability, doctors and other healthcare providers find themselves in a crisis mode. Not only is the cost of malpractice insurance rising beyond affordability for many practitioners, thousands are being forced to find replacements for a growing number of carriers leaving the market.
Battered by mounting losses, many carriers are either choosing to give up or are being forced to throw in the towel by insurance regulators. Six months ago, no one could have predicted that the nation's number one ranked medical malpractice insurance carrier would announce its withdrawal from the market. For years, St. Paul Companies' market share exceeded 9% of the $6+ billion in direct premiums written by nearly 100 carriers. Over 42,000 physicians, surgeons and other health care providers dumped by St Paul join an additional estimated 25,000 that have been forced to replace their insurance due to Interstate/Fireman's Fund's voluntary withdrawal and the insolvency of PHICO, Reliance and others.
A lack of availability and affordability of insurance triggered the 1975-76 malpractice crisis. Virtually every doctor was affected in one way or another. They took it upon themselves to solve the lack of availability by forming their own mutual and reciprocal insurance companies. Their companies brought premiums down by selling claim-made, instead of occurrence, type policies.
There are several important differences between then and now. First, despite the number of carriers that have left the market, availability is not the acute problem it was in '75-'76. There are over 75 insurance companies currently offering med-mal insurance. Second, only about 15% of all doctors are being affected by the withdrawal of carriers. And, it is estimated that less than a third of those are being asked to pay double and triple their previous premiums because they are either practicing in high-risk specialties or have adverse claims histories. That's the relatively good news!
The bad news is, virtually all of the remaining carriers have significantly tightened their underwriting requirements. Many carriers admit that their loose underwriting contributed to the current mess. Less concerned by market share, several carriers have placed new executives at their helms and charged them with the responsibility to underwrite their way back to profitability. Most are cleaning house by sending non-renewal notices to doctors and their groups that don't meet their new standards.
With so many doctors looking for replacement carriers and fewer carriers to choose from, the hey-days of a buyers' market are gone. Underwriters for many of the more prominent remaining carriers are now seeing more applications in a month than they previously looked at in six. Because few carriers believe the demand will last more than 12-18 months, few have beefed-up their staffs to handle the increase. With so many applications to select from, and under extreme pressure to make a profit, over-burdened underwriters are looking for reasons to say no. They are cherry-picking only those that fully meet their underwriting criteria. They are rejecting outright, applications that are submitted by brokers not on their approved list, or that are incomplete or illegible, or have been submitted on another carrier's form. Some aren't even extending the courtesy of sending a turn-down letter. The applications pass into that dark abyss known as the circular file, never to be resurrected.
The affordability and availability issues are aggravated by the perception of a "lack of service". Because of the increased volume, applications previously processed in three to five days are now taking three to five weeks. It is unrealistic to expect a response in less time, given the current market conditions. Underwriters aren't hesitating to give a quick NO! to those who impatiently demand an immediate response or who press for an answer every couple of days. To get the best possible result, the mantra is, patience, patience, patience.
Foremost, don't wait until the last minute to try to find a new carrier. It can take up to 60 days, and often more, to get an underwriter's commitment.
Start by enlisting the services of a qualified insurance broker that specializes in medical malpractice insurance. In most cases, now is not the time to try to do-it-yourself. Be sure to ask the broker about fees. Some brokers are charging fees in addition to receiving commission from the carriers.
Price is only one of the issues to consider when selecting a carrier. Many of those no longer in business were known for their bargain basement prices. The final choice should be based 1) upon financial stability, 2) longevity and ranking in the med-mal business, 3) satisfaction of coverage needs, and 4) price.
Unfortunately, there is no quick fix to the current crisis. Until carriers return to profitability and renewed competition softens the market, there are few options available to those who are unable to pay current prices. Hopefully the service and price crunch will be short-term. Steps are being taken to bring costs down by The American Medical Association. The AMA has initiated campaigns in about 25 states to convince legislators to adopt tort reforms patterned after California's reform legislation that has proven effective in controlling the cost of malpractice insurance. Trial lawyers, on the other side, argue that the remedy to the malpractice problem should be focused on the relatively small number of doctors held responsible for most malpractice claims.
Because time is not a luxury, individual doctors and other healthcare providers can't wait for the return of a soft market cycle. They must decide whether to buy their insurance from marginal carriers, go bare, move to a different state, change specialties, or close their doors and retire. Obviously, none of the options are palatable and the decisions will be painful.
Richard "Rick" Mortimer, Jr. is the Vice President of the Brea division of Brown & Brown, Inc., HCP/HealthCare Professionals' Insurance Services, a specialty medical malpractice insurance brokerage and risk finance consulting firm established in 1959. You can reach them at www.HCPinsurance.com.