Frontline Volume 1, Number 3 Fall 1998

Buying Medical Malpractice Insurance 1999 Style.

Take a second and picture yourself walking up the front steps of the
hospital, black bag in hand, about to make your daily rounds. Just
before you reach the door, a whispery voice beckons from the shadows,
"Hey doc! Wanna buy some malpractice insurance-cheap?" While this scene
is a bit far fetched, it's closer to reality than you might imagine.
During my 20 plus years of helping physicians and surgeons buy
malpractice insurance, I've never seen so many insurance carriers
hustling for a slice of the malpractice premium pie. When I started my
career, only a handful of underwriters were even willing to look at a
doctor's application, much less compete on a price basis. Today, nearly
100 insurance companies are battling it out in the price arena for all
classes of healthcare medical malpractice coverage. All too many are
offering deals that are just too good to last. Think twice about buying
your malpractice insurance solely because they are the low price bidder.
Here's why. As a result of the prolonged bull market, many insurance
carriers have realized unprecedented returns on their investment
portfolios. Despite experiencing negative underwriting results in
virtually every class of insurance, the industry at large has
accumulated vast amounts of surplus which is not being fully utilized.
The fact that the majority of doctor owned non-profit carriers have
amassed so much surplus despite steady increases in medical malpractice
claims frequency and severity over the past eight years has captured the
attention of many commercial carriers. Despite the negative trend, they
find the business attractive  because of the time it takes to settle
claims. The longer they hold on to the money reserved to pay losses, the
more investment income they earn. Its the old law of supply and demand
thing. When supply exceeds demand, prices go down. When prices are
forced down by competition, it then becomes a game to see who will blink
first. Like poker players, only those who have the staying power will
survive the game. Some have already been forced out. Let's look at some
of the calamities. Physicians Interindemnity Trust (PIT) was organized
in 1986 by California doctors as an incorporated interindemnity
arrangement to process, defend and indemnify against medical malpractice
claims made against the Trust's members. Each PIT member was required to
make an initial monetary contribution, pay quarterly fees and be
personally responsible for monetary assessments made to pay claims and
operating expenses. The members only expected to be assessed if the
earnings on their contributions and their quarterly fees were
insufficient to meet the Trust's obligations. The Trust, that was placed
into involuntary bankruptcy, got into financial difficulty after fewer
than a fifth of its 700 + members paid less than  a third of a $28
million levy. Arizona based National Association of Plastic Surgeons and
ICA/National Company of American in Texas were forced to close their
doors because they couldn't pay the claims against their policyholders.
Ohio's largest medical malpractice insurer, PIE Mutual Insurance Co.,
was taken over by the State late last year when regulators determined
that its liabilities exceeded its assets by $246 million. PIE insured
over 18,000 of Ohio's 34,000 licensed physicians.

Pennsylvania's Insurance Commissioner obtained a court order in January,
1998 to liquidate PIC Insurance Group Inc. PIC only wrote medical
malpractice insurance for Pennsylvania practitioners. It stopped issuing
new policies in January, 1996 and stopped renewing existing policies in
November, 1996. The list goes on and on. Glacier General, Mission,
Physicians Reliance, Prime and 21st Century are but a few of the names.
In most cases, the common theme among these failures was "price." Simply
put, they relied upon their "low prices" to attract policyholders and
failed because they didn't charge enough premium to pay their claims.
More bluntly, doctors who believed they were buying quality but didn't
check closely discovered, all too painfully, that you get what you pay
for. The enchanting perfume of low premiums was overwhelmed by the
stench of unsatisfied claims that financially hurt thousands of
practitioners who didn't wonder why they were getting such a bargain
until it was too late. Remember, we buy insurance because of the sense
of security and peace of mind we get from believing we have protected
ourselves from financial ruin. Conceptually, insurance is fundamentally
a simple devise. In return for the payment, known as a premium,
underwriters promise to assume certain risks and pay the losses we may
incur. When carriers cannot keep their promises because they are
bankrupt, we not only suffer financially, we feel betrayed. One problem
is that medical malpractice is an exceptionally difficult risk to
quantify and therefore price. Because the practice of medicine is
constantly evolving and plaintiff lawyers are forever expanding the
boundaries of accountability for less than perfect results, underwriters
are unable to accurately predict claims frequency and severity. The
methods used by underwriters to determine the amount of premium required
to pay expected losses are somewhat analogous to the practice of
medicine. Although rooted in the science of mathematics/medicine, the
survival of the insurance company/patient depends upon the artful skills
of the underwriter/physician. If they set their rates too low, they risk
bankruptcy. If they set them too high, they can't sell their policies to
price conscious shoppers. Those who make the wrong decision will either
fail or be forced out of the market. Either way, their policyholders
suffer the consequences.

The question is, with so many carriers competing for your business, how
do you choose the one right for you? The best way is to rely on the
advice of a competent insurance broker that specializes in medical
malpractice and your financial advisor. When selecting your broker, look
at the individual's qualifications closely. Just because he/she may be
affiliated with a big name brokerage doesn't mean he/she has the skills
needed to do a competent job. Same with your financial advisor. Here are
some of the more important things you should know when looking for an
underwriter. We'll look at selecting an insurance company first, and
trust and other funding mechanisms a little later. Expect your broker to
obtain the information you need and to help you and your advisor
interpret it. You can obtain an accurate profile of the organizational
history and financial operating results of most insurance companies from
A.M. Best, Moody's and Standard and Poors. In addition to providing a
wealth of information, these organizations also rate the carriers based
upon management, claims paying ability, and financial size. Ask your
broker and financial advisor to interpret the reports for you.

Remember, size alone is not a governing factor. Just because the numbers
are big doesn't mean a carrier can't have financial problems. Don't even
consider those carriers that are either not rated or rated as marginal
performers. Find out how each carrier's expense and loss ratios compare
to industry averages during each of the last five years. Your broker can
obtain a listing of all of the carriers writing malpractice insurance in
your state. Be concerned about those carriers with loss and loss expense
ratios significantly below industry averages. The ratios don't
necessarily indicate that the carriers may be charging too much for
their policies. Rather, they may mean that the carriers have not set
aside enough reserves to pay their claims. You may be surprised to learn
that there is little difference between the ratios of commercial
carriers and non-profit doctor owned companies. Contact your state's
department of insurance or trusted broker and ask if the carriers being
considered are admitted to do business in the state. If not, you won't
be protected by the state's guarantee fund if the carrier goes broke.
Find out if they are in good standing or have been subject to any
disciplinary proceeding during the past five years. Are any of them on
the commissioner's watch list? Compare the rates offered for your
specialty by the carriers you have selected. If there is a significant
difference, find out why. Exceptionally higher rates may indicate the
carrier doesn't insure a sufficient number of doctors in your specialty
to obtain the spread of risk needed to properly calculate rates. All
other things being equal, go for the price. If you are currently  a
member of an interindemnity trust or are considering joining one, its
going to be difficult for you to get the information you need.
Generally, trusts are not subject to state insurance laws and
regulations. Rather, they are typically subject to the corporate laws
governing non insurance and banking organizations. As such, they are not
held to the same degree of operational and financial accountability as
are insurance carriers. Although trusts periodically provide their
members financial reports, they are not subjected to the high level of
scrutiny by state regulators and other outside observers. Virtually all
have the right to asses their members if the trust corpus is
inadequately funded. Given the unlimited liability exposure and pattern
of Med-Mal Co. failures, the peace of mind and security offered by
trusts may be illusionary. A number of risk retention groups have been
organized to provide malpractice insurance for selected specialties
under the Federal Risk Retention Act of 1986. The purpose of the Act was
to increase the availability of the third party liability insurance to
industry groups that find it difficult to obtain coverage in the open
market. Risk retention groups fundamentally operate the same as
insurance companies but without the same degree of regulation. Few are
subject to guarantee funds of the states they operate in. Most rely
heavily on reinsurance to minimize the amount of risk they retain.
Because it is difficult to obtain scrutinized operating and financial
information, caution is the word.

A final word of advice. Try to build a long term relationship with your
broker and financial advisor. Create a three to five year plan designed
to keep you fully advised of the financial health of your underwriter
and developments in the market place. Last, reduce losses through active
risk management and remember that insurance is for unexpected accidental
loss. Retain cost of expected losses, and buy insurance above that
amount. The market is fast paced and constantly evolving. Caveat emptor!

Using the A Word: Apologies in Medicine
By Andrew A. Oppenberg, MPH,

DFASHRM A recent Reuters article states that physicians have an ethical
obligation to tell their patients about significant mistakes they have
made.1 They may also have a legal obligation as well.  In Roberts vs.
Francis, the Eighth U.S. Circuit Court of Appeals held that the Doctrine
of Fraudulent Concealment applied in a case in which a doctor allegedly
failed to tell a patient that he removed the wrong ovary.2 Under the
Fraudulent Concealment Doctrine, any statute of limitations defense a
physician or healthcare entity puts forth is tolled i.e. there is no
statute of limitations if a plaintiff can prove fraud or intentional
concealment. If this was not enough, malpractice cases where fraud is
proven, can lead to punitive damages against the defendant physician. 
Punitive or "punishment" damages can run into the millions, and as a
matter of public policy are not covered under one's professional
liability policy.  In California, the provisions of MICRA (the Medical
Injury Compensation Reform Act of 1975) will probably not apply to an
intentional act of concealment or fraud.3,4 From a positive point of
view, providing an apology may prevent a physician from being sued.5
Most physicians do not apologize or say they are sorry for fear of
admitting liability.  However, "A simple expression of sympathy does not
equate (to) an admission of liability, it shows your true concern for
the situation."6 But there are two ways to apologize: one method is to
offer your sympathy as one human being to another, without admitting
liability.  The other method is to second guess one's self or beat one's
self up in front of the patient or family.  The latter goes like this,
"I'm sorry this happened to your mother-you know, if I only would have
ordered this lab test . . . Or used this surgical approach . . . Then
this would not have happened!" After the apology, the physician should
concentrate their communications on the medicine: What you and the
healthcare team will be doing for the patient. What if the patient or
family asks you directly if you errored.  Then you must both ethically
and legally under the Doctrine of Fraudulent Concealment, answer the
questions honestly and objectively as possible. We know from the medical
literature that 32% of patients who sued their obstetricians stated that
physicians would not talk openly and that 48% of the patients, in this
same study, stated that they were prompted to sue their doctors because
they perceived their physicians as attempting to mislead.7 Is the
converse true?  Can patient-physician communications act as a loss
prevention tool which can help prevent physicians from being sued?  My
next column will address this question. Andy Oppenberg is Vice
President, Director of Medical Education for O'Mara & Associates: a
National Healthcare Risk Management Consulting Firm based in Los
Angeles. This article does not provide legal advice or opinions.  It is
presented to promote learning and discussion concerning risk management
and loss prevention matters.  Specific legal answers to questions should
be sought from competent counsel. 1 Reuters, December 2, 1997 2 Roberts
v Francis; No. 97-1434 (8th U.S. Cir 1997) 3 CPLH: California Physicians
Legal Handbook, California Medical Association, San Francisco, 1997
p.20-57 4 California Statute of Limitations (Medical/Healthcare).  Code
of Civil Procedure (CCCP) 340.5 5 Oppenberg AA, Adverse Outcome: What Do
You Do?, California Physician Magazine, Feb. 1992 p.44 6 IBID 7 Hickson
GB, Claron, EW, Githens PB, Sloan FA.  Factors that Prompted Families to
File Medical Malpractice Claims Following Perinatal Injuries., JAMA
1992; 267:7359-1363


Claims Corner Is California really the bell weather state? CA Average
Large Loss* 1991	$	997,343.	00 1992	$	734,665.	00 1993	$	623,131.	00
1994	$	818,400.	00 1995	$	957,717.	00 1996	$	840,219.	00
1997	$	870,523.	00 *MIEC Large Loss Study For a complete copy
of MIEC's Large Loss Study (12 pages), please call or write HCP
attention Ruth Ann Saine at (714) 990-4430 or email us at
HEALTHPROS@aol.com

Medical Malpractice Leading Writers Company/Group		1997 Direct
Premiums CNA Ins Group	$	408,539 St Paul Companies		401,363
MLMIC Group		329,798 Health Care Indemn		265,746 Medical
Protective		230,710 Amer Inter Group		208,251 Doctor's Co
Ins Grp		203,726 Illinois St Medical		196,101 MMI Companies
Grp		167,044 Medical Int-In Ex Grp		163,858 Frontier Ins Grp
Inc		149,171 PHICO Ins Co		146,804 Medical Assur Group		143,479
Norcal Mutual Ins Co		140,069 Princeton Ins Cos		135,903 Top
15 Cos.	$	3,290,562 Total U.S. Cos.	$	5,861,608

How prepared are you for the changes affecting malpractice insurance?
IPA's, IPO's, MCO's, MSO's, HMO's, PPO's, IDS's, PHO's, GPWW's, and solo
practice physicians, surgeons, and group practice models. Professional
Liability, Directors & Officers, Errors & Omissions, Employers
Liability, Property & General Liability, plans for theHealth Care
Delivery Industry. When you need an independent, objective &
knowledgeable insurance broker/consultant with access to over 60+
markets, give HealthCare Professionals' Insurance Services a call:
714-990-4430 or e-mail us at HEALTHPROS@aol.com

a division of R.W. Mortimer & Associates Insurance Agents & Brokers,
Inc., since 1959


Trivia Questions 1. Name three recently failed medical malpractice
carriers.

2. Which of the following wrote the most medical malpractice premiums in
1997? A. SCPIE     B. St. Paul     C. Doctors' Company     D. CNA

3. What is the dollar cap in California for medical malpractice pain and
suffering awards?

Answers on back page.

ANSWERS 1.	P.I.E. Mutual Co., National Association of Plastic
Surgeons, Physicians Interindemnity Trust. 2.	D. CNA. 3. $250,000.

How to reach us:

HealthCare Professionals' Insurance Services Risk Finance Consulting &
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Publisher: R.W. Mortimer & Associates Insurance Agents and Brokers, Inc.
DBA: HealthCare Professionals' Insurance Services Rick Mortimer, Editor