Med-Mal Underwriters’ Cherry Picking Rates Continue Upward

...............Two years prior to the 9/11 terrorist attack that precipitated the current hard market, there were growing signs that another medical malpractice insurance crisis was imminent. Claims frequency and severity have been steadily increasing and carriers haven’t been able to collect enough premiums to cover their losses. Based upon 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! 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 carriers leaving the market. In this article, I’ll provide some guidance for individual doctors and small group administrators that should take some of the pain out of the process of finding a new carrier.

................Virtually all of the remaining carriers have significantly tightened their underwriting requirements and raised renewal rates. Although reluctant to admit it, it was carriers’ loose underwriting standards and pursuit of market share in the go-go 90s that contributed to the current mess. Today, carriers are less concerned by market share and several carriers have placed new executives at their helms, charged with the responsibility to underwrite their way back to profitability. Many 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 another 18-24 months, they have not beefed-up their staffs to handle the increase. With so many applications to select from, and under extreme pressure to make an underwriting profit, over-burdened underwriters are looking for reasons to say no. Many are cherry-picking selecting 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.

...............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. Many would argue that it is unrealistic to expect a response in less time, given the current market conditions and the need to truly underwrite a risk today. To get the best possible result, thoroughly compete the required forms and all attachments and remember to have patience.

...............Even doctors fortunate enough to qualify as preferred risks should expect to encounter some trouble finding a replacement carrier at old rates. Those practicing in high-risk specialties or who have adverse claims histories will find fewer takers. Here’s a checklist of things individual doctors and small group administrators can do to minimize the misery of finding a new carrier:

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Foremost, don’t wait until the last minute to try to find a new carrier. It can take up to 3-4 weeks, and often more, to get an underwriter’s written 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 for most specialties. Be sure to ask the broker about fees. Some brokers are charging fees in addition to receiving commission from the carriers.

Require the broker to provide a list of carriers he or she intends to approach. Ask about their financial ratings, underwriting criteria, medical malpractice premium volume, loss ratios and longevity in the med-mal business. Take a broker’s quick assurances that there will be “no problem” obtaining an underwriter’s commitment with a dose of skepticism. Be sure to qualify the resume of the broker before signing over exclusive authority. Require frequent progress reports.

Carriers are no longer accepting “memo submissions” so be prepared to complete and sign more than one application. Give the selected broker all the information requested, and answer all questions fully, accurately and honestly. Be prepared to provide verification of loss experience from prior carriers even if no losses have been incurred.

Be patient, be patient, be patient — within reason. Underwriters do not respond well to demands for immediate attention. Remember, they are under intense pressure from many fronts. As the old saying goes, “You get more with honey than with vinegar.”

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 upon 1) 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 simply fewer options available. 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. And, the Bush Administration has now weighed in as the national spot light gains intensity. However, trial lawyers will continue to argue that the remedy to the malpractice problem should be on the relatively small number of doctors held responsible for many of the malpractice claims.

.................The good news is, solid medmal carriers still exist; ones with strong financials and long term commitments to doctors’ insurance needs both in hard and soft markets, with or without tort reform. For now, it’s caveat emptor, so be prepared.

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.