The market for medical malpractice insurance in Chicago and Illinois remains extremely competitive with a continuing influx of carriers offering terms, especially for larger and more complex groups. Our neighbors in Missouri are (so far unsuccessfully) trying to reinstate a cap on non-economic damages that was deemed unconstitutional while several physicians in Indiana have brought a class action lawsuit against the state compensation fund in an attempt to recover an alleged surplus in the program.
The local biggest event recently was the ceasing of operations at Bentley Insurance Group in April. Bentley Insurance Group was founded in late 2007 by now embattled Sacred Heart CEO Ed Novak. The program was set up to write low priced malpractice insurance for low risk physicians. Many insureds had privileges at Sacred Heart or were recruited with their ads offering “The Best Coverage for the Best Doctors” and challenging physicians to “step up, you’ve earned it!”.
The withdraw of Bentley from the market has not had a meaningful effect as there are still a bountiful supply of ready insurers. However, older physicians close to retirement are finding it difficult to find a new carrier willing to give them a coveted free retirement tail unless they work for 3-5 more years.
On the surface the program seems straightforward but the actual workings were considerably more complex. The first layer is a Risk Purchasing Group (RPG) – a structure that allows the pooling of small risks and exempts the purchasers from many state laws. Insurers are heavily regulated and legally skirting state laws is often an advantage, assuming insureds fully understand the potential ramifications.
Running an insurance company is extremely expensive and capital intensive – Bentley, like many small programs, used a “front” to issue policies. Their first front was First Professionals Insurance Company, Inc. (FPIC), an AM Best A- Rated Florida Malpractice Insurer. After FPIC was purchased by the Doctors Company the front moved to Torus Insurance.
A fronting carrier does not normally take underwriting risk, only credit risk. In this case physicians are issued a policy from a licensed and rated carrier (FPIC or Torus) but claims are paid from money held by Bentley. If Bentley doesn’t or can’t pay, the commercial carrier is on the hook.
The reason many of these types of programs are unsuccessful are costs – the more mouths to feed the higher the expenses. Higher expenses mean less money to pay out in claims. Many startup insurance programs claim to underwrite better than their competitors – something that is extremely difficult to do in practice.
Here’s the standard flow of premiums for an insurance company:
And here is how most fronted programs look:
Minimally capitalized programs can work – but the odds are stacked against them. For physicians considering new and alternative markets make sure that if they stop writing or are deemed insolvent they will be around to pay claims already reported and that your future plans will allow you to secure tail insurance from another insurer. The market is hardening and historically insurance companies have heavily punished new insureds looking to move from unrated or liquidated insurance companies.
Contact InsurePhysicians.com today to discuss better protecting your practice in a changing environment.