Of all of the placements in today's marketplace, medical malpractice is one of the more difficult pieces of coverage to work. In many cases, it isn't a question of market, it is more a question of an equitable relationship between doctor and insurer. This is especially true when small groups of physicians, irrespective of their practice, attempt to obtain coverage in an insurance arena that appears devoid of concern for any number of good underwriting practices.
I am currently in the process of forming an offshore reinsurance company where the majority of risk will be small groups of physicians; the majority of those have formed or will form their own offshore captive. In light of this, I thought it might be interesting to consider what my colleagues and I believe are sound underwriting practices which hopefully may shed some light on this market practice for those of you involved in this broking arena.
In my view, the primary concerns in underwriting this business are the following.
- Risk management of the physicians group
- Potential litigation within the venue of practice
- The application for coverage
- Underwriting guidelines/rating
- Loss history
- Defense of claim
To that end, let's take an abbreviated look at each of these components.
Risk Management
Risk management isn't a kind smile from the physician and a diploma on the wall. While "bedside manner," a kind smile, and their curriculum vitae may be important ingredients, what really counts is the ability of the physician to clearly have the patient fully understand the illness, and the medical ramifications, with consent, as well as clearly documented, fully up-to-date records of the patient's file. There is nothing more dismaying than not having this segment in order, including fully documented medications prescribed.
The question of the wording contained within the consent is, and should be, subject to proper legal interpretation within the state of practice, which at the time of claim, may or may not be valid once in litigation.
Potential Litigation
While laws change, and the litigation arena is in constant flux, it is important to assess and reassess on a timely basis, the potential for loss in each and every practice. This is part and parcel of the defense posture, an all-important segment of claims management.
Application for Coverage
The application must be designed to obtain the maximum amount of information available for each practice specialty. It is not material how long this application is. What is important is the ability to provide underwriting with the maximum amount of knowledge for the potential risk. This may well require individual applications for a wide variety of disciplines.
Underwriting Guides and Rating
Underwriting must be considered on the basis of having a balanced book of business, and one which will hopefully generate an underwriting profit. To do so will require careful scrutiny of the amount of so-called difficult business versus more general business. It is immaterial whether you are a producer or an underwriter of this business, as in each case, the difficulty of risk will have a measured bearing on the success of the placement and costs.
Underwriting guidelines must take the following into consideration.
- A complete inventory of all physician classifications, and the potential for especially difficult exposures and territories
- Classification schedules and procedures
- Prior acts coverage whether included or excluded within the policy form, with length of potential retroactive dates
- Foreign-trained physicians
- Policy form—claims made or occurrence—and the impact of each from a litigation standpoint on a state-by-state basis
- Experience rating, deductible, or self-insured retention credits (Rating will be a function of potential risk, loss history, and the ability to test each risk from an actuarial standpoint.)
Loss History
This is another critical segment of both underwriting and broking. Assuming there are losses, the knowledge of such loss must transcend more than just information on a loss run or in a claims history. One needs to establish why the loss occurred, could it have been avoided, the litigious nature of the state in which the practice is licensed, and lastly, the quality of the defense. The only way to establish this is to have a creditable third party conduct a loss analysis so that actuarial testing can be utilized, such testing to ultimate or the 95 percentile.
Other factors can be applied in both broking and underwriting decisions, but at least with this knowledge, there is little left to imagination.
Defense
While all of the above are critical to medical malpractice, defense may well be the fulcrum to a potentially profitable account. We intend to utilize the services of Western Litigation who have a well-deserved reputation for the management of malpractice claims. Recently, their divisional president from Texas, Robert B. Blasio, wrote a refreshing and pointed article on the effectiveness of claims management as a partnership between the physicians, their counsel, and underwriters. To paraphrase him, they hold (and I agree) that an effective defense must do the following.
- Learn and appreciate the philosophy of the client.
- Avoid routine case management.
- Recognize and appreciate the tripartite insurance relationship and the potential conflicts that it presents.
- Immediately retain experts that it has confidence in, if called to testify.
- Avoid surprises under all circumstances.
- Analyze each case with intellectual honesty.
- Be absolutely sure that the clients, whomever they may be, fully understand the costs inherent in conducting the defense of the claim.
It is difficult to cast into a few pages, what is a technical and emotional insurance subject, but I trust, whether those reading this are brokers/agents or underwriters, that it imparts, while brief, some salient points to be considered in this arena.
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