New Insurance Capacity for Healthcare Liability Risks
September 2002
New capital is entering the healthcare professional
liability sector. Charles Kolodkin discusses four new entrants who have recently
begun offering this coverage.
by Charles
Kolodkin
The Cleveland
Clinic
For those optimists among us who are looking for signals that the hard insurance
market is ending, something is afoot. New capital is entering the industry,
some of which is flowing to the healthcare professional liability sector. Although
the interest in healthcare risks is definitely focused on hospitals rather than
physicians, it is a positive indication. It would be premature to claim this
to be the end of rate increases, but maybe we are reaching the bottom of the
current down cycle. The emergence of added capacity hints at the fact underwriting
profitability may now be achievable.
Four insurers that have recently begun offering healthcare professional liability
insurance coverage are highlighted below.
ACE USA
In the spring of 2002, ACE USA entered the healthcare professional liability
insurance arena by organizing a new underwriting unit under its Professional
Risk division and hiring an experienced staff based in New York City. ACE USA
is rated A (Excellent) by A.M. Best Co. and is part of the Bermuda-based ACE
Group of Companies. As of July 1, 2002, ACE USA has begun writing business and
issuing policies. ACE USA is quickly making its mark on the healthcare professional
liability insurance landscape, with written premiums in its first quarter of
operation exceeding $10 million.
ACE USA will insure both the primary and excess layers of healthcare risks.
ACE USA is a market for institutional business, that is, hospitals, and is not
interested in insuring physicians. ACE USA will provide coverage to physicians
but only if the exposure is part of or in conjunction with an integrated delivery
system. Product liability coverage for biotechnology companies is offered by
ACE USA, as is protection for clinical trials. It should be noted ACE USA prefers
to be the lead excess insurer or participate in the second excess level rather
than insuring the primary coverage layer. Any primary policy written by ACE
USA is subject to a minimum deductible of $100,000.
All policies issued by ACE USA are on a claims-made coverage form. The company
has up to $25 million in capacity for any one risk, but initially plans to be
judicious in making this amount of coverage available. ACE USA plans to be a
national market, but is focusing on locations having more stable litigation
climates such as Virginia, Tennessee, Kentucky, Nebraska, and Georgia. Explosive
jurisdictions like Texas, West Virginia, and Mississippi are being avoided by
ACE USA. ACE USA is conducting business on a non-admitted basis and is utilizing
its excess and surplus lines subsidiary, Illinois Union Insurance Company, as
the policy issuing company.
Endurance
Endurance Specialty Insurance Ltd. is a global provider of property and casualty
insurance and reinsurance that began operations at the end of 2001 after raising
more than $1.2 billion from a diverse and highly experienced group of investors.
Endurance is positioning itself to be a long-term player and states that it
strives to help risk managers, reinsurance buyers, and insurance brokers solve
their greatest insurance and reinsurance needs. Healthcare professional liability
is a key product line for Endurance. Endurance is a Bermuda-based organization
and as such its business dealings must be conducted outside of the United States.
A Bermuda broker is required to access Endurance. Endurance Specialty Insurance,
Ltd., rated A- (Excellent) by A.M. Best Company, is the policy issuing carrier,
and all transactions are subject to federal excise and excess and surplus lines
taxes. The carrier seeks to insure institutions only, specifically hospitals
and multi-hospital systems, not long-term care companies.
Endurance is an excess liability insurance market and has up to $25 million
in capacity. Its minimum attachment point is $1 million, but will more likely
require $3 million to $5 million in underlying coverage. The company is "account
driven," evaluating each risk based on its unique characteristics. Endurance
will look at risks in many locations; however, it does not intend to be the
lead excess insurer in unpredictable venues such as Pennsylvania, Alabama, Mississippi,
and Texas. Endurance is targeting more sophisticated insureds that have demonstrated
risk management structures in place at their facilities.
An insured of Endurance should be prepared to retain a portion of the risk,
either in the primary or excess layer. In fact, the bulk of Endurance's healthcare
business writings thus far have been reinsurance of single parent captives.
Endurance is receiving a favorable response from its targeted niche as evidenced
by a premium written volume of over $30 million during Endurance's first full
quarter of operations.
OneBeacon
OneBeacon Insurance Group is a subsidiary of White Mountains Insurance Group,
Ltd., a publicly traded financial services holding company with over $2 billion
in surplus. Its other subsidiaries include Houston General Insurance Co. and
Folksamerica Reinsurance Company. OneBeacon entered the professional liability
marketplace in March 2002 and offers hospital professional, directors and officers,
and managed care operations liability insurance coverage. OneBeacon writes hospital
professional liability coverage on an excess and surplus lines basis, primarily
utilizing Homeland Insurance Company of New York paper, rated A (Excellent),
XV by A.M. Best Company. Underwriting is done out of OneBeacon's offices in
Connecticut.
OneBeacon is a market for excess hospital professional liability coverage
on a claims-made coverage form. The minimum attachment point for OneBeacon is
$1 million per event/$3 million in the aggregate, if the hospital maintains
a self-insured retention. In the event there is commercial insurance, then OneBeacon's
minimum attachment point is $5 million. Ultimately the size of the risk and
the legal venue will determine at how low a layer OneBeacon will participate.
OneBeacon is only interested in institutional business, that is, hospitals
and ancillary facilities. The insurer will not underwrite physician business.
OneBeacon's target risks are small- and medium-sized hospitals in more favorable
locations, such as North Carolina, Tennessee, and Massachusetts. OneBeacon may
look at hospitals in more volatile locations, such as Florida, Texas, New York,
and the District of Columbia, but only at the upper excess layers, e.g. $25
million and above. OneBeacon has the capacity to offer up to $10 million in
coverage limits, but prefers, at least at this time, to make $5 million available.
Allied World Assurance Company, Ltd. (AWAC)
Allied World Assurance Company, Ltd. (AWAC) was formed in November 2001 by
a number of investors led by American International Group, Chubb Insurance Company,
and Goldman Sachs in response to increased demand and significantly diminished
capacity in the global insurance and reinsurance markets. AWAC has $1.5 billion
in surplus and has been assigned a rating of A+ (Superior) XIV by A.M. Best
Co.
AWAC is principally focusing on casualty lines of business, along with some
property risks. Hospital professional liability is likely to represent just
a small segment of AWAC's overall writings, perhaps $25 million in written premiums
for 2002. AWAC is interested in chiefly insuring hospitals, but will consider
other risks in the healthcare industry. The company will evaluate each prospective
insured based on the individual risk characteristics, so insureds located in
difficult venues may want to investigate AWAC. There is $25 million in capacity
available from AWAC, but it is definitely upper layer excess. AWAC prefers to
attach at $25 million but will consider dropping down to $10 million depending
on the circumstances.
Similar to Endurance, AWAC is a Bermuda domiciled company and does not transact
business in the United States. Submissions to AWAC must be made through a Bermuda
insurance broker. Reflecting its ownership, AWAC will not compete on an account
that either Chubb or AIG is underwriting.
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