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
Defense of claim
To that end, let's take an abbreviated look at each of these components.
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.
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 which will be discussed later in this article.
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
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.)
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.
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:
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.
Under all circumstances, avoid surprises.
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.