N.Y. Medical Professional Liability Market Stung by Low Rates

In addition to a residual market that's close to half a billion dollars in the hole, experts say the New York medical professional liability market is plagued by chronically inadequate rates.

The Medical Malpractice Insurance Pool, the insurer of last resort, received a 9.9% rate hike this year, while the other carriers got about a 5% increase, the first ones after a two-year freeze (BestWire, July 7, 2010).

MMIP's rates are already about three to four times those of the state's largest carrier, Medical Liability Mutual Insurance Co., said Don Fager, vice president of MLMIC.

New York may be unusual in that the insurance department sets the rates for licensed insurers writing medical malpractice for doctors. "We wouldn't have any problems with the superintendent establishing rates if it were done on an actuarially sound basis," Ed Amsler, vice president with MLMIC, said. "But it isn't required."

If rates are too low -- due to circumstances they can't control -- insurers can find themselves struggling to pay claims. MLMIC, the largest MPL writer in the state with 50% market share, said the 5% rate increase was adequate, enough to keep it on target to meet its break-even operating goal.

"There is no profit factor here," Amsler said. "As a mutual company, we run the business to break even and stay viable. The company is owned by the people who pay the premiums. The frustration of the system is they need to charge that rate to themselves just to break even."

MLMIC's five-year-average combined ratio is 127.5, according to BestLink, which provides online access to A.M. Best's Global Insurance & Banking Database.

The state offers doctors a $1 million excess liability policy if they purchase $1.3 million in primary coverage from a participating insurer.

MLMIC stopped writing excess coverage because it found the pricing was inadequate.

Last year, the state allocated $123 million to fund the excess coverage for doctors, but MLMIC believes that figure isn't high enough, and estimates the premium should have been $145 million to cover the actual costs.

"The public has no idea that they are paying for doctors' excess insurance coverage," Fager said.

The number of doctors insured by the MMIP has dwindled from 600 down to 300, Fager said, in part because doctors have been able to find cheaper coverage with risk retention groups.

RRGs are not subject to the state superintendent's rating schedule and do not have to shoulder the burden of the MMIP's debt, in most cases.

"RRGs have price freedom," Amsler said. However, they don't participate in the state's guarantee fund, so "physicians have no cover if the RRGs get into trouble," he said.

Also, in most cases, doctors in the RRGs are ineligible for the additional state-funded $1 million in excess coverage.

"That makes it a very difficult position for the hospitals and large groups, because the hospital becomes the deep pocket if an RRG or any company becomes insolvent," Amsler said.

Hospitals Insurance Co. Inc., the third-largest writer in the state, is owned by hospitals and knows all too well the pain of being the "deep pocket."

"When a plaintiff files a lawsuit on a hospital-based occurrence, they always sue the hospital along with the doctor and the thrust of the case is against the hospital," said Lisa Kramer, president and chief executive officer of Hospitals Insurance.

Medical professional liability insurance rates for hospitals aren't set by the state. Hospitals Insurance saw its direct written premiums rise by 13.1% in 2008 and again by 12.2% in 2009, according to Best's Statistical Studies in 2009 and 2008.

But this does not make Kramer happy.

"You might think as CEO of the company, I'm pleased to see premiums go up, but that's not my objective," Kramer said. "My objective is to keep premiums as low as possible and keep coverage as broad as possible, and to make sure there is plenty of surplus to cover our claims."

(By Meg Green, senior associate editor, BestWeek: [email protected])