The growing attraction of alternative risk-transfer options is likely to make it harder for health care liability insurers to lure clients back into the traditional market, or keep more from jumping ship, even in the midst of a soft but catastrophe-prone pricing cycle, market observers contend.

Ray Pate, executive vice president for BMS Ltd., a reinsurance brokerage in London, pointed out that the health care providers themselves, who formed their own risk retention groups, deserve credit for the recent downturn in pricing.

Concentrating on claims management and service to their customers, they have managed to save money for clients and pay out dividends to members, he observed.

However, said Mr. Pate, that success has prompted more competition, bringing new insurers into the mix. It is a credit to what the risk retention groups have created that with their greater understanding of the industry, they remain strong despite the softening of the traditional market, he added.

Mary Nolan, senior vice president of health care for Swett & Crawford Group, said she believes that when a client forms a risk retention group, it is difficult for traditional insurers to ever get them back.

Some participants may leave the group because they get better terms and conditions, but the certainty of having the RRG's coverage keeps many participants in the alternative market.

"It is [about] tolerance for risk," according to Ms. Nolan, referring to the higher retentions that some take in RRGs. "Larger groups are more tolerant, but smaller groups cannot tolerate risk. They can't handle the uncertainty."

One surprising development is the growth in RRGs among physicians even during the soft market dominating most states, said Holly D. Meidl, national health care practice leader for Marsh. She said many have had the foresight to recognize that when the market turns hard again, traditional insurers may not be there for them.

These RRGs, she pointed out, are usually made up of groups numbering anywhere from 50-to-200 practitioners. The ownership resembles a mutual insurer, and by setting up these vehicles now, they can take advantage of reasonable pricing to help with their future insurance needs.

"It is excellent, far-reaching planning," she said.

Yet while loss ratios in the growing health care segment keep improving--thanks to tort reforms and better risk management--the impact of catastrophe losses in other segments of the property-casualty market could spill over, perhaps prompting a turnaround in health care liability premiums for the traditional and reinsurance markets, brokers warn.

The largest market for p-c insurance remains the United States, according to Tony Hill, director of BMS, who said the catastrophe market remains especially volatile, and losses there can still drive an insurance cycle.

Many of these same reinsurers write the medical malpractice market and related portions of other health care liability sectors, and while reductions have been coming in at 10-to-15 percent this year, a notable catastrophe loss could change the direction in a hurry, he predicted.

However, he continued, mitigating that influence on pricing is the "unprecedented reduction in claims frequency," although he conceded the line does periodically experience singular losses outside of policy limits from punitive awards that could affect rates.

Mr. Pate of BMS noted that a single catastrophic loss event would not only have a negative effect on medical malpractice but a far-reaching worldwide influence on the whole p-c insurance market.

"There would be some tightening in terms and capacity and rate," he said.

Special Reports /

Doctors Still ART Lovers In Softer Market

Related Stories

Recommended For You