How we developed a healthy book of med mal insurance

MEDICAL malpractice insurance is not for the faint-hearted. This is a line that can be subject to great volatility, as hard-to-predict claim severity drives insurers out of the market--or even out of business. To insure professionals like doctors, agents and brokers also must be highly professional themselves, and have in-depth knowledge of the exposures facing physicians and the products that can cover them. In short, they must be specialists.

Professional Risk Associates is such a specialized agency. Since its inception in 1989, PRA has grown into a $68 million (premium volume) organization that has as clients more than 3,400 physicians, as well as more than 1,000 ancillary health-care professionals and medical practices. The agency does business in Virginia, West Virginia, North Carolina, Maryland, Pennsylvania and the District of Columbia.

Our clients are engaged in a wide range of practices. Some are sole practitioners, while others work with several other doctors, who may collectively employ a medical-office manager to look after the non-medical aspects of their practices. We typically find insurance for the physician(s) in a practice; the physician's professional corporation; and any nurses, midwives, nurse anesthetists or other medical personnel employed in the practice. We have a staff of 25 employees, including seven producers. Not counting our newest producer, whom we recently promoted from our marketing department, each has at least eight years of experience with us. Since all we do is focus on medical professional liability insurance, they've been able to develop a high level of expertise in that niche.

Marketing and sales

We stress the importance of referrals, constantly reminding producers to ask for and follow up on them. Producers obtain referrals not only from clients but also from accountants, attorneys and other professionals who have physicians as clients.

When we started the agency, advertising helped us generate leads. Now that we're one of the largest medical malpractice agencies in this region, our advertising really is more for branding purposes. Our ads appear in MD News and Virginia Medical Law Report, regional publications with circulation in Virginia. To help us get referrals from attorneys, we also advertise in Lawyers Medical Weekly, a Virginia magazine targeted to lawyers who represent health-care professionals.

Working with associations is another key part of our marketing plan. We attend meetings held by a number of associations representing medical-office managers as well as events conducted by various physicians groups. In addition to generating leads for us, our attendance at these meetings essentially serves a branding purpose, much as our advertising does. However, the most important result of attending these meetings is the personal contact that we have with clients and their professional managers.

All leads we obtain, from whatever source, are entered into a portion of our computer system that serves as our prospect database. It tracks prospective clients from the time they enter the system until they become clients. It also keeps producers from competing with one another for the same opportunity and alerts producers of the next scheduled personal contact for a prospect. Our system also automatically generates thank-you letters from the agency's president when new accounts are written or existing ones are renewed. Whenever we lose an account, the computer creates a letter expressing our regret and asking if there is anything we can do to improve our service.

We sometimes create special programs for physicians. For instance, we worked with one of our carriers to create a program for obstetricians and gynecologists. The way this program came about also illustrates the importance of relationships and referrals. One of our producers arranged coverage for a couple of Virginia doctors with OB-GYN practices. After they became PRA clients, they asked if it would be possible for us to find coverage for other physicians in a medical organization to which they belonged.

We currently administer programs for 10 medical organizations. Each is assigned to one of our producers, who tend to work in different geographical areas. One might work with groups in North Carolina, another in West Virginia, etc. The programs are posted on our Web site, along with the names of the assigned producers. Members of the organizations are invited to click on a link enabling them to get premium indications. The Web site, however, primarily exists for informational purposes. It averages about 25 requests for premium indications a month.

Qualifying and submitting accounts

The condition of the marketplace for medical malpractice insurance has an important bearing on our prospecting efforts. In the first two years of this decade and perhaps a year or two before, it was very much a seller's market in the Mid-Atlantic region. Major companies like CNA and St. Paul withdrew from the market and The Reciprocal Group, a Virginia-domiciled insurer, was placed in receivership. We received many calls from doctors who had been insured by these and other carriers, as well as referrals from physicians who knew of peers who were searching for coverage.

In addition to disruptions in the marketplace, price can motivate physicians to entertain competing proposals. In the soft market of the 1990s, it was not too difficult to sell annual rate increases of 10% to 20%. But once those increases rose to 30% and higher, doctors became more willing to shop for coverage. That willingness has been tempered, however, by a desire to not go through another carrier insolvency or withdrawal. Doctors these days are asking more questions about carriers' A.M. Best-ratings-and the outlook on those ratings. They also want information about carriers' defense attorneys and the particulars of their policies. We're pleased with this development, because we've always regarded the selling process as a teaching exercise. We believe the more a client knows about medical malpractice insurance, the stronger our position will be.

A typical application for medical malpractice insurance is 10 or more pages long. Furthermore, standard insurers will not quote from others' applications. (Surplus-lines carriers will; but require their own applications to be completed before providing coverage.) Consequently, determining which carrier to approach is an important task for our producers. After a detailed consultation with a prospect, the producer selects the carrier or carriers, based on such factors and the nature of the physician's practice, his or her loss experience, and the state in which he or she is licensed.

Normally, a doctor's office manager can complete some of the more generic parts of the application. We also can use our computer to help fill in a lot of this information, especially on a renewal application. Still, a doctor must spend a considerable amount of his or her own valuable time with the form, which underscores the importance of selecting the right insurer (and applications) from the outset. We check the completed applications to ensure all questions are answered and all required supplementary material is provided. If we don't send an underwriter a complete package, it's not going to get his or her attention or favorable consideration.

In addition to the application, insurers require a doctor's curriculum vitae, which an underwriter will examine to ensure the information on it is consistent with what has been provided on the application in regard to educational background, board certifications, medical licenses, etc. Doctors also must furnish loss runs going back at least five years. Depending on what they show, an insurer subsequently may request loss runs going back 10 to 20 years. These must be company-provided loss runs, which for the most part the physicians themselves must request. If a doctor has been insured by three or four carriers over the past 10 to 15 years, it can be quite a challenge for us and the physician to obtain all the necessary information.

A big reason for our success is that we can give doctors a number of options. We represent numerous admitted markets for medical malpractice insurance, a number of them regional. Since we hold a surplus-lines license in most of the states in which we do business, we also can arrange coverage for doctors who practice hard to place specialties or have adverse loss histories-even for so-called "impaired" physicians, e.g., those who have been treated for substance abuse.

Products

For the most part, the medical malpractice policies offered by standard insurers are fairly similar. Most insure "medical services," which are a physician's activities related to his or her medical practice. Claims-made coverage is the norm. In the past, insurers customarily permitted insureds to report incidents. If they subsequently gave rise to claims, they would be covered by the claims-made policy in force at the time of the incident report. Increasingly, however, insurers have been restricting coverage to the actual reporting of a claim, although state laws can have a bearing on this issue.

We've also seen restrictions in the free extended reporting periods, or "tails," that insurers commonly offer to retiring doctors. A few years ago, several insurers offered this benefit to physicians who retired at any age, including those they had insured for only a year. Today, free tails more commonly are offered only to doctors who are at least 55 and who have been insured by the carrier for a minimum of five years.

Prior-acts coverage is an important issue to discuss with physicians. If a doctor is moving to a new state from one whose laws (e.g., statutes of limitation), demographics or other characteristics have led to above-average claims frequency or severity, the insurer in the new state likely will force the doctor to "tail out" under his or her previous policy, rather than provide prior-acts coverage. Such likely would be the case for a physician moving to Virginia from states like Florida, New York or Illinois. Indefinite tail coverage, which is the norm for standard medical-malpractice insurers (and pretty much a necessity from the viewpoint of doctors), can be extremely expensive. Those producers who instead can persuade new insurers to provide prior-acts coverage, as ours typically do, can prove their value to insureds.

Underwriting standards have an important bearing on our discussions with clients. Most medical malpractice policies available from admitted carriers have the same exclusions; but in their underwriting standards, the insurers may have significant differences. Some companies, for instance, want nothing to do with doctors who have any kind of exposure to nursing homes or correctional facilities. Many are not interested in physicians who perform bariatric surgery (stomach stapling). Some may shun clinics or gynecologists involved in infertility work. Typically, questions about such problematic exposures appear on the insurer's application. Again, by having a thorough knowledge of our carriers' underwriting requirements, we can direct applications to the markets most likely to accept them, thereby saving the clients' and the company's valuable time.

Renewals and service

Each of our producers has a sales assistant, and they play an important role in our renewal procedures. Our computer system automatically notifies them of renewals at least 90 days in advance of policy expiration. They contact the insureds to remind them of the renewals and to gather information about any changes in their practices or ancillary medical personnel. The sales assistants also work directly with the underwriters to obtain renewal quotes. Depending on the nature of an insured's practice, some insurers may require the submission of renewal applications. Additionally, we typically obtain rate indications from two or three competing carriers to be sure our ultimate recommendation to our client is valid. After sales assistants receive renewal quotes and indications from the carriers, they discuss them with the producers, who decide what to recommend to the client for renewal. We send renewal quotes to clients with a form on which we ask them to acknowledge their acceptance by signing and returning it to us. Once we have the signed forms, we notify the insurers. We invoice and collect premiums for one of our carriers. For all that do not offer installment billing, we give our clients the option to finance their premiums through a third party.

Examples of typical service requirements for medical malpractice clients include discussing tail coverage with any physician leaving a practice and providing certificates of insurance. As part of their credentialing procedures, hospitals at which any of our clients have privileges require certificates upon renewal of coverage. We also help doctors furnish claims histories to provider networks or other parties that require them. We frequently get inquiries from clients about the status of premium invoices and payments, and have accounting personnel dedicated solely to handling such inquiries. We're in the process of upgrading our Web site, the goal being to enable our clients to use it to access their account information in our database.

All of our carriers provide risk management services. Some conduct seminars that confer continuing medical education (CME) credits on those doctors who attend. Some insurers send loss specialists to the physicians' offices to observe practices for a day or two and then make recommendations to the doctors or their office managers. Suggestions typically pertain to how doctors communicate with clients and staff, and how procedures are documented.

When we started Professional Risk Associates in 1989, our plan was to grow into an organization that could meet the needs of a wide array of doctors and that would come to be viewed by them as an important partner, one they could rely on through changing market conditions to secure insurance that is indispensable to their practices. As we look back on our first 15 years, we are pleased to conclude that the operation was a success.

John Glander is president of Professional Risk Associates Inc., an agency specializing in medical malpractice insurance that he founded in 1989. He left a career in the metal packaging industry in the 1980s, first to become vice president of sales for medical malpractice insurance at a Maryland agency and later to head up PRA. Robert Meadows is PRA's executive vice president. He entered the insurance industry in 1972 and worked in claims, underwriting and senior management for a number of carriers before joining PRA in 1999.