What Every Physician Must Know About Medical Malpractice Insurance. Presented By Eric S. Poe, Esq., CPA Vice President of Marketing and Business Development Direct line: (609) 520-3067 Email: email@example.com. Agenda. Part I: Overview of the Industry What makes insurance profits different
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Presented By Eric S. Poe, Esq., CPA
Vice President of Marketing and Business Development
Direct line: (609) 520-3067
Part I: Overview of the Industry
Part II: Common Mistakes Made By Physicians
Background on Insurance: Insurance
Basic Accounting Is Different
Loss reserves ($70)
Underwriting Income (Loss) ($ 5)
Investment Income $10
Net Income (Loss) $ 5
Loss reserves ($70) ($50)
Underwriting Income (Loss) ($ 5) $15
Investment Income $10
Net Income (Loss) $ 5 $25
1. Industry Dominated by Regional Insurers
As a result of medical malpractice crisis environments, many medical societies or hospital associations created insurance vehicles to solve their availability problems. These “stop-gap” solutions grew into industry giants.
The recent largest insurers to go insolvent or placed under rehabilitation for medical malpractice have been PHICO and MIIX. MLMIC is current largest med mal insurance company in the world (created by NYMS)
2. Short term profitability can be achieved by mere under-reserving or “aggressive” reserving
Due to the differences in accounting, proper reserving is the largest driver of profitability in the financial statements
3. “Long-tailed” insurance line
Malpractice has the longest average time from a claim being made to paid loss. Therefore, determining and verifying reserve adequacy (mistakes) takes longer than other lines of insurance
4. When significant under-reserving occurs the results only cause additional problems
Rate increases are the first request when reserves develop. However, rate increases can risk non-renewal and political rejection. Therefore, management cuts expenses – typically reinsurance. This only means more exposure to the company.
Furthermore, when the past reserves are developing, often companies will then under-reserve current year claims to offset it. These all cause rapid sudden declines.
MIIX, PHICO, Reliance – all top 10 largest in U.S.
MIIXA.M. Best Rating History
based on a $10K
mature rate; rate
increases are not
Johnson v. Braddy Case Study (2006)
Rova Farms (1974)– Bad Faith and Its Impact on Consent to Settle Clause
Worse before it becomes better for two reasons:
Sources: Perr & Knight. Rate filings based on A.M. Best and N.J. Department of Banking and Insurance Rate Filing Information.
1981 – Products Liability Risk Retention Act
1986 – RRG’s allowed to write insurance in all 50 states
BUT Notable Differences of an RRG:
Less regulatory oversight – no forms or rates requiring approval
Less regulatory oversight in non-chartering state for financial condition
No PLIGA (Property and Liability Insurance Guaranty Association) Protection
What you may find in an RRG Policy:
Assessable Policy Clauses
Non-Binding Arbitrations Clauses
Physician Responsibility to Pay Defense Attorney Fees