Who said that paying your malpractice premiums needs to be a losing proposition? Traditional insurers have! They made the rules, and we complied. We have assumed malpractice insurance was just like heath insurance, car insurance and life insurance; you pay the premiums for peace of mind with little other return on your investment, while they invest your hard-earned dollars for profit. If you have a hard time understanding how such businesses work, always watch where the money goes. Which companies have the tallest buildings in most major cities? The insurance companies do. Most of your premium dollars are not spent on your claims or risk management. They are ultimately profit for the insurance company.
For years of loyally paying our malpractice premiums, traditional insurers repaid us by dumping many of us when their investment returns were severely compromised by a “bear market” just a few years ago. It is very clear that their business objectives were not always in line with our needs and objectives. Their goals are to collect premiums, maximize investment income and limit payouts and expenses. Our goals are to minimize risk, while protecting our right to practice medicine and protect our personal assets.
When goals are not aligned, who wins? The one holding all of the cards does. It has always been this way; the ones in need of insurance are at the mercy of those providing it.
Once you’ve had enough, it may be time to take matters into your own hands. Doubling our premiums to improve the insurance companies investment portfolio, despite no change in risk profile or claims history on our part, just isn’t acceptable. Enough is enough! During the medical malpractice insurance crisis, some chose a new course of action. The greed of the insurance industry prompted some to become self-insured, to never again feed the financial appetite of the insurance industry.
Our group developed a risk retention group (RRG). Not only do our physicians own their insurance company, they own their futures. We reward our physicians with premium rebates for participating in risk management programs. If we fail at risk management, we fail our patients, each other and we will again be purchasing traditional insurance. Our premium rebate program is a win-win for everyone involved. Additionally, if we focus on risk management and properly align incentives, we reduce risk and maintain our freedom, while keeping our premium dollars and investment returns in our own pockets.
A captive insurance company is designed to insure the risk of its owners and affiliates. The Federal Liability Risk Retention Act of 1986 first authorized risk retention groups, a form of captive insurance. The law allows groups to write their own insurance for group members engaged in similar or related activities. The group can be chartered in one state, but write insurance in all states of operation. Therefore, RRGs are exempt from multi-state licensing and from state insurance regulations. This provides an excellent opportunity for cost savings. Also, RRGs, unlike other captives, are not required to have a fronting carrier. This entails finding a traditional insurer to provide a medical malpractice policy, which is 100% reinsured by the captive. RRGs are termed “basic limits” carriers, meaning that they do not need the backing of another carrier. This is also another huge opportunity for cost savings for the RRG and its member physicians.
Being independent helps you control your destiny. For example, captives using “Fronting carriers’ have noted a substantial reduction in companies willing to provide this service and fees for this service have increased by 300% for many captives.
Although RRGs have the financial advantage of only registering in their additional states of operation, they are also exempt from state guaranty protection programs. Thus, if your RRG fails, there is no state assistance to cover indemnity and expenses of claims that may be incurred. If you are insured by an RRG, it better be strong financially!
Perhaps the most common form of captive arrangement for medical liability coverage is the “Rent a captive.” This allows a smaller company to use the captive, without having to capitalize their own captive. Capitalization, in short, is the funding necessary for the captive. “Rent a captives” are excellent for smaller groups who cannot afford to start their own captives. However, fees and collateral are usually required. Furthermore, “Rent a captives” also segregate risk. Each sub-account is walled off from the rest, avoiding access by debtors of one sub-account to the assets of another. If your group has an excellent risk history, this may be the safest plan for you. Unless your group has a horrible claims/risk history, you don’t want to pool your risk. A “Group captive” (a company jointly owned by multiple companies), without segregation of cells, will pool the risk, exposing all members to the same overall risk. Again, this is a risky move, particularly if your risk history is better than others in the “Group captive.” Remember, some captives, while providing medical malpractice liability coverage, may not be doing so exclusively for emergency physicians. Do you want to share risk with a high-risk obstetrician?
To highlight just a few potential issues, if your insurer is not financially stable, you could pay your premiums to a company that may go bankrupt in the near future, leaving you with tenuous coverage at best. Do the physicians own the company? If not, then your premiums may still be going to someone other than you. Again, the goal with your insurance premiums shouldn’t be to fund the retirement of others. Having said that, there is nothing wrong with starting an insurance company for profit. However, potential insured physicians should demand transparency with their insurer so that they understand the financial relationship they have. For your dollars, in addition to coverage, you should expect guidance in risk management and expert claims management services not directed toward the quick settlement.
With regard to medical malpractice liability coverage, there are cheap answers, and there are easy answers. However, cheap and easy will likely get you into trouble.
- How long have they been providing insurance? How financially stable are they?
- Do they insure other specialties or do they only insure emergency physicians?
- Do they pool or segregate risk?
- What programs are in place to reduce risk and manage claims?
- How much do they charge?
- Who is the “Fronting carrier?”
- Do state guaranty protection programs protect them?
- Are there any financial incentives or rebates for good performance?
- Who keeps the money?
Kevin Klauer, DO, is the director of quality and clinical education at Emergency Medicine Physicians, Ltd., and the Director of the Center for Emergency Medicine Education (CEME).