August 2004

Doctors keep eyes on insurance ratings

OUM, Princeton underwriters downgraded

A recent article published by Medical Doctors Associates (MDA) warned: "Mergers, rising claim payouts and the changing economy have caused changes in many major insurance companies, including a decrease in ratings and questionable financial stability."

In the article, Ken Shumard, MDA Chairman, stated: "Malpractice insurance is a complex and complicated process. It requires understanding the legalities of the insurance industry and keeping up with the changes, something that a majority of physicians may not know... Several insurance companies have been hit hard by soaring malpractice judgments, compromising the company's financial stability. It's important to check with AM Best or another rating company to determine the insurance company's financial strength."

Although he was directing his advice to MDs, the same applies to DCs. The changes rippling through the insurance industry require constant vigilance on the part of doctors and the companies that provide risk management programs to them.

The importance of the advice hit home again in July 2004, when Gulf Insurance Company ‑‑ the underwriter for OUM ‑‑ was downgraded by AM Best Insurance Ratings. The ratings slipped from an "A" to an "A‑". Gulf is a wholly‑owned subsidiary of St. Paul Travelers, which was created by the merger of St. Paul and Travelers Property and Casualty.

Prior to the merger, the St. Paul Cos. exited its medical malpractice business by non‑renewal of existing policies. St. Paul had been the biggest single provider of medical malpractice insurance in the country, with about 10% of the market nationwide.

According to Best, "the downgrade of Gulf's rating reflects the ancillary status of Gulf within the St. Paul Travelers organization, given its planned move of business to affiliates, its underwriting deterioration and increased earnings volatility over the past several years, as well as its diminished stand‑alone capitalization."

Best also said its "view of Gulf's stand‑alone capitalization acknowledges the potential for additional reserve strengthening and the credit risk associated with recoverables due from third party reinsurers, including those considered to be of low credit quality by A.M. Best."

The downgrading of Gulf wasn't the only ratings drop to affect chiropractors.

In 2002, A.M. Best lowered the financial rating for Princeton Insurance Company to a B‑, adding that the A rating outlook is negative Best said it based its rating on concern of further adverse reserve development and the maintenance of insufficient capitalization. The company discontinued writing policies in most states.

Medical Liability Mutual Insurance Company (MLMIC) acquired Princeton Insurance, although some doctors in NJ, Penn., and NY still have old Princeton policies, The acquisition didn't seem to help shore up troubled Princeton. On June 29, 2004, Best lowered its financial strength rating of parent company MLMIC from "B" (Fair) to "B‑" (Fair). Best expressed concern about continued adverse claims severity on New York medical malpractice insurance (MLMIC's largest business), which has resulted in a weakening of MLMIC's capitalization through 2003.

Since insurance programs seldom notify their policy holders or members about these downgrades, doctors often find out about financial instability only when a company either fails completely or drops its malpractice business. These failures have left numerous health care providers without protection, scrambling to find adequate insurance at a moment's notice.

When the St. Paul Companies ‑‑ which had sold medical malpractice insurance for six decades ‑‑ quit the market in 2002 after losing $1.5 billion in just four years, the company's 46,000 insureds were left without coverage on short notice. In 2003, Farmers Insurance Group, the country's fifth‑largest medical malpractice insurer, announced that it would get out of the malpractice insurance business, canceling some policies more than two months ahead of a schedule in some markets.

Experts agree that doctors can't afford to wait until the worst‑case‑scenario occurs. As soon as they learn about troubling downgrades, DCs should search for a more stable company. Yet, getting accurate information, including ratings, isn't always easy. In fact, some companies appear hesitant to even reveal their underwriter's name.

The website for National Chiropractic Council (NCC) insurance company, for instance, doesn't mention the underwriter. According to reliable sources, the new underwriter is Allied Professionals Insurance Company, a risk retention group not listed by AM Best and that appears to be unrated. Although very little is known about the company, Risk Retention Reporter ‑‑ an industry publication ‑‑ notes: "The new RRG ... which received its certificate of authority on September 24, 2003, will provide professional liability to alternative healthcare providers, including chiropractors, acupuncturists, and massage therapists."

"Unfortunately, DCs are having more and more trouble finding a malpractice insurance program backed by a reliable and financially strong underwriter," stated Timothy Feuling, president of Chiropractic Benefit Services Risk Management Group. "There's so much uncertainty in the insurance field today that they can't afford to settle for a company that's not an industry leader."

CBS is underwritten by CNA, the country's fourth‑largest commercial insurance writer with $11.7 billion in revenues and a combined statutory surplus of $6.6 billion. As of 2004, CNA ‑‑ founded in 1897 ‑‑ had one million business and professional policyholders and was rated "A" by A.M. Best.

"Ratings aren't the only factor a DC needs to consider, however," Feuling emphasized. "Another extremely important element is the coverage you get. If a policy has exclusions such as not covering infants, pregnant women or employees, or if it doesn't offer broad coverage for areas like sexual misconduct and board complaints, it isn't providing the best protection available. And with multi‑million dollar lawsuits and settlements becoming commonplace, no DC can take the risk of inadequate coverage."

For more information on insurance ratings or policy coverage, call 800‑883‑0412 or visit www.cbsmalpractice.com to receive a "quick quote" on CBS premiums.

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