Benefits of a Long-Term Relationship With Your Medical Malpractice Insurance Carrier
We’ve written before about media reports on concerns over New York’s medical malpractice market. It’s one reason we can’t stress enough that insurer financials matter to policyholders. However, financials are only part of the picture when it comes to your relationship with your medical malpractice carrier. The length of the relationship matters, as well.
In the Fall 2016 edition of Dateline, Rob Pedrazzi, assistant vice president of underwriting, discusses the benefits of maintaining a long-term relationship with your insurer. He also warns that the actions some carriers take may put your coverage at risk. These behaviors include, for example, withdrawing from the marketplace or offering unsustainably low rates.
For this blog post, we’ve taken excerpts from Rob’s article to answer some questions you may have. You can read the article in its entirety here (see pages 9-10).
Why do carriers come and go from the MPLI marketplace?
Medical malpractice insurance (more formally known as medical professional liability insurance or MPLI) is a highly volatile line of business that is cyclical in nature. This characteristic commonly induces new players to enter the market in an effort to profit handsomely during the opportune times which occur in “soft market” cycles. Not surprisingly, many of these new and oftentimes inexperienced entrants to this specialized marketplace are not hesitant to withdraw from the market when upward cycle tics lead to a “hard market” and they witness a corresponding rise in indemnity payments and legal defense expense costs.
Other carriers – even established carriers – may leave the marketplace due to insolvency, sometimes caused by unwarranted “discount” pricing deployed for the sake of nothing more than a gain in market share. Those MPLI carriers who opt to “chase pricing” after their competitors are more prone to fail, to the detriment of their insureds.
How are policyholders affected when carriers leave the marketplace?
When a carrier withdraws from this line of business or succumbs to insolvency, policyholders must rapidly search for replacement coverage under a certain deadline: a stressful situation that may lead to uncertainty regarding the handling of their known and unknown future claims.
Is this happening in New York?
Yes. Earlier this year, various media sources had reported on the questionable finances of an admitted (licensed) NYS carrier, as well as the effect that a large influx of Risk Retention Groups (RRG) was having on the entire admitted NY MPLI marketplace. The articles raised awareness of their overall impact, highlighting the disconcerting financials of the referenced admitted carrier, as well as pointing out the concerning fact that RRG’s may exit the market whenever they desire as they are solely governed by the state in which they are licensed.
What’s wrong with “discount pricing”?
Despite the unsustainability of their business models, some carriers lure new customers with the promise of deeply discounted premiums. There’s a downside not only for the marketplace but also for providers: frequently changing MPLI insurers for what is often nothing more than short-term premium relief could eventually result in loss of insurance protection should their insurer become insolvent and not eligible to participate in the NYS Property/Casualty Insurance Security Fund. One other point worth considering in this matter is the prospective handling of either existing or future lawsuits after an insured is no longer covered by their prior carrier (see details below).
What are the benefits of a long-term relationship?
Practitioners who opt to insure and maintain a relationship with a financially strong and stable insurer reap many benefits by “partnering” with them. This business strategy affords a more stable and secure financial environment, ensuring the company’s ability to meet obligations to its insureds through hard markets without jeopardizing solvency. MPLI companies that adhere to this balanced approach, which is the proven formula to properly address the cyclical nature of this line of business, have stood the test of time.
MPLI lawsuits, from the inception of a case to its closure, generally take years to resolve and require ongoing communications between the policyholder and their insurer. Those practitioners who maintain a consistent relationship with a financially sound carrier such as MLMIC – with over 40 years of operation – can rest assured, knowing that their claim is being handled with the utmost level of service and integrity that they had originally signed-up for. Unlike MLMIC, a practitioner’s previous carrier, with whom they are no longer insured, may not have the incentive or resources to vigorously defend ongoing cases. In the absence of a current relationship, insurers may be more inclined to opt for the most cost saving approach when handling these claims.