Hard-to-place malpractice risks may find a
home with Professional Underwriters Liability and
Bernard Warschaw Insurance Sales

By Elisabeth Boone, CPCU

Professional Underwriters Liability Insurance Company/Bernard Warschaw Insurance Sales Agency, Inc., executives (from left): Shannon L. Micevych, assistant vice president/claims; Stephen D. Freedman, Warschaw division vice president; Cheri A. Priddy, RPLU, assistant vice president/underwriting.

In a hardening market, many risks that once were welcomed with open arms now find themselves out in the cold. If finding coverage for mainstream exposures seems difficult, think about the challenge of placing medical malpractice business in a market no longer served by its leading writer, St. Paul-and then imagine your prospects are physicians who, for one or more reasons, are considered high risk.

That's a daunting scenario, and even in a competitive market this clearly is a class of business that requires a high level of specialized expertise. That's exactly what's available from Professional Underwriters Liability Insurance Company (PULIC), an excess-surplus carrier, and its managing general agency, Bernard Warschaw Insurance Sales Agency. Both entities are subsidiaries of The Doctors' Company (TDC), a national inter-insurance exchange that was established in 1976 at the height of a medical malpractice crisis so severe that even physicians with spotless records were left out in the cold.

"The market right now is going back into that mode, especially in states like Pennsylvania, West Virginia, and Nevada," says Steve Freedman, vice president of Warschaw. "Some states, for a variety of reasons, are in more trouble than others. As far as what we do, there will always be those individual risks that have difficulty in the standard market. We see it in certain states and also at certain times more than others. It tracks with the market cycle."

How has PULIC been affected by St. Paul's withdrawal from the medical malpractice market? "We haven't really felt the brunt of that yet, but I believe it's going to start kicking in this spring," Freedman replies. "Some doctors obtained extensions for another 12 months, but the word is out that there will be nonrenewals on a massive scale. We're receiving many calls from brokers who are trying to jump on it ahead of time. They are trying to ensure that they have access to an appropriate market."

As the St. Paul situation plays out, the medical malpractice market faces an equally troubling situation. "What we've been more affected by lately has been a rash of insolvencies-Reliance, Frontier, and PHICO-and recently a couple of carriers had their Best ratings downgraded," Freedman says. "We're "A" rated, so while our prices may not be the lowest, there is a sense of stability with us. We've had many calls from brokers whose clients are frantic because they're exposed personally, or they can't get coverage in the standard market. Maybe they've been unfortunate and had a claim in the last year. Right now, it seems, many standard markets are looking for any excuse not to write a risk. Any negative in the application, and it has a high probability of declination."

Prospects for a quick turnaround, Freedman says, are not good. "We anticipate that this is going to continue for a while until more players fall out and until some of the mistakes of the past, the lack of underwriting and lack of reserving, have been cleaned up and there's more confidence in the system. Beyond that, we may see structural change in terms of major tort reform in states, or even maybe on the federal level."

Working with retailers

How does Warschaw work with independent retail producers to arrange coverage for high-risk physicians? "We're basically an open market for producers," Freedman replies. "They're all brokers; they own the business. We have in our database well over 1,500 producers who at some time or another have submitted business to us. At any given time we have a couple of hundred who actually have business with us. We try to operate flexibly in that we don't have formal producer agreements, and we don't have targets or volume goals. Because we're a residual market, we can't tie producers' hands that way. The other side of the coin is that because we're an open market, we'll take multiple submissions from multiple brokers. This has worked well for us; very rarely are we unable to work with a broker."

Steve Freedman is vice president of Bernard Warschaw Insurance Sales Agency, Inc., which, along with Professional Underwriters Liability Insurance Company, is owned by The Doctors Company.

Over the last several years, Freedman says, more of PULIC's business has been coming from wholesalers. "Obviously wholesalers have access to thousands of their own retailers, so they can get much more penetration than we ever could," he explains. "For example, we're not going to spend a great deal of resources in states with a small number of medical malpractice brokers, so in those states, we are more likely to get our business from wholesalers. In general we prefer to work with retailers, because they're next in line to the doctor. With wholesalers there's an additional link in the chain to go through."

What guidelines does Warschaw follow in evaluating submissions for high-risk physicians? "When a doctor comes to us, we assume he has had some problems," says Cheri Priddy, Warschaw's assistant vice president of underwriting. "He could have a medical board sanction, a drug or alcohol problem, or a history of claim frequency or severity. So when we get an application, our first step is to figure out what the physician's issue is. We look at his risk profile to determine what rate we would have to charge him for the exposure he brings to the company, and we tailor coverage to meet his needs and at the same time protect the company. If a physician performs a certain procedure that has resulted in several claims, we may offer him coverage but exclude that procedure. If a doctor has had a medical board sanction for drug or alcohol abuse, we'll insure him, but we'll monitor him to be sure he's in a diversion program." (Most states, Priddy explains, run so-called "diversion" programs in cooperation with the state's board of medical examiners. They are geared specifically to physicians who have drug and alcohol problems.) Warschaw also adds an endorsement that requires the insured to notify the company if he resumes drug or alcohol use.

Shannon L. Micevych, assistant vice president/claims.

Not all the doctors PULIC writes are substandard physicians, Priddy points out. "Some of our insureds are in nonstandard practices. An example is a world-renowned neurosurgeon. He's the best in the field, so he gets all the most difficult cases, and the standard market won't take him. Or we might insure a doctor who's a clean risk but is located in a venue where standard/preferred carriers have stopped writing."

Changing risk appetite

Are there any risks PULIC will not accept? "We're an admitted market in California, and one risk we won't write is a doctor who's been convicted of child molestation," Priddy says. "Also we don't write doctors who practice telemedicine, giving medical advice over the Internet. We don't insure physicians who practice primarily at nursing homes. Given the current crisis in the nursing home market, if physicians are the only ones carrying liability coverage, they're going to be the deep pocket. They may or may not have done anything wrong, but they may be sued if they work in an underinsured nursing home that has some staff members who may not be doing things exactly right. Some states, like California, Florida, and Texas, have stringent elder abuse laws, and the liability is much higher in those states."

Shannon Micevych, assistant vice president for claims, offers this perspective on nursing home regulation at the federal level. "Second only to the nuclear power industry, nursing homes have the most federal regulation, and the tiniest infraction is admissible from a claims standpoint. If you insure a medical director or a doctor involved, he may go down with the ship."

Adds Freedman: "There are certain procedures we won't insure, and there are some risks where we just can't get enough premium based on what they're doing. An example is ophthalmologists who have a high-volume practice in LASIK surgery. They may be skilled and careful, but if just one procedure goes wrong it can cost as much as $250,000."

What's more, some states, or regions of states, are undesirable with respect to medical malpractice risks. "There are certain venues right now that are problematic not only from an exposure and a jury verdict standpoint but also from a regulatory standpoint," Freedman says.

PULIC's underwriting restrictions are not fixed and rigid, Freedman explains; they change in response to shifting market conditions. "We don't like to put out hard and fast, black and white rules, because we do change and adapt as the market changes," he says. "As the standard market shifts its underwriting approach, so goes our book. For example, in the early '90s, a much higher proportion of our book was surgical specialties, and we wrote very little non-surgical business like internal medicine. But in the later '90s many of the standard markets seemed to want to write surgeons because of the higher premium charged for surgical coverage. So our book shifted to a higher proportion of non-surgical business. Now we're seeing a turnaround because standard markets are realizing they didn't charge enough premium for the exposure."

Program features

PULIC provides coverage for a wide range of health care professionals: physicians and surgeons, dentists and oral surgeons, podiatrists, and ancillary personnel. Coverage is available throughout the United States, in Puerto Rico, and in Guam. Warschaw's program features a claims-made policy with limits of
$1 million per claim and a $3 million annual aggregate. Each risk is individually underwritten, and the premium is based on the applicant's specific profile and history. Other features of the program are:

* Available to all medical specialties in nearly every state

* Nonassessable policies

* Retroactive (prior acts) coverage available (subject to approval)

* Generous extended reporting (tail) coverage options

* Consent to settle provision

* Legal expenses covered in addition to limits of liability

* Expert in-house claims management

* U.S.-domiciled carrier

Warschaw will consider all medical and dental special risk malpractice coverage so long as a physician, dentist, or podiatrist is listed on the policy. Special risks include abortion clinics, clinics that provide a wide range of medical and dental services, and physicians and surgeons who provide services to correctional facilities.

Risk management

For hard-to-place medical malpractice risks, a focused approach to risk management and loss prevention is virtually a necessity. Warschaw's claims staff offers risk management services on a case-by-case basis, Freedman says. "They talk to our insureds and explain where they see the issues and where they see potential problems cropping up. In some cases we have access to the risk management services of The Doctors' Company, which has a fully staffed department."

Adds Micevych: "The claims staff will offer assistance, if asked, how to alleviate claim problems, but we think moving into this market gets the doctor's attention. Most of them know where their problems are and are quite motivated to deal with them. They want to remedy the situation so they can return to the standard market."

The PULIC advantage

How do PULIC and Warschaw distinguish themselves in a market characterized by a constantly shifting mix of competitors? "As a physician-owned carrier, we offer a very broad policy form compared with what other companies have done over the last five to 10 years," Freedman replies. "Because of that, we're not the lowest price player in the market. We never have been, and we probably never will be. Because of our longevity in the market and our financial strength, our commitment to the market, physicians are able to come and go. They don't get trapped in the nonstandard market when they're with us. We offer a broad enough form that, historically, the standard markets have been willing to offer retroactive coverage to ensure continuity."

What's more, Freedman points out, "We are a one-stop shop. Everything is handled in this office, from the application coming in the door from a new broker, to billing the broker, to paying the last legal bill on a claim. We have the advantage that we can offer this coverage all over the United States, except for a couple of states, and we're known for our willingness to stick in the market. As an E&S market in most states, we have the flexibility to tailor coverages and offer special terms."

Frequency and severity

What kinds of claims does Warschaw see most frequently, and what claims produce the highest severity? "Currently, about 50% of our policies are for surgical specialties." Micevych replies. "Of the claims we're currently handling, about 55% are surgical cases, and they're across all specialties. About 20% of our surgery cases are plastic surgery, 15% orthopedic surgery,
and 5% surgical ophthalmology. Neurosurgery claims have tradition-ally been our most costly."

Overall, what proportion of claims are settled out of court instead of going to trial? "More cases are resolved than are tried," Micevych responds. "Over the years I've been here, something in the neighborhood of 10% of our cases are tried. We close somewhere between 70% and 75% of our cases without an indemnity payment. Included in that number are cases that we win at trial. We don't shy away from trying cases; but like most carriers, we don't have a significant proportion of cases go to trial."

Adds Freedman: "We do not just settle cases. I can think of cases where we spent more on legal fees than it would have cost us to settle, but it wasn't the right thing to do. Our claims handling is top notch, and I don't think any insured could complain about the way we handle cases. Most of our policies have deductibles, and those deductibles do apply to indemnity, so in many cases the insured is bearing the first dollar of indemnity costs."

Tackling the challenges

Even in less turbulent times, the medical malpractice market presents significant challenges to insurers. "Our biggest challenge now is steering the course we have steered for the last 12 years or so-maintaining our discipline, keeping our vision, doing what's right for the insured, and making it profitable. That only happens if our underwriting team and our claims team and our accounting team and all of our support staff do their jobs right. It's very hard to tell a doctor, through his broker, 'You're in a high-risk market, and your standard rate of $10,000 is going to $50,000.' It's very challenging to explain this to him when he may feel the system was stacked against him, it wasn't his fault, the claim wasn't handled right-plus physician income is going down. So a big challenge for us is balancing all those factors, and keeping up with changes in each of the 50 states."

From an underwriting standpoint, Priddy comments, "One of our biggest challenges is the continuing influx of applications. We used to be very busy in January and July, so we'd get a chance to catch our breath and regroup. But that hasn't happened for the last year and a half; there hasn't been a slow period. Another challenge is to make sure we get a balanced spread of risk, so we're not writing in only one territory or only in one specialty. We try to meet the needs of the market and also protect the corporate bottom line, to make sure we're not going to write a high proportion of risks that are going to cost a lot of money in claims."

All of PULIC's claims are handled in Warschaw's office, Micevych explains, "so we have the same challenge of keeping up with what's going on in the 50 states. We have a strong commitment to local defense counsel, so we maintain a broad panel of defense attorneys and consultants that we use as necessary. Obviously, with the changes in this market, my challenge is to make sure that my claims department is up to the task, and I think we've done enough planning that we're ready."

In today's troubled market, Micevych observes, "there is a kind of crisis mentality, and we hear it when we talk to the doctors. There have been so many changes in the market and in the payment system in the medical profession that I think the doctors are feeling squeezed. When they become involved in a claim, they're more stressed, and they often feel victimized. Increasingly, medical care consumers are fed up with HMO rules, and the doctors are stuck in the middle. We believe that all of us in this business have to be mindful of that so we can respond to the market appropriately."

Flexible, pragmatic, and experienced, the professionals at Warschaw clearly are prepared to serve on the front lines of the constantly changing high-risk medical malpractice market. *

For more information:

Bernard Warschaw Insurance Sales Agency
Phone: 1-800-537-7362
Web site: www.warschaw.com