Doctor Owned Insurers

Returning to the myths of med mal practice .... Michael Moody writes about physician owned med mal insurers in June's edition of Rough Notes (You may need to scroll down the left hand side to find article). His general thesis is that physicians are still moving to these alternative insurance arrangements. In addition, he claims that these alternative providers have lower combined ratios than commercial med mal insurers (The combined ratio is essentially the sum of the expense and loss ratio --and-- lower is better.) What is interesting about the article is that he traces the story of PHICO, a PA alternative provider of med mal insurance ....

Most of the physician- and hospital-owned and operated insurers formed in the 1970s and early 1980s have succeeded. However, some of these companies have abandoned their original mission and have opted for expansion. History has shown that this is a shortsighted strategy that has devastating results. In addition to PHICO, companies like MIIX, PIE Mutual, and Reciprocal Group of America got into trouble due to their expansion efforts. Conning & Company's latest report says it all: Successful medical malpractice companies should concentrate on a single line of coverage, operate in one state, and be physician owned. ..... [PHICO] was a company that was created by the Pennsylvania state hospital association in 1976. For many years, PHICO coexisted with several other medical malpractice writers in Pennsylvania, content to be a long-term solution for the state's health care institutions. Over the next 15 years, PHICO was quite successful, ... It made money and had a nice war chest of reserves .... And, above everything else, it was providing a stable market for the hospitals in Pennsylvania. However, PHICO did have several nagging issues that it could not resolve. One of the most pressing was the perception by the rating agencies. ..[who] were uncomfortable awarding their highest ratings to monoline insurers that operated in only a single state. So in the mid to late 1990s, PHICO decided to embark on an expansion strategy as part of an effort to improve its rating. The company realized that it could grow quickly by offering low premiums in highly competitive markets. By 1996, the company was in all 50 states. In addition, it also expanded its focus from insuring hospitals to doctors, and expanded its product line to include general liability and workers compensation. Ultimately, the expansion strategy ended in PHICO's court-ordered liquidation on February 1, 2002. In court, PHICO's officers indicated that regulators and insurance rating agencies alike encouraged their growth strategy.