Specialty Insurance Blog

Not About Insurance

Please permit me a personal detour today.  I happened to pick up a USA Today and found an interesting article about a guy I know (see here) and about a documentary on his life (called "Keeper of the Kohn", see here for more info).  This individual, Pete Kohn, is 73, has autism and has been part of Middlebury Lacrosse for many years.  (Disclosure - I played for this team many years ago).  He has been an inspiration and a reality check for many players over the years, and my kids have watched him be part of the team and appreciated by its members.  While I have not yet seen the film in its current form, I have been around (and in) the filming over the last three years.  An amazing site to see Pete and many of the players, coaches and supporters share their experiences from this relationship.  Quite an inspiration.

Medical Malpractice - III

The Massachusetts Board of Registration in Medicine has produced an interesting analysis of medical malpractice insurance payments in Massachusetts (see here).  The analysis looked at 2,876 claims from 1994 to 2003, with total payments over $1.0 billion, or $161 for every Massachusetts resident.  The data support a general sentiment that frequency has been reasonably stable, but severity is up significantly.  Frequency was up from 1994 to 2003 by 8.2%, and severity appears to be up quite a bit more, but the data is not clearly provided.  (See p. 28 for the details).

The report concluded that physicians with more than two claims have a higher incidence of other problems and represent a huge cost to the system.  The report also concluded that one or two claims is not prima facie evidence of either professional misconduct or substandard care.

The report goes on to discuss variations in malpractice payments based on specialty, but did not relate high incidence specialties to the conclusion about physicians with more than two claims.  Is a physician with more than two claims in a high incidence specialty a sub-standard physician?  I doubt it, but the report makes it sound so.

The report notes that only 2% of all payments were jury awards, but that jury awards were considerably higher than non-jury payments.

A report today (see here) outlines a recent jury award in Massachusetts of $24 million against two OBs.  Not a lot of detail is provided, but simple (highly simplified) math would indicate an increase in premium of $772 on the approximately 31,000 docs in Mass.  Is this the result of a tort system run amuck?  Or is this a reasonable award?  Regardless, the math shows the impact of claim severity on premiums.

One other question that is raised by the description in the article is the very different perspectives the plaintiffs and defendants have on causation.  In many cases, being able to prove what actually happened can have a big impact on the outcome.  My experience has been that this often benefits the defendant more than the plaintiff, but of course it depends on the situation.  Risk management, particularly risk management programs focused on procedures, can have a significant impact on outcomes and should be instituted by all medical practitioners.

Then there is this, and this doesn’t help the cause.  As recently reported (see here), two SC insurers, the Joint Underwriting Association and the Patients Compensation Fund, raised their rates 22% immediately after a bill was signed into law capping pain & suffering awards in medical malpractice claims.

Attorneys Professional Liability

According to a recent article on legaltimes.com (see here), law firm malpractice suits have risen significantly.  A study to be released by the ABA in June notes that the number of claims in excess of $2.0 million has risen 60% since 1996.  As the stakes in the cases have grown, the complexity of the cases has grown as well, resulting a number of suits in excess of $10 million.

Underwriters of law firm professional liability have responded as you would expect – requiring more information and reviewing submissions more thoroughly.  This has led to further segmentation in the market and higher pricing for all accounts over the last few years.  More recently pricing has been stable for most traditional law firms.  Underwriters are currently maintaining rate levels, rather than raising rates, in the face of competition.  They are compensating for the higher claim levels by underwriting more thoroughly.  This results in the declination of those firms with claim history and tougher practice areas such as plaintiffs’ class action work and intellectual property work.  These types of firms must then go to alternative markets at higher prices.

Like many classes of professional liability, the result is pricing stability for most, but not all, accounts.  There are always a number of organizations that do not fit the mold, and standard underwriters will generally not write these.  Other specialty markets, those that focus on writing these unusual risks, are available for these unique or higher exposure accounts.  We expect this trend will continue as the market continues to soften.

Time & Technology

Food for thought for Friday.  Roger McNamee, venture investor and author of The New Normal, offers some advice for succeeding after the 90s in a time when technology and globalization continue to impact us, and time becomes more precious.  (See here)

FBI Probe of Insurance

The FBI, working with other regulators including the National Association of Insurance Commissioners (NAIC) is reviewing the AIG situation and other companies to determine whether fraudulent accounting issues are more pervasive in the insurance business (see here and here).

The Wall Street Journal, reporting on the investigations, commented:

The FBI has found in previous corporate-fraud cases that they tended to involve more than one player in an industry.  “If one was doing it, others had to stay competitive.”

The FBI Financial Crimes Section has 405 corporate-fraud cases open…That represents a doubling of the number of pending cases at the end of fiscal year 2003.

The FBI did not disclose the number of insurance related cases, and did not expect to make any announcements regarding its investigations in the near future.

Business Ethics

The daily articles on Sptizer et al vs. the Insurance Industry are disappointing and reflect badly on everyone in our industry.  Most of the insurance industry practitioners are ethical and expert, and are getting punished for the arrogance and greed of a few.  This problem is not limited to the insurance industry.  I am reminded of a recent read of The Wall Street Journal (3/24/05) which I did not previously include in this blog, but feel compelled to now.  As described in the WSJ in one issue, this is the business world we work in, live in and insure:

·        Don Imus possibly cutting corners on his taxes with his Imus Ranch

·        David Myers, former controller of Worldcom, having his life destroyed by bad (and unethical and illegal) accounting decisions

·        Alephia apparently close to settling with the SEC and Justice Dept. for approximately $725 million from its accounting and looting scandal

·        JP Morgan and law firm Skadden, Arps taking an aggressive (arrogant?) approach to the Worldcom settlement & losing

·        Morgan Stanley & law firm Kirkland & Ellis accused of failing to produce requested documents by a judge.

·        “How and Why We Lie at the Office…” – (Ethics in the Workplace)

·        Barry Bonds retiring from baseball because of a bad knee (not because of BALCO or steroids)?

·        Three brokerage firms and a mutual fund firm agree to settle allegations of improper sales practices for $81 million in fines

·        A US Attorney’s office confirming a criminal investigation into payments made to former Hollinger executives

·        Hank Greenberg possibly taking the 5^th after losing his job as CEO of AIG

Insurance Cycle - Again?

As in other parts of the insurance business, the specialty lines insurance market is beginning to see signs of a return to the soft market.  The symptoms include broader coverage and loosening underwriting guidelines in addition to the standard approach - aggressive pricing.

Everyone has stories of price cutting.  Our most recent example is a lawyers’ professional liability account: the incumbent dropped the renewal pricing from an expiring price of $18,000 to $14,000.  They did not keep it, though, as a new player quoted $8,000.  Hard to tell what the right price is, but with pricing going from $18,000 to $8,000 someone did not have it right.  This is not representative of the specialty lines market overall, but is, in our opinion, an indicator of where the market is headed.

The President of one of our key markets, Western World, has a good discussion of the current specialty lines insurance market in the Message to Shareholders section of their most recent annual report (see here, pp 3-5).

Three reasons for the softer market are noted in the report:

Wall Street – Rewards growth

New Capacity – Entering in the form of new insurers

Prosperity – May foster more aggressive competition

Some rationale for not returning to the destructive competition of a few years ago is also provided:

New Accounting Standards – Sarb-Ox in particular

Lack of Prosperity – The best ROE we can do is <10%

Low Interest Rates – Contribute to low ROEs

Diminished Reinsurance Market – Reduced capacity

Memory of Recent Past – Is still with us

One caveat – The industry has never had a long memory.