PROMUTUAL GROUP: MED MAL STRATEGY RELIES ON TEAMWORK

Rough Notes, Oct 2004 by Zinkewicz, Phil

Conservative, agent-focused carrier expands beyond its Massachusetts origins

Of all the liability lines of insurance-product liability, pollution liability, employment practices liability-probably the one that has stirred the most emotions among the public in recent years is medical malpractice liability. In product liability cases, the debate is usually over whether a product is defective vs. whether it was misused, and money is at the bottom line. Similarly, in pollution liability and employment practices liability, what is at issue is how much and who will pay in order to right the wrong that has allegedly occurred.

Money is at the bottom of medical malpractice suits as well, but the emotional element stems from the fact that the wrong is usually alleged to have been committed by a person or persons in the medical community. The very people and institutions who are supposed to be there to help us-the doctors, nurses, hospitals, nursing homes, etc.-are being accused of some sort of misconduct leading to injury to or death of the patient.

Juries are usually more than sympathetic to people who have suffered injuries while under the care of medical professionals. Perhaps that's why jury awards have been increasing in recent years in medical malpractice cases. Jury Verdict Research of Horsham, Pennsylvania, says that the median award jumped 40% in 1998, from $500,000 to $700,000. There was no change from 1998 to 1999. Then in 2000, the median skyrocketed 43%, to $1 million. Today, jury awards of $1 million or more are considered the norm.

The severity of jury awards has caused many malpractice insurers to rethink their participation in the marketplace. Many have seriously curtailed their medical malpractice underwriting, and it was only a few years ago that The St. Paul, at one time the leading medical malpractice insurer, pulled out of the business altogether. Many of those that stayed in the business raised rates to such levels that some doctors have exited their professions and others have taken to the streets to protest what they claim are crippling medical malpractice premiums.

So far, lawmakers on both the state and federal levels have made little progress in bringing stability to the medical malpractice arena. While efforts to introduce caps on medical malpractice awards have succeeded in some states, no significant reforms have been enacted to any large degree. Likewise on the national level, to date no med mal reform has emerged from Congress.

This isn't the first time that medical malpractice insurance reached crisis proportions. In the 1970s, malpractice insurance was almost exclusively provided by large national carriers. These companies were financially strong; however, when awards began to grow larger and companies began to experience large losses, they abandoned the medical malpractice market.

Unable to obtain malpractice insurance at any cost, groups of physicians organized with the support of state medical societies, and doctor-directed insurance companies were born.

ProMutual Group evolved into one of those companies and, according to its chairman, Barry M. Manuel, the goal of the company was to "never again" have the fate of medical practices in the hands of companies with little commitment to health care. For a time, in the late 1980s, rates for physicians and hospitals stabilized. But the 1990s brought on increasing numbers of malpractice lawsuits and increasing jury awards while, because of a burgeoning stock market, investment earnings caused insurers to seek premium dollars to invest and to underprice their products. Many malpractice insurers fell by the wayside when this "cash flow" scenario exploded during the late 1990s and the turn of this century. But ProMutual Group continued on. Insurers, ProMutual Group among them, came to the harsh realization that premiums needed to increase in order to stabilize the marketplace.

Richard W. Brewer, president and CEO of ProMutual Group, describes the current scenario this way: "The past few years have been a time of financial instability and rising rates, what many in the industry have called a 'perfect storm.' This resulted from the convergence of low premiums, intense competition, rapidly rising claim frequency and severity, the economic impact of 9/11, and modest investment returns.

"Over the past three years, we have implemented rate increases in every state where we do business in order to bring rates in line with loss experience," he continues. "We are just now beginning to see the benefits of these past changes. In 2003, rates became more adequate. One of our key ratios, the combined ratio, that compares premiums to claim and operating expenses, improved and we expect it to improve more significantly in 2004. Toward this goal, we are pursuing a number of initiatives designed to write additional quality business. ProMutual Group is no longer a one-state operation."

Initially, ProMutual Group wrote business only in Massachusetts but has branched out and today writes in all the New England states and in New Jersey.