Malpractice insurance has always been a topic of conversation among doctors, but the conversation seems to be going in two different directions when it comes to out of state carriers. Insurance companies in New York have become good at protecting doctors within the rules that the state has set up, but out of state carriers that have bad business practices could soon make New York a state where medical malpractice is a big problem.
What Is Going On With The Medical Malpractice Insurance?
It has been noted that the bulk of all medical malpractice insurance in the state of New York is written by five
companies. One of those companies, Physician’s Reciprocal Insurers (RPI), has a negative financial balance of $138 million and is currently being investigated by the federal government. If RPI fails, then that means that all of its doctors would need to find new carriers.
In New York State, the five medical malpractice carriers pay into a general fund that is used to help doctors pay claims if their insurance company fails. Since RPI and its competitor Medical Liability Mutual Insurance Company (MLMIC) write almost 60 percent of all of the malpractice insurance business in the state, the hit to the general fund is going to be large.
Due to the fact that the five main insurance companies pay into a fund, their premiums tend to be higher than out of state carriers. For years, out of state carriers avoided selling medical malpractice insurance in New York because of the high risk of lawsuits throughout the state. However, since the introduction of the Affordable Care Act in 2010, those lawsuit numbers have dropped tremendously, and now out of state carriers are flooding the state with cheap malpractice insurance premiums.
Looking To The Future
According to the MLMIC website, out of state carriers tend to create very low premiums to undercut the five New York insurance companies and write a lot of business. The out of state carrier MedPro saw its New York premiums grow from $13.9 million in 2011, all the way up to $137.2 million in 2015. That means that a lot of medical organizations went for the cheaper out of state premiums and left their New York carriers.
The situation with RPI should act as a warning to medical professionals who do not turn to the New York carriers for their insurance. Any medical organization that was insured by RPI will be able to dip into the general fund to take care of any pending settlements while they look for a new carrier. But what would happen if an out of state carrier failed?
The Dangers Of Cheap Insurance
Out of state carriers (also referred to as Risk Retention Groups, or RRGs) are not bound by the rules of New York
State. That means that New York cannot make RRGs pay into the general pool, and New York cannot examine the books of each RRG to make sure they are stable. The RRGs operate under their state laws, and that prevents New York State from being able to regulate these companies in any way.
An RRG is not obligated to do any market research to determine the risks of insuring New York medical professionals, and they are not required to understand the New York market at all. Due to a law signed by President Ronald Reagan in 1981, insurance companies can sell malpractice insurance in any state and are only obligated to run under the laws of their home state. When the malpractice environment in New York improved, a flood of dozens of RRGs started selling insurance throughout New York.
If a New York medical organization is covered by an RRG and that RRG fails, the medical organization no longer has malpractice coverage. What this means is that patients who have been affected by negligent doctors will be unable to collect any settlement to help ease their suffering and even correct the damage that has been done.
Doctors Looking For New Insurance
As RPI teeters on the brink of collapse, a long list of RRGs is waiting to swoop in and take the business that RPI will leave behind. MedPro is a relatively stable insurer with a long business history, which makes it an RRG that does not concern New York State observers very much. However, there is a very long list of questionable RRGs selling malpractice insurance in New York State, and they could be creating a disaster waiting to happen in the New York medical malpractice insurance industry.