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Captive owners react to hardening medical malpractice market

Captive owners react to hardening medical malpractice market

MIAMI – Health care captive owners should review their options as claims increase and medical malpractice insurance rates surge, a panel of experts said.

With higher retentions being forced on policyholders, those with captives can retain more risk and use their captives to cover other tough lines, they said.

The commercial med mal market is operating at an aggregate underwriting loss as jury verdicts and settlements increase sharply, said Philip Reischman, executive vice president at Alliant Insurance Services Inc. in Houston.

He was speaking Tuesday during a session at the World Captive Forum in Miami, which is sponsored by Business Insurance.

With losses mounting, some insurers are reducing capacity, “making it harder to put together malpractice programs,” Mr. Reischman said.

In some cases, insurers are going out of business or exiting the market, but in other cases insurers are “doubling down” and are looking to grow their books of business, said Jean-Paul Rebillard, president of MedPro Specialty in Philadelphia, a unit of Berkshire Hathaway Inc.

“Everyone is essentially re-underwriting their books of business and looking at pricing, terms, conditions, attachment points, limits, etc., so there are some unique challenges, and we find ourselves at an inflection point in the market cycle,” he said.

Captive owners can use them to respond to changing market conditions, said Eric Gardzina, vice president, corporate insurance and risk management at Envision Healthcare Holdings Inc., a Nashville, Tennessee-based health care company.

“As a captive owner, this is the perfect time to have a captive, in a lot of ways,” he said.

Owners can use their captives to replace commercial coverage as prices increase, Mr. Garzina said.

In some cases, however, with jury awards and settlements increasing, it may make more sense to remarket their accounts and possibly pay more for coverage from commercial insurers, he said.

“It has to make sense at the end of the day, and if it doesn’t then we have the captive opportunity,” he said.

Either way, captive owners will have to analyze their exposures more thoroughly and ensure that senior leadership in their organizations agrees to any changes in risk management strategy, Mr. Garzina said.

Captive owners should also consider funding retentions within their captive at a higher level, in response to the rising verdicts and settlements, said Laura Ratcliffe, director, risk and insurance services at BayCare Health System, a Clearwater, Florida-based hospital system.

Previously, the captive had not fully funded BayCare’s retentions because most claims fell well below the retentions, she said.

“Now, our working layer is higher and is closer to each and every retention, so this year we are fully funding that layer,” Ms. Ratcliffe said.

Funding the full retention helps shield the organization from volatility in insurance costs and claims, she said.

In addition, BayCare is considering placing other risks in its captive as prices increase in other lines, Ms. Ratcliffe said.

“One of the things we are looking at is property because the property market is bad as well,” she said.

Envision Healthcare is considering placing property and cyber risks in its captive, Mr. Garzina said.