Healthcare Professional Liability pt.3 – Navigating Your Choices

Over the last two weeks I’ve published articles focused on healthcare professional liability. The first was an overview of some of the challenges healthcare providers are facing and the second dove into one of those challenges, social inflation. This week I’d like to describe the variety of options healthcare providers have for purchasing their professional liability, aka medical malpractice coverage, while also highlighting some of the pros and cons of each option.

If you’re a healthcare executive, practice administrator, owner of a private practice or anyone else responsible for purchasing and evaluating insurance you may be aware of the options I’ll be detailing but you may not be aware of the pros and cons of each option. Whether you currently purchase your professional liability directly from a carrier, through a risk retention group, as part of a group purchasing pool or using an insurance agent like me there is valuable and critical information you should know about each option so you can be as informed as possible when you’re examining which option is best for you and your organization.

The first option I’ll highlight is one of the most common options I come across and it’s working with a “direct writer”, a traditional insurance carrier that works directly with you as a buyer. Some direct writers only work directly with clients and others will work directly with clients as well as with agents.

I’ll start with the pros of working with a direct writer. The first advantage is that, traditionally, they’ve provided more competitive pricing than working with an insurance agent. They are able to offer this pricing because they do not have to pay an agent commission which usually ranges from 12% to 15%.

The second advantage is one I’ve heard from a lot of organizations that currently work with direct writers and it’s that the relationship between the carrier and client is very valuable. Having this relationship with the company that is underwriting your policies, paying your claims, representing you in court if necessary and providing you with valuable resources is a huge advantage because there are some agents out there who, for a variety of reasons, don’t put in the time necessary to build a similar relationship with you. Also, for whatever reason, there are a lot of agents out there who are opposed to connecting you with your carrier. I do not know or understand why an agent would be opposed to this but many organizations I’ve spoken to feel like or, have experienced, agents are not only an unnecessary middle man but can often get in the way of productivity.

Another advantage I’d like to highlight is that most direct writers are solely focused on the coverage they provide to a specific buyer, in this case professional liability for healthcare providers. Most insurance agents are focused on covering all aspects of an organization and even more agents are what we refer to as “generalists.” A generalist insurance agent is someone who will work with any and all types of clients, from individuals to a wide variety of businesses. Direct writers who do provide specific coverage to a specific buyer typically excel at providing an exceptional level of service to their clients because everyone’s sole focus is healthcare professional liability.

Now I’ll go over the cons of working with a direct writer. The first con is that unless your organization is regularly examining other options it’s very difficult to know if your direct writer is still the best fit for you. The information you receive will always be biased in favor of their product and you’ll never see comparisons between their product and their competitors. If they do provide you with a comparison it can be difficult for you to know if it’s an accurate comparison or if they’re using cherry picked or outdated information on their competitors for the sole purpose of making themselves look better.

The second con of working with a direct writer is that many of these companies are either publicly traded or backed by private equity groups. Anytime a company is beholden to its investors the people you work with don’t have as much input on decisions made at the leadership level. Decisions that can impact you as a policyholder like cutting staff, increasing rates, changes to the resources provided or other pivots that we’re seeing more and more companies make in an effort to maximize profits.

The last con I’ll highlight is a downside of the last pro I mentioned. Insurance carriers who provide a specific coverage to a specific buyer can become more exposed to the impacts of market wide struggles. As you know, we’ve seen a dramatic increase in the number of nuclear verdicts over the last decade. These verdicts hit every insurance company but insurance companies who don’t have multiple lines of coverage that provide them with multiple streams of revenue can have a harder time managing the increase in claim payouts they’re making.

The second option I’ll highlight is also a very popular option among healthcare organizations and it’s Risk Retention Groups (RRGs). Risk Retention Groups function very similarly to insurance carriers but there are some key differences that set them apart. RRGs are insurance providers that are created to cover similar risks. They are owned by the members of the group, similar entities purchasing coverage. Just like direct writers, some RRGs only work directly with buyers and others will work with agents.

Like direct writers, one of the more attractive advantages of working with a RRG is that they offer competitive pricing. Not only are they solely focused on one type of risk, in this case healthcare organizations, but because they are owned by the members there are no shareholders or investors demanding dividends or consistent profit growth.

Another advantage of RRGs is that they have tremendous control over their programs and services. What I mean by this is that because they work with one type of client, their underwriting, claims handling, loss control and other departments are only focused on that one client type. This allows them to become experts in working with you, meeting your needs and providing as much value as possible. It also means that their underwriters will be intimately familiar with all the rating factors impacting your organization and provide the best rates they can.

One of the advantages of working with an RRG is also a disadvantage and I’ll explain both here. RRGs are not required to comply with insurance regulations in the states where they operate. Some are set up in a way that would be compliant but the advantage of not being beholden to these regulations is that they are able to make changes to their policies much more quickly and much easier than an admitted insurance company that has to have changes to their policies and rates approved by the state insurance departments where they operate.

The disadvantages to not being held to the same regulations as a traditional insurance company is that RRGs do not pay into each states guarantee fund. Every state has a guarantee fund that is in place to pay the claims of any admitted insurer that declares bankruptcy or becomes insolvent. All admitted carriers pay into the guarantee funds in every state where they operate. Another disadvantage is that their policies may not provide coverage that’s as comprehensive or broad and if you disagree with the way they’ve handled a claim, there’s nothing your state’s insurance commissioner can do to intervene.

Another disadvantage of RRGs, loosely related to their lack of state oversight, is that more RRGs have gone insolvent over the last decade than traditional insurance carriers which has left more insurance buyers scrambling to find alternatives and, in some cases, on their own to pay any open claims. The last thing you want for your organization is to find yourself suddenly uninsured without any prior warning. I’ve worked with organizations in this position and it is not a fun process for anyone.

As I’ve mentioned previously, both insurance carriers and RRGs work with insurance agents like me. Some don’t, they’ll only work directly with you, but most will allow agents to represent you. As an insurance agent, it’s difficult for me to remove the bias that I have about working with agents but I’m going to do my best.

Working with an independent agent provides your organization with more options than working with a direct writer or RRG. If you evaluate different options on your own, you know how much time and effort goes into that process. Our agency utilizes different software and technology to reduce the amount of time you need to spend completing applications and providing information. This cuts down on your required workload when examining alternatives and almost always leads to more options for you to review.

Once I have those options for you to review, the advantage of working with me is that I will spend time with you explaining the differences between those options. Most buyers are savvy enough to know that price is not the only difference, but some aren’t. Especially in healthcare professional liability the differences between policies go far beyond the price itself. How claims are paid. How coverage continues if you refuse to settle when your carrier is recommending it. Whether or not your retiring and departing physicians have tail coverage. These are all differences I’ve seen between policies from various carriers. These differences are not easy to identify because they’re cloaked in legalese, vague definitions, endorsements, exclusions and many of the policies are hundreds of pages long.

Another advantage to working with an agent is that you have 2 service teams, one at the agency and one at the carrier, who are there to respond to your needs and help however they can. Our agency has invested in resources, tools and benefits I provide to my clients. Just like direct writers and RRGs, we want to invest in your organization to help prevent & mitigate claims. I can’t speak for direct writers or RRGs but in addition to providing you with value today, I want to help all of my clients with their plans for the future. A lot of organizations have roadmaps, strategic plans and goal that they are working towards and these ambitions typically come with insurance and risk management implications that I want to help you consider and factor in because it’s always easier to be proactive than reactive.

Relationships matter, especially to healthcare providers, and one of the advantages of working with an agent is that, if you’ve found the right agent, you don’t have to completely abandon and restart a relationship when you move to a new provider for your policies. As I mentioned previously, some agents are opposed to connecting their clients with the insurance carriers but I am not. In fact, I typically go out of my way to connect my clients with their carriers because there’s no better way to make sure everyone is on the same page than productive communication. Additionally, both you and the carrier will be more comfortable and confident in the relationship when the opportunity to learn more about each other’s organization is taken.

Now, I said I would do my best to remove my bias from this option and doing that means I need to outline the disadvantages to working with an agent. You may have noticed that in the previous paragraphs I used a lot of first-person verbiage and that’s because I can’t speak for all agents, only myself. However, one potential disadvantage that exists in working with an agent that even I can’t overcome is the added commission carriers and RRGs add to the premium to compensate us as your agent. That being said, a good agent will likely be able to negotiate rates as well as provide more than enough value to make up for the added premium you pay.

Another disadvantage to working with an agent is just how easy it is to find yourself working with an agent who’s not experienced or equipped to meet your needs. Early on I used the term generalist to describe an agent who doesn’t have one specialty or will work with anyone willing to give them an opportunity. Significantly more agents fall into this category than work within defined niches and they typically struggle to provide the same level of value to their clients. I do have defined niches and they are nonprofit organizations, healthcare providers / organizations and other organizations that fall into the human service category. There’s a markable difference between working with a generalist and a niche focused agent.  

The last downside I’ll highlight to working with agents is that the insurance industry as a whole, but especially at the agent level, is struggling with an ageing workforce. Over 70% of experienced agents are over the age of 55 and are looking to retire in the near future. On top of that, many agencies struggle to retain account managers so it puts you in the position of having to get to know new contacts frequently while also wondering who will take over your account when your agent retires.

As a summary, the three most common options for healthcare organizations to purchase insurance is through direct writers, risk retention groups and insurance agents. Each option comes with pros and cons but it’s also worth finding the option that works best for you and your organization. You’ve probably had good and bad experiences with one or all of these options in the past but I would encourage you not to let one bad experience impact how you view that option moving forward. There are good and bad direct writers, RRGs and agents alike.

As an agent, I’ll always believe that working with someone who can provide you with a variety of options as an independent mediator as well as help you understand the implications of those options will yield you the best results.

About the author – Drew Colwell is a commercial insurance agent and risk manager who specializes in working with nonprofit organizations, healthcare providers and other human service related businesses all over the US. His contact information is below.

Phone: 406-204-3666



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