{"id":1538,"date":"2023-09-20T14:54:15","date_gmt":"2023-09-20T14:54:15","guid":{"rendered":"https:\/\/acadia.pro\/?p=1538"},"modified":"2023-09-20T14:54:15","modified_gmt":"2023-09-20T14:54:15","slug":"exit-stage-left-when-med-mal-insurers-unwind","status":"publish","type":"post","link":"https:\/\/acadia.pro\/exit-stage-left-when-med-mal-insurers-unwind\/","title":{"rendered":"Exit Stage Left: When Med Mal Insurers Unwind"},"content":{"rendered":"

Since the last major medical professional liability (MPL) insurance crisis (circa 2002), numerous new companies have been formed to fill what was a significant \u201cavailability gap.\u201d\u00a0 Many of these new companies had strong management teams and exercised discipline to enjoy long-term growth in both premium and surplus.\u00a0 Over time, some of these companies have sold to larger companies and their physician shareholders were paid substantial surplus distributions. \u00a0A second subset of these companies remains in operation and continues to grow surplus today.\u00a0 However, there is a third subset of these companies that experienced far less success.\u00a0 These companies – unable to adequately grow surplus \u2013 are inevitably forced to cease operations. \u00a0The way in which all MPL companies unwind their operations has major implications on the physicians they insured.<\/p>\n

Sale vs. Book Roll<\/u><\/strong><\/p>\n

Sale:<\/u><\/p>\n

When MPL insurers sell, the assets and<\/em> liabilities transfer to the buyer, thus protecting (the selling) physicians from future claims.\u00a0 In the event of a sale, policyholders often receive distributions based on the selling company\u2019s surplus.\u00a0 Policyholders with claims \u2013 whether already reported or \u201cincurred but not reported\u201d \u2013 do not have to worry about whether or when the acquired company will run out of money.\u00a0 The buyer steps into the shoes of the seller and handles all covered MPL lawsuits.<\/p>\n

Book Roll:<\/u><\/p>\n

A book roll is essentially just a transfer of a customer list (\u201cbook\u201d).\u00a0 Generally, the company selling its book (the \u201ctransferor\u201d) becomes a broker – making a commission on any policyholder who renews with the purchasing company.\u00a0 Reported lawsuits remain the responsibility of the transferor.<\/p>\n

If the transferor\u2019s reserves and surplus are depleted, physicians are left to personally deal with any fallout.\u00a0 If the transferor is what\u2019s known as an \u201cadmitted\u201d company, a state guaranty fund will often provide limited protection for a limited time.\u00a0 If the company is a risk retention group (RRG), it has no such state protection.<\/p>\n

Runoff<\/strong><\/span><\/p>\n

Although each situation is unique, MPL insurer failures typically follow the same cycle.\u00a0 The first stage is what\u2019s known as a runoff, during which any remaining money is allocated to pay outstanding claims.\u00a0 If\/ when liabilities are projected to exceed assets (insolvency), an insurer would then go into liquidation.\u00a0 Regulators often have discretion to get involved prior to liquidation to try to rehabilitate the company, but almost always take over the liquidation process.\u00a0 It is during liquidation when physicians learn the time period, and how, to file a \u201cnotice of claim.\u201d \u00a0Statutes of limitations (SOLs) become critical, but exceptions to SOLs that allow for tolling – such as for \u201cdiscovery,\u201d or for minors, increase physician anxiety.<\/p>\n

The type of coverage physicians have is also important.<\/p>\n

Coverage Types<\/strong><\/span><\/p>\n

Claims-made: <\/u><\/p>\n

Physicians who have claims-made coverage can transfer it to another insurance company, assuming the new company is willing to pick up the \u201cprior acts.\u201d\u00a0 Thus, any new claim that arises becomes the responsibility of the new company.\u00a0 (Note: claims already known and\/ or reported will not be transferred.*)<\/p>\n

Occurrence (\u201cpre-paid tail\u201d) coverage:<\/u><\/p>\n

Physicians with occurrence type coverage have few options.\u00a0 Ideally, any reported lawsuit already has adequate reserves assigned, and no new claims will arise.<\/p>\n

\u201cRun on the bank:\u201d<\/u><\/p>\n

Once a company failure is reported, physicians with pending claims tend to want to settle all known cases as soon as possible so they are not left personally holding the bag.\u00a0 Settlements beget settlements.\u00a0 Settlements also attract lawsuits. More lawsuits lead to more settlements.<\/p>\n

Options<\/strong><\/span><\/p>\n

If your MPL company Is undergoing a significant change, it is essential to understand what type of transition is occurring and how it will impact you as a policyholder.<\/p>\n

Some key questions:<\/u><\/p>\n