St. Paul discontinues malpractice insurance

In another display of how the market for malpractice insurance is in serious trouble, the St. Paul Companies recently announced that it would discontinue its malpractice insurance coverage. The action comes as many health care providers are facing huge premium increases and a dearth of coverage in some states.

St. Paul insures tens of thousands of physicians throughout the country, though the company does not release specific numbers. The St. Paul Companies discontinued its medical malpractice business as part of a restructuring intended to revitalize the company. The rest of the plan involves exiting certain reinsurance lines, exiting countries where the company is "not likely to achieve competitive scale," and staff reductions to reduce corporate overhead expenses.

Jay S. Fishman, chairman and CEO, says the actions are a response to major changes in the medical malpractice insurance market in recent months and years. Malpractice insurance premiums have dramatically increased in the past, mostly because the insurers realized — too late for many of them — that they had significantly underpriced their products. Many insurers raised rates more than 30% in the past year, and industry analysts say the trend will continue and quite possibly get worse in 2002. (For more on the premium increases and the mistakes that led to them, see Healthcare Risk Management, January 2002, p. 4.)

Fishman says St. Paul will complete the process of exiting the medical malpractice business on a global basis through nonrenewal upon policy expiration, in accordance with regulatory requirements. The traditional property-casualty segment of the unit — property, workers compensation, and commercial auto insurance for health care professionals and facilities — will continue to be underwritten by the company’s standard commercial underwriting operation.

Including the $600 million reserve increase, the company is forecasting that medical malpractice will generate a 2001 underwriting loss of approximately $940 million.

In addition, St. Paul’s reinsurance operation, St. Paul Re, will narrow its product offerings and geographic presence. The reinsurance operation will focus on several core areas, including property catastrophe reinsurance, excess-of-loss casualty reinsurance, marine and traditional finite reinsurance, and significantly rationalize its reinsurance branch office structure.

The unit will no longer underwrite aviation reinsurance, bond and credit reinsurance, or offer financial risk and capital markets reinsurance products, and it will substantially reduce the North American business it underwrites in London. St. Paul is forecasting a 2001 underwriting loss for the reinsurance segment of approximately $230 million, excluding losses relating to the Sept. 11 terrorist attack.

AMA strongly reacts to St. Paul withdrawal

Medical leaders were taken by surprise by the St. Paul surrender and some are calling it a clear sign that the nation’s judicial system is crippling both health care providers and their insurers. Donald J. Palmisano, MD, JD, secretary-treasurer of the American Medical Association (AMA), says the St. Paul announcement is "another piece of evidence that our tort reform system is broken and needs to be fixed."

At the AMA’s December policy-making meeting in San Francisco, the AMA House of Delegates renewed its longstanding commitment to tort reform, calling it one of the AMA’s top legislative priorities.

"The AMA has always held that patients who have been injured through negligence should be compensated fairly. Unfortunately, the current tort system has failed patients," Palmisano says. "The United States has created a liability lottery where select patients receive astronomical awards and many others suffer access-to-care problems because of it. We will never have true access to care for all unless the hemorrhaging costs of the current medical liability system are addressed."

Palmisano says the effect on physician practices is very real. The high cost of professional liability insurance forces physicians to close or limit their practices, he says. Some have stopped delivering babies and others are even going without professional liability insurance.

"The spiraling costs generated by our nation’s dysfunctional liability system are borne by everyone," he says. "We need a system that ensures fair compensation and puts an end to the liability lottery."

Pennsylvania physicians are finding it particularly difficult to obtain medical malpractice insurance. More than any other specialty medical profession, orthopaedic surgeons are finding it is nearly impossible to buy commercial medical malpractice liability insurance, according to a recent survey conducted by Susquehanna Polling & Research Inc. The survey shows that nearly 40% of orthopaedic surgeons contacted had been notified that their medical malpractice liability insurance would be canceled or nonrenewed as of January 1, 2002.

Only 10 days before most policies would terminate, 31% of those surveyed said they had been unable to obtain new insurance coverage for 2002, according to Pennsylvania Orthopaedic Society (POS) president Jeffrey A. Baum, MD.

"For several years now, orthopedic surgeons have been faced with skyrocketing insurance premiums due to a tort system in this state that favors plaintiffs," Baum says. "Now we’re seeing surgeons who may not be able to work in the emergency room or the operating room in January because they will not have insurance."

Recent paid advertising by 12 trauma centers in southeastern Pennsylvania warned that patients may be turned away beginning in January because so many surgeons were lacking insurance. Of the orthopaedic surgeons who reported that they were canceled or nonrenewed, 42% were from the five-county Philadelphia region. Similarly, those who reported that they have not been able to replace their coverage, 39% are from the same five-county region. The poll, commissioned by the Pennsylvania Medical and Orthopaedic Societies, also surveyed physicians in neurosurgery, OB/GYN, plastic surgery, and cardiology.

Pennsylvania’s doctors face some of the highest insurance rates in the country. In 1998, southeastern Pennsylvania awarded more money for medical liability cases than the entire state of California, Baum says. POS and other health care advocacy organizations are pushing for legislation to limit punitive damages and to create a cause of action for frivolous lawsuits. Additionally, they are asking for change in venue procedure as well as procedural and evidentiary rule changes in the judiciary.

Governor reaches out to help doctors

The governor of Pennsylvania was concerned enough to direct that emergency steps be taken to provide temporary relief from the high costs of medical malpractice insurance. Gov. Mark Schweiker announced the emergency steps in December 2001 and said the state would help providers get through the insurance crisis until comprehensive reform legislation can be passed early this year.

"While we continue to look at ways to overhaul what has become a financially burdensome system that threatens the quality of health care for Pennsylvanians, this temporary measure will provide some immediate relief to doctors in the short term," Schweiker said in announcing the emergency steps.

Schweiker directed the state’s Medical Professional Liability Catastrophe (CAT) Fund director John Reed to delay collection of the surcharge for the calendar year 2002 from the Joint Underwriting Association (JUA) on behalf of those physicians it covers until June 30, 2002. The governor also asked Insurance Commissioner Diane Koken to require the JUA to delay the deadline for submission of the CAT Fund surcharge by physicians until April 30, 2002. JUA is the "insurer of last resort" for medical malpractice in Pennsylvania and generally covers those physicians who are unable to acquire private insurance coverage. As the insurer of last resort, JUA is obligated to insure all physicians who apply for coverage.

With private medical malpractice insurers refusing to write new policies and, in some cases, declining to renew existing ones, the number of physicians forced to obtain coverage through JUA could double in 2002, according to state predictions.