Part I: Standard Medical Professional Liability Insurers Enter RRG Game: Leverage Extensive Industry Experience, Reinsure Risks Via Parent Company

Editor’s note: Today’s blogpost is the first of a two-part serieson standard medical professional liability insurance companies entering the risk retention group market. The article the two-part series originates from was initially published in the July 2012 issue of Medical Liability Monitor, the industry’s premier source for consistent, reliable coverage and fresh perspectives on medical professional liability insurance and risk management issues. Click on the preceding hyperlink to visit the Monitor’s website, where subscription information is available.

Risk retention groups (RRGs) have been insuring medical professional liability exposures for more than 25 years. Traditionally, these alternative risk transfer mechanisms have played a larger role in insuring hospitals and large groups than they have in standard individual physician risks, but current healthcare trends have made RRGs an attractive option to certain standard medical professional liability insurance companies.

An RRG is an insurance vehicle formed and operated under provisions of the Federal Liability Risk Retention Act (LRRA) of 1986. The LRRA’s intent was to increase the availability of liability insurance by preempting most state regulations for groups of insurance buyers that meet certain requirements.

Once an RRG meets the insurance regulations of the state within which it is domiciled, the LRRA allows it to enter new markets without requiring the new state’s approval authority over rates, coverages, forms, insurance-related services, management, operation, investment activities or loss control and claims administration.

In the last few years, some standard insurers of medical professional liability have been dipping their toes into the alternative risk transfer market, founding RRGs as a means of entering new markets as well as to better address current healthcare trends and anticipate the future needs of their customers.

Cracking the Big Apple

New York is a complicated market for medical professional liability insurance. Competing as a non-admitted carrier can be a hard sell to physicians because in the event of insolvency, a non-admitted insurer does not have the backing of the state’s Insurance Security Fund. And if the non-admitted carrier’s financial condition deteriorates, state law allows the carrier to levy capital investment assessments to replenish surplus.

It wasn’t until recently that standard medical professional liability insurance companies were allowed to develop an RRG, enter New York and use its parent company as the RRG’s reinsurer.

Medical Protective was the first to do it, entering the New York market with its MedPro RRG Risk Retention Group in 2010. The RRG is managed and reinsured by the parent company, Medical Protective, and according to Risk Retention Reporter, it wrote $13.9 million in direct written premium in 2011.

In May of this year, Coverys followed suit, announcing that it had formed Coverys RRG, Inc., registering the entity to do business in New York.

“The big motivator for founding Coverys RRG was to enter the New York market,” said Mike Kubik, Coverys vice president of marketing and communications. “It’s much less prohibitive to enter the New York market on a non-admitted basis than as an admitted carrier.”

Kubik highlighted the advantages a physician would enjoy when insured by Coverys RRG as opposed to the traditional RRGs that were previously the only alternative-risk option available.

“What’s different from a traditional RRG is that ours is financed by the parent company, Coverys,” he said. “Historically, RRGs have required capital contributions from its insureds to establish a reserve. We’ve done that for them. Although independent from the parent, they also have access to all the services that are common from a standard carrier standpoint. All of our cultural, defense and pricing philosophies—as well as marketing and customer service abilities—are going to be almost identical because the company backing this RRG is Coverys.”