RRG PHYSICIANS: IT’S TIME TO MAKE THE MOVE

In the aftermath of the last medical malpractice hard market, a number of Risk Retention Groups (RRGs) were created to provide what was, perhaps at the time, a reasonable alternative to the suddenly more expensive med-mal options provided by the remaining physician writers in the U.S.  We are now in the 12^th year of a softening market cycle.  It’s time for physicians who have their med-mal placed with RRGs to make the move back to the medical malpractice products offered by large, financially strong insurance companies.

RRGs are typically created at or near the peak of a hard market to provide a non-traditional medical malpractice insurance alternative when premiums for traditional insurance products are high.  As the market softens due to increased capacity and premiums for traditional medical malpractice insurance products come down (on a per exposure unit basis) there is less and less reason for a physician to leave a financially strong company providing a traditional risk-transfer med-mal insurance product to go to an RRG.   And the harder it is for RRGs to attract physicians away from A-rated financially strong carriers providing true risk-transfer med-mal products, the more they need to cut their prices and write riskier business just to stay alive.  There is a long list of failed RRGs in the U.S. and this dynamic is the primary reason why.  The bottom of a soft market, where I believe we are currently, is no time to place med-mal coverage with an RRG.

I believe that a good business consultant, which the best retail agents inevitably are, should encourage these physicians to ask the following important questions:

• What is the RRGs A.M. Best or Standard & Poor’s rating?

• How much policyholders surplus does the RRG have and what is the structure of their reinsurance program?

• How many physicians is the RRG currently insuring?

• What is the RRGs current combined loss ratio?

• In the event of the RRGs failure, is a doctor insured by the RRG personally liable for the claims of other insureds?

The physician or their retailer will probably find the RRG will not provide answers to these questions.  After all, the answers would reveal just how thinly capitalized many of these organizations are relative to the aggregate exposures they have on the books, how poorly the business is performing at this point in the market cycle and just how much financial risk their member physicians may be taking on by staying with the RRG.

Ethos Insurance Partners, Inc. is one of only two wholesale insurance brokerages in the U.S. exclusively focused on the entirety of the healthcare industry.  We are physician med-mal experts.  We understand that physicians are struggling financially now perhaps more than ever before because of ever decreasing reimbursements and increasing regulation.  The feedback I get from my retail customers across the country indicates some physicians simply need to reduce expenses any way they can just to keep their doors open.

And yet medical malpractice coverage ultimately exists to protect a physician’s business and their livelihood.  Of what value is it to pay a lower premium for an annual policy, let alone an expensive tail, if the company is not around to pay claims?  We all know you get what you pay for.  Given the nature of medical malpractice claims, especially for surgical class physicians, it just doesn’t make sense to go with the cheapest, least stable coverage alternatives unless there truly is no other option.

At this point in the market cycle premiums for solid, admitted medical malpractice insurance options from large, financially stable insurance carriers are as low as they have been for a very long time.  Even E&S options for non-standard physician risks provided by large, financially stable insurance carriers can now approach the terms provided by most RRGs.  It’s time for physicians who have their med-mal placed at RRGs to make the move.