New York’s Medical Malpractice Market in the Spotlight
by Michael Matray, editor of Medical Liability Monitor
New York’s medical malpractice insurance market was the subject of two lengthy articles last month that examined the state’s shifting competitive landscape and the questionable finances of its second-largest insurer of medical liability, Physicians’ Reciprocal Insurers (PRI).
In an article dated April 9, Politico New York primarily concentrated on the influx of risk retention groups (RRGs) to the New York market and its effect on the state’s admitted medical professional liability insurance companies. RRGs are governed by the federal Liability Risk Retention Act of 1981, which allows persons engaged in similar activities to band together as a self insurer to cover each other’s risks. The entity is only governed by the laws of the state in which it is domiciled, but free to offer coverage in all other states. Admitted insurers have been approved by the state’s insurance department, must comply with all state regulations, and in the event of financial failure, the state’s medical malpractice guaranty fund will cover its losses. The guaranty fund is a safety net financed by the state’s other admitted insurers. If an admitted insurance company fails, the costs are passed to the state’s other admitted insurers.
The Politico New York article noted that New York has 63 medical malpractice RRGs, 16 of which have entered the market since 2012. Because these RRGs are not required to pay into the state’s guaranty fund, they are often able to offer premiums that fall well below the state’s admitted insurers.
The less-expensive rates many RRGs are offering have affected the net written premium of the state’s two largest admitted insurers of medical liability, Medical Liability Malpractice Insurance Co. (MLMIC) and PRI. According to the Politico New York article, MLMIC’s net written premium decreased $79 million between 2014 and 2015, while PRI’s net written premium fell by $90 million. MLMIC remains financially strong with $1.8 billion in surplus, but as Politico New York points out, PRI reported a net underwriting loss of $12 million in 2015 and a $25 million loss in 2014. PRI’s liabilities exceed its assets by more than $138 million.
Because the New York Department of Financial Services has no control over the capital reserve requirements of RRGs operating in the state, and RRGs have the option to exit the market whenever they see fit, some legislators and regulators have expressed concern with their growing influence over the New York medical malpractice insurance market. “I know [an RRG] is a lower-cost option but I would say it is a riskier option,” Politico New York quoted state Sen. James Seward, who chairs the chamber’s insurance committee, as saying.
In an article also dated April 9, the Albany Times Union focused exclusively on the concerning financials of PRI and the role of Anthony Bonomo, the chief executive officer of Administrators for the Professions (AFP), Inc., which manages administrative and claims services for PRI. The reciprocal insurer has no actual employees and is operated by AFP, which collects a $42 million management fee from PRI. The article also noted that PRI’s 2015 expense ratio was 19 percent, more than double that of MLMIC.
In addition to chronicling PRI’s underwriting losses and negative surplus, the Times Union article delved into Bonomo’s role in events underlying the 2015 corruption trial of ex-Senate majority leader Dean Skelos.
In 1985, the state legislature enacted a law that allows medical professional liability insurers to operate at a loss. The law’s continued renewal is critical to PRI’s ability to operate, and the reciprocal spends considerable lobbying dollars to ensure that it does. Prior to his arrest in May of last year, Skelos was influential in passing the law’s most recent renewal, good through 2019.
The U.S. Attorney’s Office charged Skelos with extorting those with business before New York State to make payments to his son Adam with the expectation that such payments would result in official action by Skelos. According to prosecutors, Skelos pressured PRI to hire his son in 2012 for what turned out to be a no-show job. Skelos and his son were convicted in December of eight federal bribery, extortion and conspiracy counts involving PRI and two other companies. Bonomo was a witness for the prosecution, testifying under a non-prosecution agreement.
The Department for Financial Services declined a Times Union open records request for its three most recent financial examinations of PRI, saying the exams were never formally adopted and filed, and therefore not public.
Both the Times Union and Politico New York articles mentioned the unconfirmed industry rumor that AFP has been in ongoing discussions with The Doctors Company to sell its assets to the California-headquartered insurer of medical liability. [Editor’s note: On May 2, Politico New York published an article that reports The Doctors Company has withdrawn its offer to purchase AFP.]