PLICO overcomes $143 million deficit
by Marie Price
OKLAHOMA CITY â€“ In 2003, if an Oklahoma medical doctor needed malpractice insurance, the Physicians Liability Insurance Co., founded by the Oklahoma State Medical Association, was pretty much the only game in town â€“ and it was in trouble.
At the time, PLICO insured between 80 percent and 85 percent of Oklahoma physicians.
In November of that year, PLICO officials asked the Oklahoma Insurance Department for a whopping 82.8-percent rate hike, which would have cost doctors more than $40 million in 2004.
That was on top of a 60-percent rate increase for 2003.
PLICOâ€™s request sparked the first-ever rate hearing as mandated by a new Oklahoma tort reform statute. The law required then-insurance Commissioner Carroll Fisher to conduct a hearing if doctors asked for one. Several physicians told Fisher that such a massive rate boost would damage their practices. Some said the PLICO filing penalized them, even though they had no history of malpractice lawsuits.
Dr. Carl Hook, PLICO president and CEO, said the average Oklahoma doctor saw his or her liability insurance rates increase between 300 percent and 325 percent between 2001 and 2005.
Hook said a spike in malpractice claims and verdict amounts fed PLICOâ€™s problems.
However, plaintiffsâ€™ verdicts were not the insurerâ€™s only woes.
â€œOur insurance was much less expensive than surrounding (states), and we offered larger limits than other insurance did,â€? said Hook. â€œThat is some of the problem of why we got into financial problems.â€?
Hook said that PLICO no longer offers the $5 million policy limits it once wrote.
In 2003, PLICO was still writing occurrence-based policies, not the claims-made insurance it offers today. Generally speaking, an occurrence policy covers incidents that happen during the policy period, without regard to when claims are reported. Claims-made insurance covers incidents that happen and are reported while the policy is in force.
Hook said that PLICO had no reinsurance on its occurrence book of business, because reinsurers would no longer cover it.
Ultimately, Fisher approved the requested increase, but spread it out over three years. PLICO also stopped writing occurrence policies in mid 2004.
â€œWe were able to purchase reinsurance at that time,â€? Hook said. â€œSo, weâ€™re reinsured for new claims originating since July of â€˜04.â€?
Hook said that PLICO had 1,250 open claims when new management took over in 2005, a figure that has since been cut to about 250, on its old book of business. He said that PLICO has a couple of hundred open claims on its new types of policies.
He also said that PLICO has been able to reduce the average amount of time it takes to resolve a case from five and one-half years to less than four years, with a goal of three and one-half years. He said the industry average is about five years.
â€œThatâ€™s the bad thing about litigation of medical malpractice,â€? Hook said. â€œYouâ€™ve got to charge your physicians premiums now for what you may need to be spending on them four and five years down the road. Thatâ€™s hard to predict.â€?
Itâ€™s also part of what got the company into trouble, he said.
â€œThey did not charge enough premiums in the late â€˜90s and 2000 and 2001,â€? Hook said. â€œThe actuaries did not predict what we were going to need in monies, and we came up woefully short. Thatâ€™s a real long tail, because it takes so long for these things to work through the process.â€?
Hook said lack of reinsurance also made PLICO â€œvery, very carefulâ€? about going to trial due to its potentially increased exposure; the company became more likely to settle cases. He said the revamped PLICO is much more aggressive about taking cases to trial, and itâ€™s winning them.
Hook said that PLICO did not have the troubles with investments experienced by some companies in recent years, because it was not allowed to invest in stock or equities.
â€œOur entire portfolio was in government bonds,â€? he said. â€œTheyâ€™re very stable. They donâ€™t make you a lot of money, but those are the only investments weâ€™ve had since our inception.â€?
Along with the rate hikes and other changes, the Oklahoma Legislature also got involved, giving PLICO four years to dig its way out of the financial hole. That four years expires at the end of this year.
However, PLICO officials announced last October that the insurance company had overcome a $143 million surplus deficit after only two-and-one-half years.
â€œNow, weâ€™re building positive capital to make us the strongest the company has ever been,â€? Hook said. â€œWeâ€™ve equaled the best financial condition that PLICOâ€™s ever been, in its 28-year history.â€?
Might that good news lead to rate cuts for physicians?
â€œI donâ€™t know when weâ€™re going to be able to lower (rates),â€? Hook said. â€œBut I am anxiously waiting for that to happen. I want to reward our loyal physicians that stayed with us and had faith in the company.â€?
PLICO has lost a lot of doctors to the handful of new professional liability insurers that have come into Oklahoma over the last few years, but still insures more than half of the stateâ€™s doctors. Hook said some of those out-of-state firms are selling insurance to Oklahoma doctors at rates cheaper than they offer elsewhere, to undercut PLICO.
Overall, Hook said, PLICOâ€™s rates compare favorably with insurers in surrounding states.
Hook said most PLICO policyholders saw decreased insurance costs for 2007 and 2008 in the form of individually discounted premiums. In a new program, physicians can complete risk management requirements this year to earn additional credits toward next yearâ€™s premium costs.
Hook said the company hasnâ€™t raised base rates in a couple of years, â€œbut we are discounting those doctors who have excellent loss experience,â€? he said.