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Understanding Specialty Medical Malpractice Insurers

Explore the unique characteristics of specialty med mal insurers, their mission, impact on success metrics, and financial implications compared to commercial insurers. Learn why specialists outperform commercials and their limitations. Gain insight into the industry dynamics and competitive landscape.

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Understanding Specialty Medical Malpractice Insurers

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  1. SPECIALTY MED MAL INSURERS: HOW DO THEY STACK UP? 2005 CAS Spring Meeting Pointe South Mountain Resort Phoenix, Arizona May 17, 2005 Presenter: Ken Quintilian, FCAS, MAAA

  2. Obligatory Caveat Results of presenter’s company should not be deemed typical…

  3. What Makes Med Mal Specialty Companies Different? • Dominated by mutuals • Business model is direct operation by insureds • Customer focus is core of mission • Results in different priorities and operational characteristics

  4. Major Differences Between Specialists And Commercials • Mission / Priorities (Success Metrics) • Operations (Performance)

  5. How Does Their Mission Impact Success Metrics? • Customers are the owners • Different priorities than a stock company • Profit and dividends are not fundamental goals • Overarching goal: long-term availability and affordability of product for core customer base

  6. What Does It Mean For The Bottom Line? • Stable & strong earnings less important • Stable & reasonable pricing the greatest concern • Margins can be narrower than for commercials • Solvency & capacity, not profitability, serve as constraints against underpricing • Tolerance of cycles (and losses) is greater

  7. What Does This Mean For Competition? • Commercials can be outdone even with identical pricing and results • The same loss ratio can be a failure for commercials, a success for specialists

  8. Compare Recent Experience Of Two Big Med Mal Companies • St. Paul (Commercial) • MLMIC (Specialist)

  9. Similarities • Major market shares in their respective territories • Comparable premium volume • Strong penetration of traditional provider market • Both enjoyed strong profitability in the 1990’s • Both took heavy losses in early to mid 2000’s

  10. Differences • The cycle was too severe and the losses too adverse for St. Paul: they exited the market entirely • MLMIC (like many other mutuals at this time) wound down both profitable and unprofitable non-core ventures • Although adverse development and inadequate regulatory rate relief have continued in its core market, MLMIC has not reduced writings in this mission- critical area

  11. But Do Specialists Actually Outperform Commercials? If So, Why? Using many standard metrics, they seem to (on average!) • Less diversification, “stick to their knitting” • Dominant in core niche – economy of scale • Customer loyalty high – acquisition economies • Core expertise (e.g., claim defense) hard to match

  12. Total Med Mal Industry vs. Specialty Underwriters Source: Milliman; A.M. Best A&A

  13. Commercial vs. Specialty Med Mal Underwriters Components of Expense Ratio (to NPW) Based on 2004 Best Aggregates and Averages (2003 data)

  14. Total Med Mal Industry vs. Specialty Underwriters Source: Milliman; A.M. Best A&A

  15. Total Med Mal Industry vs. Specialty Underwriters Source: Milliman; A.M. Best A&A; Best Review & Preview

  16. Total Med Mal Industry vs. Specialty Underwriters Source: Milliman; A.M. Best A&A

  17. Total Med Mal Industry vs. Specialty Underwriters Source: Milliman; A.M. Best A&A

  18. Commercial Casualty Composite vs. Med Mal And Workers Comp Specialists Source: A.M. Best QAR Summaries

  19. Commercial Casualty Composite vs. Med Mal And Workers Comp Specialists Source: A.M. Best QAR Summaries

  20. Commercial Casualty Composite vs. Med Mal Specialists 5 Year Average: 3.1% -1.9% 10 Year Average: 8.2% 5.6% Source: A.M. Best QAR Summaries

  21. Total Med Mal Industry vs. Specialty Underwriters Source: Towers/Perrin; A.M. Best A&A

  22. Commercial Casualty Composite vs. Med Mal Specialists Source: A.M. Best A & A

  23. There Are Limits To Their Skill Set • Branching out has been unsuccessful historically for these specialists • Retrenchment a few years ago arose in part from realization of their limitations • Specialists struggle, as do commercials, to compete with the pricing of self- insureds and captives

  24. In Summary… • Med Mal specialty companies know their turf • This skill shows up in their better-than-average results • These results satisfy policyholders but would challenge stockholders • So niche companies usually out-compete commercial stock companies on core business • This advantage cannot easily be extended to other states or lines • Captives and self-insurance are a stiff competitor for both specialists and commercials

  25. SPECIALTY MED MAL INSURERS: HOW DO THEY STACK UP? 2005 CAS Spring Meeting Pointe South Mountain Resort Phoenix, Arizona May 17, 2005 Presenter: Ken Quintilian, FCAS, MAAA

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