London Calling

Over time, the names, faces and places of employment may have changed, but London has remained true to its mantra of being a consistent player in the US medical malpractice market. As one market, it has navigated many different cycles, spanning many differing challenges. As mentioned above, there has (in the majority of cases), been an overriding sense of loyalty from customer to market and vice versa. Global capacity has fluctuated over time until this phase where over the last few years we have witnessed a significant lessening of the amount of large, single market limits available in both the US and Bermuda markets. These were the large ‘chunks’ of capacity that in some cases enabled the overall programme to be completed at lower pricing. Some highly rated capacity providers have withdrawn from the class entirely, some have chosen to dramatically cut back their available per risk limits. Some have also chosen to exclude key components of coverage. At the same time, whilst London has not been exempt from losses that lead to a rethink in underwriting philosophy, the safety in numbers approach taken by both clients and markets, has meant that many insureds have been able to find replacement capacity in London but at a fair price, particularly when looked at over the longer term.

 In the subscription market, a recognised leader in his or her field negotiates and sets the ultimate terms in conjunction with the client’s represented London broker and is followed by a number of supporting but equally knowledgeable players. This has ensured a level of integrity and consistency of pricing as well as ‘air cover’ for the client in the event of individual participants choosing to reduce capacity or decline to renew over time. In the main, this has enabled London to continue with providing continuity and stability for clients who have faced unprecedented challenges, particularly since the pandemic hit home in March, 2020. A typical large hospital or nationwide system may well partner with up to ten or fifteen supporters in London, in addition to US domestic or Bermuda markets. Even where particular ‘layers’ of insurance are relatively small, particularly when compared to other classes, it is not unusual to see five to ten markets participating on one layer. Strength in numbers.

Despite many conversations and enquiries over time, no one seems quite sure when the first US medical malpractice risk was written in London. I have always gauged it to be around the late 1960’s, but it could well have been much earlier.

What I do know is that over certain periods of history in this class, US capacity has ebbed and flowed, and some of those involved have decided that they no longer want to write certain risks in certain classes or jurisdictions, and even if they do, the overall capacity is insufficient to support the healthcare industry demand overall.

Where London has most importantly and visibly stepped up is where there has been the need for a more long term and stable approach to a particular shortage of highly rated, affordable and sustainable capacity. This is highlighted no more so than in the ‘med mal crisis’ of the late 1970’s, when physicians practising in higher risk classes could no longer find affordable insurance cover in certain states to continue to practice at their chosen hospital. Navigating through US and London intermediary channels, this led to discussions with certain London companies and Lloyd’s syndicates about the prospect of supporting fledgling doctor owned companies who needed to purchase reinsurance in order to protect their modest balance sheets. These were balance sheets formed from personal assets and or bank loans. In other words, their livelihoods and future prosperity depended quite literally upon the success of these newly formed, mutually owned companies.

These companies were formed state by state and over time, the vast majority of them found themselves reinsured at least at the primary level, by London. Forming an association, these Physicians Insurers Association of America (PIAA) companies found that they were trusted to grow and run their own insurance companies by a number of ‘believers’ from across the pond. Between all parties, including the London brokers, an adjustable premium agreement, called the ‘loss sensitive’ or ‘swing plan’ method, was designed as a way to satisfy the client and the market’s inevitably differing expectations as to the ultimate claim performance.

As the title suggests, once the losses to London were reported, according to the pre agreed formula, the initial deposit premium was adjusted upwards towards a maximum premium or downwards towards a minimum premium, on an annual basis. Over time, the losses would ultimately settle below or to the London layer and the premium would adjust each year until all relevant claims were finally closed. Many of these programmes ran so well that return premiums, towards or at the much lower minimums, went towards increasing the initially modest surplus, and began to lessen the reliance on the start-up capital or loans. In many cases, after a few years, these contracts were ‘commuted’ whereby, given their deep knowledge of their own claims and their belief that they would not ultimately result in a collection from London, the open claims were taken back by the mutual and the London layer was closed off from any further payments. In such cases a significant return premium was given, further enhancing the capital strength of the PIAA company in question.

These programmes ran well for several reasons. Firstly, because the doctor’s own money was at stake. This meant their own risk selection as to who should join and be insured, was a well informed and careful decision. Their risk management demands were high and the relationship with the hospital heightened due to their own insurance coverage being somewhat tenuous at that stage. They also knew their own claims and the likelihood of a recovery, or not, from their insured layer(s). Over time, and as confidence grew, their own reinsurance retention(s) did the same. A proof of concept was there for all to see and as a result more physicians believed and joined, bringing more capital. In addition, the goodwill of reinsurers was providing them with both a stable product and the ability to plan for the longer term.

This ‘swing plan’ method also worked because during the formation of most of these groups, the trigger for claims covered switched from an ‘occurrence’’ basis to ‘claims made’ during. That is to say that the claim had to be made during the policy period and if it wasn’t, that year could no longer be applied for coverage. It was easier to judge performance and rate the risk on a year by year basis. Changing from an occurrence form to a claims made form also meant the newly formed PIAA companies were only on risk for claims made going forward and initially at least, not open to the ‘tail’ from previous carriers. This gave them a strong following wind from which to build their base of insureds, premium, capital and surplus.

The doctor mutual or ‘bed pan’ mutual book as they were sometimes called (a title they found understandably disparaging), was to become the bedrock of many a London healthcare market’s income and ultimately, their success. Those PIAA companies (now known as the MPL Association), went on to grow to such a scale that many have become significant stock companies with strong ratings from the relevant agencies. Many of the previously, small single state PIAA companies have become significant multi-state capacity for the overall healthcare space, writing hospitals and other related insureds. A far cry from their modest beginnings.

Whilst the London market also wrote large hospitals, nationwide hospital systems, a myriad of healthcare captives and risk retention groups, (and still does today), it is the success story of the PIAA that most resonates with me when looking back and accounting for the special place that London holds for so many of those involved in US healthcare insurance.

For many a new London client, the question often asked of their own local retail or wholesale broker is ‘why and how can we trade with a market so far away and what do they know about our risk and our jurisdiction?’ These are both really relevant questions. Some of the market’s clients are as far away as Hawaii. How can our market monitor changes in local law; local defence and plaintiff bars and their differing approach to choosing jury pools; out of state plaintiff attorneys; the insured’s commitment to risk management procedures; nursing shortages; unions; the sourcing of expert witnesses and many, many other considerations when assessing the potential efficacy of each risk?

Over many years, the London market has chosen and relied upon a panel of London Underwriting Representatives (Reps) to be their eyes and ears for them across the globe. These Reps are mostly defence attorneys from different firms across the country, who are aware of each individual market’s risk appetite, approach to risk management, claims procedures and most importantly, the attitude to reserving and the settling of claims. The Rep is instructed by the market, and is therefore a cost borne by the market, not by the client. Over time, these Reps often become close to the client, advising on a whole range of issues, sharing knowledge gleaned from other clients (on a no names basis), from across the entire country.

The US domestic market also has a long history of writing medical malpractice business and when London is not a part of a US market programme, it is the most common alternative to it. There are many key differentiators. Mostly, the US market is not a face-to-face broking environment, simply due in most cases to the geography and the sheer size of the United States. In many cases, the US market insists upon a Claims Control Clause, as opposed to London’s Claims Cooperation Clause. The former can, in certain cases, mean that a client will be forced to settle what it may believe to be an egregious or over inflated claim, settling at an amount way in excess of what it believes to be fair. That claim settlement will be forever on the claim record of that insured, and will in all likelihood adversely affect the pricing of their risk for years to come.

London prefers the claims cooperation approach. That is to say that the Rep, working both with the market and the insured (and their chosen defence firm where warranted), on every individual case that may be predicted to pierce the insured’s primary insurance layer, will discuss the reserve amounts on those cases and decide together on the strategy to be implemented on cases that may go to trial. In every case, the client and their defence firm will lead strategy and be supported by the Rep and the market. There may be disagreements as to reserve amounts, and while the lead market may set their own individual reserve, they will not dictate settlement in a jurisdiction possibly more than six thousand miles away.

Above I have touched on a number of reasons why I feel that London has remained a significant part of the US healthcare space over many decades. Underwriters of days gone past, sadly many of whom are no longer with us, are responsible for setting us on this path. The creation of alternative structures, claims coverage, claims handling and ultimately many enduring friendships, emanated from those brave enough to risk their careers and reputations in backing those they felt deserved their trust but were struggling to get others to share that view. They literally enabled the continuation of the delivery of healthcare across many states.

As the years have gone by, new generations of underwriters and brokers have followed suit, demonstrating knowledge and the value of partnerships through good times and bad. The current market is in my modest opinion, the most enlightened, diverse, positive, collegial, and dedicated that we have seen for a very long time. Their collective willingness and appetite to bring new clients to our market and showcase our wares is unbridled and seems to show no imminent signs of slowing.

A new generation of London Claims Representatives has also been trained by those who came before. Many of these have spun out of firms to form their own practice, who in turn have spun out once more, each time imparting their knowledge and the unique significance of the rep’s role to clients, markets and brokers alike.

Most recently, and even before the pandemic, the Long Term Care (LTC) market had been in a state of flux. This is due in part to the nature of the beast but in many cases it is due to the opportunistic buying nature of the owner/insured. When prices fall and capacity re-enters the market, some owners choose to capitalise on that opportunity to save a few dollars. What the recent very hard market has shown (where once again London has stepped up), is that it separates the buying population in to two groups. Some have chosen to leave and take a chance with cheaper capacity that will undoubtedly leave the class once the losses come in (and they will), and those that have decided to stay put, pay a little more by way of a co-insurance layer or a good old ‘swing plan’, and see it out for the long term, gaining stability of pricing and coverage in return.

Once again, like the early days of the PIAA, London has been and is being creative with many LTC clients. The same is true in the challenging arenas of both correctional and behavioural health. Our market has invested a wealth of time and diligence in order to understand all of these risk areas, aided in many cases by their chosen specialist reps, and have managed to forge a market that the current band of US retail and wholesale brokers are enjoying. Not every client will be a fit and nor should it be. Both the buying mentality and the spirit of collaboration and partnership has to exist for it to work for all parties for the long term.

When, all those years ago (and quite possibly in black and white), my friend asked me to write a piece on the London Healthcare Market, I was both flattered and importantly, found it to be a most enjoyable experience. A bit like a Father-of-the-Bride’s or a Best Man’s speech, one is speaking of someone (or something) that one cares passionately about. The London Healthcare Market is a joy to write about, to be a part of and to represent, and will be until I’m told to stop telling everyone as such, and to finally go away.

Over forty odd years, like those who came before me, I have formed deep friendships with clients, producers and markets. I also hope I’m right in saying that I have the friendship of many of my competitors, most of whom feel as I do and somewhat annoyingly, steadfastly refuse to go away.

John Sutton is CEO of Acrisure’s London Wholesale Division and began his Lloyd’s career in 1982. As part of the London healthcare market, he has enjoyed the role of underwriter, broker and reinsurance broker.