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Mastering the health care market

James River brings underwriting savvy to allied health and nonstandard medical professional risks


In a struggling economy where cost cutting tops the management agenda and insurance capacity continues to expand, carriers are hard pressed to increase rates for even the most challenging risks. In a take-all-comers environment, underwriting discipline often takes a back seat to the intense pressure to put business on the books.

That's definitely not the case at James River Insurance Company, an excess-surplus insurer whose experienced underwriters focus on achieving balance between the key characteristics of exposures and the realities of a saturated insurance market.

Established in 2003 with headquarters in Richmond, Virginia, James River operates in all 50 states and the District of Columbia. (See "Tough Risks, Smart Solutions" in the May 2005 issue of Rough Notes.)

Rated A-/IX by A.M. Best, James River works with a select group of wholesale brokers to place business in its target markets. Among the insurer's key specialties are allied healthcare risks and nonstandard physicians and dentists professional liability.

As health care costs continue to rise and the federal government contemplates further reducing Medicare and Medicaid reimbursements to physicians, the field of allied healthcare is expanding at a rapid pace. James River targets a wide array of allied health classes (see box on page 86). Within these classes, James River targets small to medium-sized risks with a minimum premium of $2,500 and an average premium of $25,000.

Key growth areas

Among the allied health classes James River writes, "We are seeing our biggest growth in non-emergency medical transport and home health care services," says David Weisenberger, vice president and division manager for professional liability and allied healthcare. "The barrier for forming a new business in either of these areas is relatively low. Growth in these classes is tied directly with growth in the aging population. With respect to home health care, it is more cost-efficient for the provider and easier on the patient to have many of the scheduled, non-critical care services performed in the patient's home," he comments. "For transport, some people without transportation find it easier to schedule it with a service rather than trying to obtain transportation from a friend, who also may be elderly, or imposing on family."

Private health insurers, as well as Medicare and Medicaid, recognize the cost savings that can be achieved by delivering some forms of care in the home setting and are willing to pay for such services, says John Clarke, senior vice president-marketing.

Adds Pam Gosslin, underwriting manager for allied healthcare, "A lot of long-term care policies will pay for home health care."

Underwriting matters

As noted earlier, the discipline of underwriting is often neglected as competition heats up and newcomers cut rates to build market share.  James River executives acknowledge these realities and yet remain committed to a model that emphasizes prudent underwriting.

"We have a broad appetite for many classes of allied healthcare business," Clarke says. "In our underwriting process we seek to understand the frequency and severity characteristics of risks, and we find most to be manageable. Historically, we have not been a market for individual risks with high frequency of loss characteristics.

"Recently we have started to consider risks that are currently written over higher self-insured retention limits or are exploring that option," Clarke notes. "For the right kind of account, that is interested in participating actively in the management of its lower severity but higher frequency exposures, this is now an option that James River can offer to the allied healthcare market."

"In all of our underwriting disciplines, one of the distinctive values we bring to the market is our practice of looking at each submission as a unique, individual decision," Weisenberger says. "One common theme is loss history. A risk with atypical loss history, either positive or negative, tends to continue experiencing atypical loss history," he asserts.

"Another important criterion is the experience of the management and staff either with that particular insured or similar operations," he continues. "Third is the insured's approach to risk management. What do they have documented for procedures, training, and protocols? How are they addressing their particular exposures? Red flags would be raised if any of these common factors presented negatively, such as poor loss history, understaffing, or a lack of attention to issues that more typically result in claims."

What's more, Weisenberger points out, "The allied healthcare market is very soft. Our brokers bring us a lot of deals every month where we can compete and are comfortable adding them to our portfolio. Some risks, however, are way underpriced and yet are still looking for a broader and/or cheaper product. If we believe a risk is underpriced, we see no reason to try to win it our way. Price is almost always a factor, as much as we'd all like to pretend otherwise."

James River offers a broad portfolio of coverages to its allied healthcare risks, Clarke says. "We can offer separate towers for general liability and professional liability limits or combined limits for cost savings," he notes. "We have the capacity to write primary limits up to $5 million, or we can offer a primary $1 million limit with up to $5 million in excess or umbrella coverage with treaty support and up to $10 million with facultative support. We can offer an incident-sensitive coverage trigger, defense in addition to limits, a blanket additional insured endorsement, punitive damages coverage, non-owned/hired auto, sexual abuse coverage, and loading and unloading for classes that require it. In short, we have the flexibility to tailor the policy to meet the account's needs."

Allied Healthcare Express

In 2008 James River created the Allied Healthcare Express (AHX) underwriting division, which concentrates on smaller residential care facilities. The classes of business it serves in this division are generally the same as in the allied healthcare division described above, Weisenberger explains. "The real difference is in the size of the risk and the hazard level. The AHX underwriters are looking at residential care facilities with 20 beds or fewer and other classes with revenue of $3 million or less. These underwriters write a lot of small care homes, assisted living facilities, facilities and clinics for the developmentally disabled, shelters, and so on," he explains. "We tend to see low frequency in this area simply because the risks are smaller. We see lower severity because we do not write nursing homes in AHX."

The Express underwriting model, which James River also uses for smaller accounts in its excess casualty division, is an excellent solution for more straightforward risks with lower revenue and premiums, Clarke says.

"Many of our brokers are more accustomed to dealing with large accounts," he remarks. "The AHX underwriter is charged with turning around smaller, more homogeneous business within 24 hours or less. We track the metrics and are successful in doing so about 90% of the time. We know many of our brokers would prefer to be working on risks that generate $100,000 or more in revenue, not $2,500 in written premium. AHX is designed to make it quick and easy for them to accommodate the smaller business for their retailers and to free up time for them to go after the bigger ones."

Physicians and dentists

James River is also a market for nonstandard physicians and dental professional liability risks.

"Physicians, surgeons, and dentists have many of the same exposures as allied healthcare risks," Weisenberger says. "We are a market for all surgical and non-surgical specialties. Within the specialties, we concentrate on training, experience in their field, and prior loss history. We see physicians expanding outside of their area of specialty to perform treatments or procedures that are privately paid rather than subject to insurance reimbursement rates. Some of these procedures are relatively innocuous, but some of them are frowned upon by peers, which subjects these providers to serious consequences in the event of adverse outcomes. We decline physicians for adverse loss history, practicing outside of their specialty, and in some cases performing procedures not approved by the FDA," Weisenberger explains. "We also decline submissions where we cannot obtain adequate pricing for the exposure."

James River has two separate form sets for physicians, surgeons, and dentists. "Our standard form is written with a consent-to-settle clause, defense inside policy limits, and written demand," Clarke explains. "We can endorse this policy with an incident-sensitive trigger. We also have what we call our Elite Provider form. This form is broader and intended for more of a 'gray market' doctor: someone who might be on our side of the market for a few years but is probably going to be able to return to the standard market. It provides defense in addition to policy limits, an incident-sensitive trigger, and a damages-only deductible. We can provide entity coverage on both of these forms as well as prior acts. As with allied healthcare, our medical professional underwriters are capable of tailoring the policy to meet the needs of the individual account," Clarke says.

"From a loss ratio standpoint, the medical professional liability line has been one of the best performing lines, if not the best performing line, over the past several years for the industry as a whole," Clarke declares. Tort reform in key states like Pennsylvania and Texas has significantly reduced exposures, and competition continues to drive premiums down, he says.

What's more, he points out, "There has been a declining frequency trend that has stayed in place for longer than almost anyone would have anticipated. As a result, we are seeing not only increased competition from new nonstandard players, but also significantly increased appetites from the standard markets and risk retention groups.

"One of our large brokers told us earlier this year that their book of nonstandard physicians had more than doubled in policy count over the last couple years and actually decreased in premium size," Clarke says. "Loss reserves are still being released and are supporting many carriers' current period results. Only time will tell if the declining frequency trend continues, but we do not foresee a turn in this product line anytime in 2012."

Much the same conditions prevail in the market for allied healthcare, Weisenberger observes.

"The marketplace sees allied healthcare as a profitable, growth industry due to the aging population. In the long term, we agree that there is the potential for significant growth. As an industry, however, we have not yet made it to the long term. In the short to intermediate term, we see much more capacity and many more competitors chasing relatively the same number of accounts. Some nursing homes are seeing per-bed rates almost as low as just prior to the last 'availability' crisis. Truly, today's prices look like those of the late 1990s," Weisenberger comments.

Impact of health care reform

How will the federal Patient Protection and Affordable Care Act affect the practitioners and facilities for which James River writes coverage?

"A study was released earlier this year regarding hospitals in New York," Weisenberger says. "It showed that the single biggest determining factor for the financial health of a hospital was the percentage of privately insured patients. The hospitals with the highest percentage of Medicare and Medicaid patients practiced themselves into bankruptcy. These government programs have a reputation for being slow to reimburse, which causes cash flow issues for physicians as well as other providers.

"A big chunk of the cost savings attributed to health care reform are based on reducing reimbursement rates further," Weisenberger continues. "I think we will see more attempts by allied healthcare professionals and physicians to explore avenues for providing services outside the insurance system. Some doctors will retire earlier than they originally planned. Some doctors groups are already being bought up by hospitals as the doctors decide it is easier to have the hospital worry about paperwork and cash flow, and we think this trend will continue. Finally, we will need a massive influx of family and general practice physicians into the system to serve the population of the formerly uninsured. These specialties have not been attracting as many new doctors as other specialties. Some physicians are already shutting out new Medicare and Medicaid patients, and more inevitably will follow suit," Weisenberger asserts.

Staying the course

"We take pride in stable underwriting regardless of market cycle," Clarke says. "We believe that you have to make money in every market. Hoping for a hard market is not a viable strategy, but a tailwind would certainly be nice. We do not, however, anticipate the market changing appreciably as a whole; and allied healthcare will most likely lag behind in any change. Frankly, it will be difficult for the market to firm up significantly until the economy improves."

Until then, James River will continue to provide a stable market and carefully tailored coverages to address the exposures of the dynamic field of health care.

For more information:
James River Insurance Company
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