Washington Commissioner Takes Med-Mal Crisis in Stride

Washington native Mike Kreidler was elected to the office of Insurance Commissioner in November 2000, taking office in January 2001. Before becoming Insurance Commissioner, Kreidler enjoyed a varied political career. He served 16 years in the state legislature in both the House and the Senate, serving on the insurance committee in both chambers. In 1992, Kreidler was elected to Congress from the 9th District, representing parts of King, Pierce and Thurston counties.

In 1995, he was named by then-Governor Mike Lowry to represent Washington on the Northwest Power Planning Council, a post he continued until 1998 under current Governor Gary Locke.

In addition, he was appointed by former President Bill Clinton in 1998 as Regional Director of the U.S. Department of Health and Human Services for Washington, Oregon, Idaho and Alaska.

As Insurance Commissioner Kreidler regained accreditation for the Office of the Insurance Commissioner and was elected chair of the National Association of Insurance Commissioners’ Western Zone, representing 14 western states, Guam and American Samoa.

Kreidler spoke to Insurance Journal about the medical malpractice crisis currently affecting Washington State and the current legislative proposals introduced to help mitigate insurance problems in the state.

Insurance Journal: Tell us about the medical malpractice crisis in Washington State. How did that come about?

Commissioner Mike Kreidler: Washington is probably in the middle of the states [when ranking the severity of the med-mal crisis], even though it wound up getting listed as one of those states where you’re experiencing more acute problems. All states are experiencing challenges with med-mal, typical of the hard market. Our state is no exception. We’re fortunate that we do have a Physician’s Mutual that has increased rather considerably the number of physicians they insure, and California’s own Doctor’s Company also picked up their fair share of the business. We had a malpractice company here called Western Casualty that is now in receivership. Before it went into receivership it insured a number of physicians and they withdrew from the market. They had about 16 percent or 17 percent of the Washington physician market when they withdrew from physician coverage (they were principally a hospital insurer) and that company created a void for physicians as they non-renewed policies, dropping that sector of their market. Doctor’s Company and Physicians Insurance picked up a lion’s share of the vacuum that was created. We had very few policies that were written under St. Paul when they withdrew nationally from the med-mal market.

So, generally we’ve been able to do a reasonable job for capacity, meaning that there was insurance still out there between these companies that we have here now and the surplus lines market. We’ve been able to pretty much stay up with Physicians so that they had insurance that they could write. We still have a problem with price; that’s fairly typical, and I’m proposing some things that I think would help with the capacity problem, because we’re really bumping up against it. I’d certainly like to do some things to stabilize the market in the future. We’ve started taking a look at what is generically referred to as patient compensation funds and we have a proposal to essentially create one of those here in the state of Washington, which is essentially a surplus insurance program behind the primary insurance of the physician and the hospital.

IJ: And whose idea was that proposal (HB 2799 and SB 6328)?

Kreidler: It was mine and the governor has joined me in asking the legislature for it. And it goes along with some of the other things that I think need to happen, which are making some changes in our tort system and also in relation to patient safety issues that we also need to have some insurance reform. We can take a look at states like Wisconsin and Indiana where they have patient compensation funds; they’ve done a much better job for stability and capacity than the state of Washington. We’d like to incorporate some of those better features that we’ve seen with patient compensation funds and what it’s done for the market in those states, here in Washington.

IJ: Do you find that doctors are leaving the state because of these high rates?

Kreidler: I think that there are always [doctors leaving the state], probably in almost every state, and sometimes you wonder which state they’re going to because every state’s claiming that. I don’t think that’s a significant factor. What I think is more problematic is that some physicians are limiting their practices in certain areas that are not good overall, particularly family practice doctors who were doing their own obstetrics and have withdrawn from doing it because the cost of doing obstetrics boosted their med-mal premiums so much that they couldn’t justify the fact that they were doing a few deliveries for what might be considered their regular patients.

So you’ve seen a number of them withdraw from it, and you may have seen some practice changes that have taken place, but I can’t say that we’ve seen any real changes in the number of physicians. In fact, we have one example of a physician that established a residency up here in the state of Washington and flies down to California to see his patients and the reason he came up here is because med-mal insurance is cheaper up here than it was down there. If you take a look at the price of med-mal, particularly in the L.A. basin, you find that [in Washington] it’s really quite comparable.

IJ: Tell us a little bit about another bill (HB 1582 and SB 6725) that would create a joint underwriting association (JUA).

Kreidler: At the present time I don’t believe that we have a JUA that’s going to specifically address physician malpractice but we did ask for broad authority to have the ability to create JUAs that would’ve made it possible to do it in the medical malpractice area. That legislation wouldn’t pass in that form, it’s going to be much more targeted. It’s unlikely that we’ll do it in med-mal though. We are looking for it in certain other areas, which of course are close together with JUA that are probably kind of getting away from med-mal.

What we’re seeing in certain other sectors—such as adult family homes, group homes, foster care homes—those types of facilities. They are effectively finding that they cannot secure insurance, and that’s why we would look for the authority [to write that coverage]. If necessary, and in following some very careful steps, we would first have to create a market assistance plan and meet some fairly stringent criteria before a JUA could be created. And it [JUV] would be sunseted after two years, with the possibility of another two-year extension.

IJ: I understand that the insurance industry is opposed to the JUA.

Kreidler: It just seems like a practical thing to have, you know, if there wasn’t a market, but you’d have to say that the industry (we’re talking here casualty companies), was not enthusiastic. I think part of it is that they’ve certainly seen some bad experiences historically in other states and it has proven difficult to get rid of JUAs once they’ve been created. There are reasons why and I understand why they don’t like them. There are also reasons why once the insurance regulator has the authority to create them, [it is not] that infrequent that the market will all of a sudden start to materialize again as an easier alternative than seeing a JUA created.

Companies oppose the creation of JUAs and I understand that, but it probably also gets somewhat tied up in the overall debate related to tort reform that’s taking place in many states and Washington’s not immune to that. If you see JUAs created, than somehow you’ve solved a problem, [and maybe] you don’t need to do tort reform. So I think there’s some resistance on the part of the casualty companies not to want a JUA for fear that it will lesson the political juice to pass a bill that they might find more important overall.

IJ: Has there been any attempts by the insurance companies to form a market assistance plan?

Kreidler: We’ve done one for med-mal, and we’ve done it for physicians on a voluntary basis, and then we didn’t do it, and the only time they’ve ever been created in the state of Washington (and they’ve been on the books for many years) have been on a voluntary basis. It’s done well for physicians by helping when they get those 45-day notices. It gives them a place they can go and file one form and have a professional group of brokers who have some real experience to review that application and help find a home for that particular policy. It’s worked quite well in the physician area. We’d probably think about doing it [again] though, it’s not nearly as easy as some of these other areas as it has been for physicians to create one of these plans and have them operate successfully.

IJ: What are your thoughts on tort reform?

Kreidler: I think it’s more likely that anything that passes in the state of Washington is going to be much more narrowly directed toward medical malpractice as opposed to the broader issues related to tort reform outside of medical malpractice area. The state of Washington doesn’t allow in state law punitive damages, unlike most states, so it already has a different environment here and the problems of runaway juries have never been that much of a feature of the Washington courts. That’s one reason why the U.S. Chamber of Commerce rated Washington in the middle of the pack as opposed to being at one extreme or the other. But I think when we do tort reform, even though there’s a coalition advocating for broader tort reform currently, like many states it tends to become much more narrowed to the medical malpractice area. It’s likely that we’ll see something pass, and I personally very much hope that we do because I see some changes in the tort system that should be made that will reduce costs to the system. And it won’t be what the physicians are advocating for, but at the same time they will be ones that have a sound actuarial basis for making some differences in the price.

I believe that patient safety is one that the public demands and should be included. The insurance reforms that we’re advocating right now will certainly add more capacity to the system, right now and in the long term. We can have a very positive impact so that 12 years from now when we go through another hard market or thereabouts we will have a great deal more stability in this very spiky med-mal area. Outside of the tort area it’s been relatively quiet. We have another bill that’s going to wind up passing. It extends the notice period for med-mal from 45 to 90 days. Again, this is a reflection of the capacity problems in giving physicians more of an opportunity here to find another carrier, another place to find the insurance. Forty-five days is a pretty quick period of time in a tough market to find another home.

IJ: Is there a bill that would restrict access to electronic loss history databases?

Kreidler: That was introduced in the Senate; it isn’t a bill that we’re backing. Quite frankly, we didn’t propose legislation relative to CLUE because we’ve continued to work with the companies and with realtors and with Choicepoint to help standardize the use of CLUE. I think that’s probably true for many states where they’ve not looked for a legislative solution. Now it may be that we get to a point where we need to do that, but at this point we’ve chosen to follow a voluntary path of working with the companies. Most of them have been very responsive to the concerns that have been raised on certain things that would be posted in the CLUE database, particularly if there were information such as inquiries that never led to the filing of a claim. Those are things that we had a real concern about, information that might not be totally accurate would be included in a database just because a consumer read the small print in their insurance policy and actually made an inquiry and never filed a claim. That kind of information shouldn’t be used.

Most companies are very sensitive and understanding of that kind of information not being posted. I also think that we’ve got to develop some reasonable standards relative to what type of claim was represented and what kind of mitigation was taken against that claim, [to determine] whether it was one that would be repeated or not. But I see the database itself as something that would be helpful to a potential homebuyer and shouldn’t be denied to them. It’s reasonable information that should be available to insurers for underwriting purposes.

We’re very reasonable people in the Washington insurance office. We like to work with the industry. They’d like to make sure that there are fair and reasonable standards, and if we can work with them in doing that and only press the point with some of the companies that get kind of carried away at times, generally the industry is going to be there backing us, at least the majority of them.

IJ: Are there any other issues related to property casualty that we haven’t talked about?

Kreidler: In the commercial line business we’re starting to see some improvement, softening of the market, and we’re very pleased to see that. Since I took office in 2001, it’s been a little over three years, there’s been some pretty tough experiences as an insurance regulator. I’d hoped we’d start to see that market soften, and I know that the industry at wide, in the commercial casualty area, is starting to look a little better.