ProMutual Stays on Course as Medical Liability Market Starts Moving Again
Richard Brewer likens the medical liability business to a barge floating down the Mississippi. “You’re never quite sure what it’s going to look like around the bend,” he explained.
As president and chief executive officer of ProMutual Group, a Northeast regional medical liability insurer, Brewer is more likely to be found on the Charles River than on the Mississippi. From its headquarters in Boston, the company has navigated some choppy waters during the last decade, waters that swamped Frontier, Reliance, P.I.E Mutual and PHICO and caused giant St. Paul to reverse course and drop more than 40,000 policies.
ProMutual was christened in rough waters. Thirty years ago, in 1975, a liability crisis and shortage of liability insurance led Massachusetts to create a joint underwriting authority to provide coverage for physicians and hospitals in the state. Over the next 20 years, more private markets became available. Recognizing this, the Legislature in 1995 agreed to let the JUA become a private mutual company. Thus was born ProMutual.
Today, ProMutual is a thriving mutual company writing more than 16,000 physicians, surgeons and dentists and hundreds of community hospitals and clinics in seven Northeast states. Based in Massachusetts, ProMutual Group also operates in Connecticut, Maine, New Hampshire, New Jersey, Rhode Island and Vermont.
ProMutual Group sports an impressive $1.7 billion in admitted assets, $378 million in policyholder surplus and $286 million in direct written premium. A.M Best gives it an A- (Excellent) rating. Its 2004 combined ratio was 112.9.
ProMutual is largely controlled by medical professionals. Management knows insurance, while those who sit on the board know medicine. “Being doctor-controlled keeps us focused,” Brewer said.
Doubled premiums
A combination of a lawsuit boom and investment income bust forced most medical malpractice insurers to dramatically raise rates at the start of this decade. ProMutual was no exception. Most of its policyholders have absorbed double digit increases every year since 2002. In fact, it has doubled premiums in the last five years. In 2004 alone, they jumped 40 percent.
“It’s unusual of course to double your premiums in five years,” Brewer commented. “But that was needed to catch-up.”
This year, ProMutual did not raise rates, a recognition that prices may have finally caught up to loss costs and that the frequency, if not the severity, of malpractice awards has stabilized.
While premiums have been skyrocketing, the number of accounts has held relatively stable at 16,000. Part of this trend is attributable to doctors moving into alternative risk transfer arrangements as a result of the higher premiums. A decline in policies in tightly-regulated Massachusetts has been offset by increases in its other states, where it operates as ProSelect and has more underwriting flexibility.
Risk management is also helping hold premiums in check. ProMutual’s signature success is the office visit, where it sends people into doctors’ and hospitals’ offices to review all procedures and make recommendations consistent with best practices. It performs more than 600 a year. It also has special programs targeting shoulder dystocia and improving doctor-patient communications.
ProMutual works with independent agents and brokers, excepting on a “house” account that dates back to its JUA days. Brewer recently had to quell rumors it was going to write more business directly. “If we were a direct writer I might not be here. All my life I’ve worked with independent agents,” said the CEO, who came to ProMutual from the Bay State personal lines agency company, Arbella Mutual. He stressed that the company has no intention of going direct.
Growth challenge
Now that the medical insurance market is looking profitable again, Brewer expects competition to heat up. “When you start making money and competition comes in that’s the challenge to discipline,” he said, suggesting that ProMutual was actually fortunate that it was not in a position to grow in the late 1990s when others did and got into trouble.
However, the growth issue is a challenge now. For the past five years, ProMutual has not had trouble locating desirable family physicians and community hospitals because the market has been restricted. “We could write the business we wanted at a price we wanted,” Brewer noted.
But the limit may have been reached. “If you believe as an underwriting company that you can only extract a certain number of risks and you want to have a superior book of business, there will be a natural point of diminution,” the CEO explained.
ProMutual may consider writing in additional Northeast states, perhaps even New York, “although that’s not in the cards right now.” The company may also start writing more hospitals.
In addition, Brewer won’t rule out a merger, acquisition or an investment in another insurer. “We are willing to talk,” he said. “We’ve told people. We’ve got capital.”
As a mutual, it may have to eventually change its organization. “I don’t think it’s today’s problem but down the road we probably have to think about it,” he said.
ProMutual is operating in calm waters now, and appears to be ready for whatever challenges are around the bend. But don’t expect ProMutual to veer off course into other lines, according to Brewer. “It comes up now and then but we believe we’re good at what we do and we should stick close to that knitting,” said the medical liability captain.