Ill. Trial Attorney Decides to Open Med Mal Insurance Company

December 12, 2006

In Illinois’ intense debate over the cost of medical malpractice, insurance companies and trial lawyers are often bitter enemies.

Kim Presbrey is determined to change that.

A former president of the Illinois Trial Lawyers Association, Presbrey has started an insurance company promising doctors more choice and better deals on expensive malpractice coverage.

He’s pumping a lot of money and hard work into challenging the state’s major medical insurance company, a doctor-owned business that has more than 65 percent of the malpractice market.

Presbrey predicts his new Doctors Direct Inc. will make money for him and cut costs for doctors feeling the pinch of rising insurance costs.

“We expect to make money,” Presbrey said. “To the extent that we are able to decrease their premiums at some level, I think we’ll save everybody money.”

It may even pay off for the Illinois patients who need care that’s growing more expensive and inaccessible.

That was the goal last year when state officials approved changes in the law meant to encourage more competition for malpractice insurance.

Some doctors were fleeing the state or retiring because of steeply rising insurance premiums _ some of which had more than tripled, topping $100,000 a year in some cases. Doctors and insurers blamed the rate increases on out-of-control lawsuit awards, while trial lawyers and victim advocates condemned insurance mismanagement.

In response, legislators approved some limits on lawsuit awards but also strengthened state oversight of doctors and insurers. The major insurer, ISMIE Mutual Insurance Co., was forced to promote competition by opening its ratemaking formulas to other companies.

State regulators says the result is just what they hoped for.

“The marketplace is increasingly competitive, and that competition is going to benefit the physicians and surgeons,” said Michael McRaith, director of the state Division of Insurance.

The creation of Doctors Direct is not the only effect of the new law.

ISMIE cut its rates 5.2 percent after McRaith ordered the company to try to cut them. Four other insurers cut their annual base rates, too. Medical Protective Co. cut prices 32 percent and announced plans in October to expand in Illinois, crediting better access to ISMIE’s ratemaking data.

McRaith said other companies also are considering writing new policies.

But officials at ISMIE, which was created by the Illinois State Medical Society, say Doctors Direct may find success elusive.

“If they think they can make money and make big money … they’re going to be really surprised,” said Dr. Harold Jensen, ISMIE’s chairman and an internist in Frankfort.

Presbrey, an Aurora-based attorney, says the notion of getting into the insurance business came to him while researching claims that Illinois faced a malpractice “crisis.” Further research and ISMIE’s data made it clear the market was lucrative market, he said.

He’s spent the last few months setting up the company, finding investors and putting together a board of directors that includes lawyers and doctors.

Presbrey hopes to collect between $10 million and $20 million in premiums the first year. In comparison, ISMIE collects more than $400 million in premiums each year.

His company is targeting specialists such as brain and heart surgeons who have seen their rates increase more than other doctors. He insists he can make money while still offering doctors better prices.

State Rep. Jack Franks, a lawyer serving as the company’s vice chairman, says Doctors Direct doesn’t want to become as large as ISMIE but does want to prove that coverage can be provided less expensively while still being profitable.

“It’s certainly not a vendetta; we’re not mad at them,” Franks said. “But we see an opportunity here and we can fill a need that’s desperate in this market.”

ISMIE says it welcomes the competition because the company is currently insuring thousands more doctors than it was created to cover.

But Jensen warns that, although competitors have access to ISMIE financial data, they are underestimating its administrative efficiency and rate accuracy, as well as the costs from malpractice lawsuits.

“I think even knowing what we know, they’re going to have a lot of trouble making it work because it isn’t just the information, it’s the machine,” Jensen said.

McRaith promises the department will ensure rates are not too high or too low and work to make sure competition thrives for the long term.

“It gives physicians and surgeons more choices,” McRaith said. “That’s what going to keep the rates stable in Illinois.”