The State with the largest demand for medical malpractice insurance alternatives has been New York. The New York medical malpractice insurance market has long been considered overburdened with high claims severity and overregulated by a Department of Insurance that has virtually taken control over the pricing of policies for traditional carriers. New York implemented a series of significant rate increases from 2003-2007 to correct artificially low rates and dwindling reserves from existing carriers. However, in the absence of significant reform, New York physicians are faced with the choice to pay higher premiums with traditional carriers or seek more competitive rates with alternatives such as Risk Retention Groups.
In 1986, Congress passed the Federal Risk Retention Act which provides a mechanism, for a Risk Retention Group (RRG) to operate in multiple states under one license. The Act states that an RRG must form as a liability insurance company under the laws of at least one state which is considered its state of domicile. Once domiciled in one state the RRG must be accepted by all other states, but the RRG must register in each state it wishes to write business. This RRG structure has become widely used as an alternative insurance option for healthcare providers that have difficulty affording or even finding coverage in traditional markets, such as New York.
Risk Retention Groups have several distinct advantages over a traditional insurance carrier including reduced licensing requirements, ability to market and operate nation-wide, and increased control. All these factors typically result in more competitive premiums than larger traditional carriers. However, because RRG’s are “non-admitted” companies that do not participate in New York’s Guarantee Fund (PLIGA) which provides coverage if an “admitted” carrier goes insolvent, physicians who join an RRG are not protected in the event of insolvency. Hospital privileges are another concern when considering coverage with an RRG. Since some hospitals and their bylaws will not accept coverage from certain RRG’s, physicians should inquire about this prior to joining.
Many physicians are faced with financial pressures, but lack the guidance and knowledge to properly evaluate the risk and benefits of an RRG. Diederich Healthcare’s experienced professionals can help New York physicians obtain quotes with traditional carriers and RRG’s, as well as weigh the benefits and disadvantages of the coverage.To contact the author, call 800-457-7790 and ask for Matt Thompson.