Medical Malpractice Captive Feasibility Study

A regional physicians group came to Pinnacle for their expertise in captive and self-insurance programs. This group had a moderate deductible program in place and had exceptional loss experience for over a decade. However, they were not receiving credit commensurate with these results from their insurance company. As a result, they wanted to investigate approaches to retaining more risk, including captives.

Initially, Pinnacle discussed options including segregated cell captives, single parent captives, and even risk retention groups when they considered marketing the program to other similar groups of regional physicians.

While the customer was considering the structural alternatives, Pinnacle was developing a funding analysis that could be used in any of these structures. The analysis provided estimates of expected losses in several different loss layers. The customer’s experience was used to the extent that it was credible. Then, it was augmented with industry benchmark data, especially in the higher loss layers. This analysis also examined the variability of the expected losses by layer to help the customer understand the additional risk associated with higher limits of self insurance. This analysis was also tremendously valuable when negotiations began with fronting carriers and reinsurers regarding participation in the program.

Eventually, the decision was made to form an off-shore captive providing deductible buyback coverage at a higher deductible than the current level (although not as high as the physicians initially expected). The current insurer was retained due to the customer’s comfort level with its claims service and more responsive pricing of the program due to the evidence from Pinnacle’s funding analysis.

Pinnacle then worked with the captive manager to develop the feasibility study and pro forma financial statements that become the foundation of the captive application. The application was approved as submitted and the captive is running quite successfully.

Government Insurance Programs

Pinnacle has developed an excellent working knowledge of patient compensation funds and other government insurance programs in many different jurisdictions. Previous client assignments that are of particular relevance include work for: the Ohio Department of Insurance, the New Mexico Department of Insurance, the Virginia Birth Related Neurological Injury Program, Texas Medical Liability Insurance Underwriting Association (TXMLIUA, the Florida Office of Public Policy and Government Accountability (OPPAGA), and the Louisiana Department of Insurance.

In 2003, we served the Ohio Department of Insurance by providing a study for the Ohio Department of Insurance assessing the feasibility of establishing a Patients’ Compensation Fund (PCF) in Ohio in light of the reforms included in Senate Bill 281. This project required two separate studies. First, Pinnacle produced a Preliminary Report that contained a comprehensive study on the characteristics of all current PCF’s around the country. Then, Pinnacle produced a Final Report that provided recommendations for the design of an Ohio PCF and legislative costing of Senate Bill 281 reforms, which included caps on non-economic damages.

Both the Preliminary Report and the Final Report to the Ohio Department of Insurance regarding the feasibility of a PCF are available upon request. These studies highlight the breadth of our experience with PCFs as they required an extensive amount of information to be gathered on all of the active PCFs in the United States. They also highlighted our ability to tap into extensive amounts of external data and distill the findings into a straightforward report in a short time frame.

In 2003, 2005 and 2006, we completed the bi-annual reserve and pricing review of the New Mexico Patient’s Compensation Fund (NMPCF) for the New Mexico Department of Insurance. This involved a wide-ranging review of the operations, structure and benefits system of the NM PCF. The New Mexico PCF has been widely-recognized as one of the most successful funds in the country for its impact on maintaining affordability and availability of medical malpractice coverage in their state. A significant part of this success has to do with the broad reform package that triggered the creation of the PCF. We developed a thorough understanding of this reform package as part of our work on this assignment. We also used extensive amounts of information from the two leading writers in the state as a basis for many of the projection in the pricing aspects of the review. We have also assisted the NM PCF with legislative costing analyses and the development of a hospital assessment program.

In Virginia, Pinnacle initially provided an external peer review of the reserving and funding study of the Virginia Birth Related Neurological Injury Program (the Program). The original study was performed on behalf of the Virginia State Corporation Commission (SCC) and we were serving as advisors to the Program itself. This customer engagement has continued as we serve the Program in evaluating the impact of a number of proposed legislative changes related to the coverage provisions and funding alternatives that have been presented to the Virginia legislature in the last several years and renewing our review of the updated reserve and funding studies. Our experience working with the Program’s detailed claims data and particularly the unique loss payment features of large birth-related medical malpractice claims will be useful in the New Mexico assignment. We are also developing a reserve analysis methodology for VABRNICP more akin to the approach used in Florida for the Neurological Injury Compensation Association (NICA).

In Florida, Pinnacle provided a peer review of an actuarial report examining the Florida Neurological Injury Compensation Association (NICA). NICA is a no-fault, medical malpractice patient compensation fund focused exclusively on birth-related neurological injuries. The actuarial report was provided on behalf of NICA and estimated the likely impact of a number of legislative changes. We served as OPPAGA’s advisors in reviewing the appropriateness and reasonableness of the report’s methods, assumptions and findings. We have also been involved in additional regulatory and litigation support related to both rates and reserve levels of the PCFs in Florida.