Subtle change in PA law has big potential for professional liability market
A recent bill signed by Pennsylvania Governor Tom Wolf will allow a group of medical professional liability insurers to convert from reciprocal exchanges, to stock companies after final approval by the Pennsylvania Department of Insurance. This change in the law will affect the future landscape of medical malpractice insurance in Pennsylvania.
Introduced as House Bill No. 159 by several Republican members of the Pennsylvania House, the law affects several malpractice carriers that were started shortly after the last significant “medical malpractice crisis” that happened around the turn of the century. Four of the more prominent members of this “class”, Healthcare Providers Insurance Exchange (“HPIX”), Professional Casualty Association (“PCA”), Positive Physicians Insurance Exchange (“PPIE”) and Physicians’ Insurance Program Exchange (‘PIPE”) would all potentially benefit from this new law. The goal of the legislation is to allow these insurers to convert their legal status to a stock company and, as a result, potentially gain access to new capital and expand their operations. However, this all comes with certain requirements and limitations.
Each reciprocal exchange must file a conversion plan that is approved by the Department of Insurance before they can convert. While conversion of mutual companies is nothing new in the insurance world, the governing law for these carriers dated back to 1921. Tom Gaudiosi, the CEO of HPIX, described the statute as “out of date” in a recent news article published by SNL Financial. Jim Gillespie, CEO of PCA, said that his firm not only took a “strong leadership position” in lobbying for this law, but actually initiated the effort. He noted that they had worked “long and hard” to educate the sponsors of the bill as to the need for this law. Gillespie also stated that the law’s passage will allow reciprocals to secure more solid financial footing, not only for today, but also for the long-term. Given the financial pressure that insurance companies face in a competitive market, this is good news.
PCA has already taken the initial steps to make the conversion to a stock company. If all proceeds as planned, they expect to be able to make the required “offering” of shares in the company later this year. However, it is worth noting that the conversion must be “approved” by the current reciprocal exchange subscribers. If this effort were to receive less than a 2/3 vote of approval from the voting subscribers, an alternative plan would need to be explored.
HPIX, taking a different tack, has agreed to sell its renewal rights to Medical Mutual Insurance Company of North Carolina (“MMICNC”). According to the same SNL Financial article, HPIX will not be acquired by MMICNC; rather, they will enter in an orderly run-off. While not an unusual event for an insurance company, a company run-off does raise the question of the ability of HPIX to cover all of its liabilities as a result of insured claims that arose prior to the policy obligations being renewed by MMINC. This may be of particular concern for some given that according to the NAIC Consumer Information Source website, HPIX’s policyholder surplus dropped from over $34M in 2012 to under $24M in 2014. However, Nicholas Gaudiosi, the HPIX President & COO, was quoted saying that HPIX is “expecting a nice payment to distribute” based on the loss records of the carrier.
As of June 18th, PPIE and PIPE have been silent on their plans with respects to this new conversion law.
In my opinion, this new law is a positive development for medical providers in Pennsylvania. With the other large Pennsylvania writers all being well established and financially secure companies, this new tool should allow for the strengthening of the market and offer viable and competitive options for Pennsylvania’s medical malpractice market.
About the Author
Pete Reilly is the Healthcare Practice Leader at WGA with extensive knowledge in healthcare systems, including hospitals, long-term care facilities, and medical practice groups of all sizes.