Liability insurance to return

  with CAP’s new broker

January 2005
Feature Story

CAP members who switch to the College’s new insurance broker this year not only will have new and better options in life, accident, health, and other traditional benefits, but also be able to reinstate the professional liability coverage that’s become more and more difficult to find for a reasonable rate.

The College’s staff and members of the CAP Insurance Committee negotiated the new deal with Aon Affinity Insurance Services of suburban Philadelphia. Though the precise menu of new professional liability options is yet to be worked out, College members can rest assured they will represent an improvement over the shrinking number of possibilities offered by former broker JLT, says Gene N. Herbek, MD, immediate past chair of the Council on Membership and Public Affairs.

"The key is we can make available to all our members in every state at least one or two or more professional companies that can provide medical liability insurance," says Dr. Herbek, a pathologist at Methodist Hospital, Omaha. "There are some pathologists who are having trouble in some states getting coverage they can afford. In some states it’s very, very expensive."

The College had continued to enjoy a good overall working relationship with JLT, Dr. Herbek emphasizes, but the broker was hit hard—as was the liability insurance market in general—when giant St. Paul stopped offering liability coverage a couple years ago.

"When St. Paul left the medical liability market, it left JLT in a real bind," he says. "They were not able to find coverage in many states where our members practice. It became a critical issue for the College to find a broker or administrator who could solve this problem for our members." The situation wasn’t one that JLT brought upon itself, he says, but it was unable to provide the personal attention that CAP aims to give its members. "They couldn’t provide the service they needed to in every state, and our members deserve the best service from our broker," Dr. Herbek adds.

Even those who have found coverage have seen steep premium increases, says Dr. Herbek, who knows from personal experience: The group he was with previously in Iowa priced insurance through its state medical society but found liability premiums would have doubled. "The College was very helpful, and our current broker was very helpful. We were lucky to be in a state where our current broker could write coverage," he says. "It kept our costs only slightly above the level it was with St. Paul. But I know other pathologists who did not have that fortune and circumstance to get coverage at a similar cost."

Alvin M. Ring, MD, an Insurance Committee member, echoes Dr. Herbek’s thoughts about JLT. "There wasn’t dissatisfaction in general," he says. "There was some question about the breadth of their organization, and we were a bit frustrated with their creative solutions to the malpractice problems. Otherwise it was a very good company to work with."

But Dr. Ring, a pathologist at Silver Cross Hospital, Joliet, Ill., says Aon should represent an improvement in not only malpractice coverage but also other areas of insurance. "We felt that they were superior in every line of insurance. In malpractice they had the most creative and wide-ranging solutions," he says. "They were also excellent in life and health."

The CAP Insurance Committee began investigating the possibility of switching brokers about 18 months to two years ago, primarily in response to members’ complaints about malpractice coverage, Dr. Herbek says. Committee members sent a request for proposal to about 20 administrators and heard back from "eight or nine," of which four were interviewed face to face, Dr. Ring says. In addition to JLT and Aon, those companies included Marsh Affinity Group Service and Pearl and Associates, he says.

"Our essentially unanimous choice was Aon," Dr. Ring says. "There was a very, very intensive interview process." He and the other committee members looked at Aon’s underwriting capabilities and how extensive those were, the range of products offered, the number of insurance companies Aon worked with, how extensive its experience was, its ability to transition from the old to the new, whether it had worked with other associations, and how important the College would be among all its different clients. "All those points, and the quality of the presentation they made, were the reasons we selected Aon," he says.

The College and its Insurance Committee decided to stick with that decision despite concerns about the effects of New York State attorney general Eliot Spitzer’s investigation into the business practices of the insurance brokerage industry.

That investigation has resulted in a state lawsuit filed against Aon competitor Marsh & McLennan Cos. but only subpoenas and the potential for private actions against Aon and Affinity. Spitzer is delving into three areas: bid-rigging, in which a broker predetermines which insurance company will get an organization’s business; so-called contingent commissions, in which brokers receive payments from insurers for steering business to them; and so-called tying, an arrangement similar to contingent commissions that applies to reinsurance business.

Calvin R. Johnson, president of Affinity’s Healthcare Division, told CAP TODAY: "Aon continues to cooperate fully with the various state attorney generals and state regulatory agencies that are evaluating various insurance industry practices as a result of a specific complaint alleged against one of our competitors." While Aon has been subpoenaed to provide specific information, he says, "no complaints have been brought against Aon by a governmental or regulatory body alleging improper behavior or business practices."

Jack R. Bierig, CAP general counsel and a partner in the Chicago firm of Sidley Austin Brown & Wood, says his concern is "not only what Eliot Spitzer does but possible follow-on suits brought by plaintiffs’ class-action lawyers."

"We’re aware of the concern, which is not just unique to Affinity and Aon but to the insurance brokerage business generally," he says.

"There’s always the possibility that some private lawyers could round up some people and say, ’Do you want to make some money?’" agrees Thomas J. Cooper, MD, chair of the CAP’s Council on Membership and Public Affairs. Yes, the CAP has selected a broker that is under Spitzer’s watchful eye— "as was most everybody else," Dr. Cooper says. "We went into this thing with our eyes wide open."

Aon announced Oct. 22 that it would no longer accept contingent commissions, which has been a widespread industry practice for decades. "Aon’s response has been very strong and very honest and very forthcoming," says Edward P. Fody, MD, chair of the CAP Insurance Committee. "They said [contingent commissions] represented a very small part of their business, but it’s going to be completely dropped."

Just to be sure, the College’s contract with Aon was amended to prohibit such practices and to provide other reassurances. Affinity’s Johnson says he and others have assured the CAP that Affinity "will not earn any compensation whatsoever, including contingent commissions based on profit or production volume, except that which is specified within our contractual agreement."

That language represents the major change in the contract, Dr. Fody says. "We have specific language in there that prohibits contingent commissions," he says. "That’s probably going to be standard in the industry now."

Aon also has agreed to cover the College’s costs—for staff time as well as copying and other incidentals—if the College is subpoenaed by Spitzer or a private attorney, Dr. Cooper says. "We have language in the contract that says Aon will take on those costs," he says.

Other changes include a provision that if Aon were to lose its brokerage license in one or more states, the College has recourse to switch to another broker, Dr. Cooper says. "We didn’t want to have somebody in Tennessee or Minnesota or Nevada left out to dry," he says. He adds, "The chances of that to happen are small."

In the even more unlikely event that Aon goes belly-up, the contract contains a provision to indemnify the College, says Dennis G. O’Neill, MD, chair of the CAP Membership Committee, to which the Insurance Committee reports. "We said to Aon, ’You’re a great company today. Let’s say next year you’re indicted and collapse like Arthur Andersen collapsed.’ They have promised in a document to indemnify us and give us out-clauses so if they do collapse, we’re not going to be left holding the bag for our members."

Overall, the College is in a stronger position because of the investigation, Dr. Herbek says. "We were able to obtain a better contract addressing all of the concerns that have been raised by Spitzer," he says. "We’ve used the opportunity to ask the questions and raise the issues that are of concern to the attorney general of New York. After asking the questions, the College and the staff were very comfortable with the response of Aon."

The questions and concerns would be there in any case, Bierig emphasizes. "The important thing is, we consider Affinity to be a very high-quality brokerage, and we’ve tried to write the contract to give us some additional protection in light of what’s going on," he says. "We structured the contract in a way that would help reduce the risks out there, which would be risks not only with Aon but with any large brokerage."

With more than 600 offices in 125 countries, Aon Corp. is based in Chicago while its Affinity Insurance Services division, which handles program association business, is in Hatboro, Pa. The company is the second largest broker and largest captive manager in terms of the size of its client base in the world, says Cheryl Hood, senior vice president of the division’s medical doctor programs.

Johnson says his division served more than 9 million insured and managed more than $1.4 billion professional liability, property/casualty, life, accident, and health insurance premiums in 2003. He says Affinity traces its history to 1947, when it offered the first group insurance plan to members of the American Institute of Certified Public Accountants, and the Healthcare Division first began offering term life insurance to nurses in 1976.

Affinity’s first priority will be to guide a smooth transition, says Scott M. Kelley, vice president of marketing for the Healthcare Division. "We just want to pick this stuff up, move it as easily as possible, and not rock the boat," he says. "We just keep the normal administrative processes going as seamlessly as possible."

"When the members become familiar and learn who we are and how we do it, that’s when we go out and bring in new products and entertain new configurations of existing products," Kelley adds. They assess the products being offered and then work with the insurance companies to get the best products and prices. "We try to get better rates for you, better discounts. We’re the new kid on the block, and we can go out and beat up the insurance companies," Kelley says.

Aon will provide a "full palette of insurance offerings," Dr. Herbek says, including health, life, disability, long-term care, dental, and liability. Hood says the liability coverage could take one of three forms:

• A broad-sweep structure in which the College simply endorses Aon as its broker, and Aon then looks for the best available policy for each pathologist, both standard policies and nonstandard for those who have faced "a lot of claims" in the past, Hood says. "They have a panel of medical liability companies. That’s where we’ll start," Dr. Herbek says.
• An exclusive program for CAP members with one or a few national carriers that would provide special pricing via bulk discounts.
• An in-house risk retention group formed by members themselves that Aon would set up, in which "they, the insureds, are actually the owners," Hood says. "But that requires a business plan, it requires actuarial studies, it’s a lot of upfront money." Adds Dr. Herbek, "That’s a few years down the road," if it happens at all.

Liability insurance has become a more critical issue for pathologists during the past few years, Dr. Ring says. "There just seems to be a greater public awareness of the role that pathologists play in diagnosis," he says. "Errors in diagnosis have come to the forefront."

In fact, Hood says, 54 percent of closed claims are on misdiagnoses. The reason premiums have skyrocketed has not been the frequency of claims so much as the severity of claims, she says. "In the past, pathologists were just a standard, class 1 rate, just like your vanilla doctor," she says. "The overall climate right now is very negative, very litigious, in the past three years or so. Ten years ago, a $1 million claim was huge. Now a $1 million claim every quarter is nothing unusual."

Cytology traditionally has been a hot spot for misdiagnoses, but Dr. Herbek says improved technology and greater awareness has curbed the number of claims, if not their severity. Pigmented skin lesions and melanomas as well as "anything [else] that involves a small biopsy, like prostate or breast, [causes an] increased risk for a malpractice situation," he says.

"Part of this whole liability reform and risk management [agenda] also needs to include education of the surgeons and pathologists to be extra cautious and manage the risk as best we can," he adds. "Surgical pathology is an art, and it’s also science. It’s not perfect. There are so many things that can affect what ends up on a slide to determine a patient’s diagnosis."

Ed Finkel is a writer in Evanston, Ill.