Using the Risk Retention Act to help solve the Malpractice Crisis

As prices escalate and capacity shrinks, some doctor and hospital groups are using the Federal Risk Retention Act to self-insure in an effort to give them more control over their insurance needs as well as to provide cover that might not otherwise be available. Professional liability insurance for medical malpractice has become the single most expensive operating cost for healthcare professionals as costs have spiralled over recent years. Increased costs arising from higher awards and increased numbers of patients seeking to make claims have forced insurers to either hike their rates or in some cases to withdraw from the market. The Liability Risk Retention Act of 1986 allows groups of companies and individuals that are engaged in similar types of business to form Risk Retention Groups, a form of captive insurance company. Risk retention groups are viewed as ideal for healthcare as being licensed insurers is normally a requirement within the industry as opposed to offshore captives which are not. However forming a Risk Retention Group is not without its challenges. Reinsurance rates remain high due to the poor results faced by the industry and capital requirements can be high. In an effort to reduce reinsurance costs the tendency among doctors groups is to form affiliations with fellow professionals who are involved in the same discipline. This allows healthcare professionals to develop their own guidelines for deciding who they wish to include in their programs and to help control their claims experience. According to John Walsh, a director of Fintra International , a Bermudan based risk transfer company specializing in alternative market programs,"The ability of a medical profession to self-insure depends on whether sufficient capital can be raised to set-up and run the self-insurance program and equally importantly whether reinsurers can be convinced that claims will be contained." According to Walsh, forming a risk retention group is not an overnight solution as a clearly needed strategy is required which can take several months to initiate. However a well thought-through strategy can produce long-term results as not only can insurance cover be made more widely available but a new profit centre can be established with special expertise which can attract other users.