London Calling (Version Two)

Acrisure’s John Sutton reflects on the evolution of the London healthcare market.

Many years ago, when I was younger, fitter and, at least from my own recollection, much taller, I was asked to write a piece on the London healthcare market entitled ‘London Calling’.

Its aim was to showcase the attributes and the long-term loyalty of our market, going back over many years; how the collective strength of the subscription model had survived and, given the accumulated knowledge and database, had gone from strength to strength.

Some twenty years on, I am pleased to say that the London healthcare market remains in rude health. This is despite the many challenges thrown up by the increasingly unpredictable nature and scale of claims and awards in an equally unpredictable legal and social environment.

Subscription market and stability

London has remained true to its mantra of being a consistent player in the US medical malpractice market and has navigated many different cycles and challenges. There has, in the majority of cases, been an overriding sense of loyalty from customer to market and vice versa.

Global capacity has fluctuated over time; however, until more recently we have witnessed a significant reduction in the amount of large, single-market limits available in both the US and Bermuda markets. These were the large ‘chunks’ of capacity that in some cases enabled the overall programme to be completed at lower pricing. Some highly rated capacity providers have withdrawn from the class entirely, while some have chosen to dramatically cut back their available per risk limits.

At the same time, whilst London has not been exempt from losses that lead to a rethink in underwriting philosophy, the ‘safety in numbers’ approach taken by both clients and markets, has meant that many insureds have been able to find replacement capacity in London, but at a fair price.

In the subscription market, a recognised leader in the field negotiates and sets the ultimate terms in conjunction with the client’s representative London broker. This leader is followed by a number of supporting but equally knowledgeable players, ensuring a level of integrity and consistency of pricing as well as ‘air cover’ for the client in the event of individual participants choosing to reduce capacity or decline to renew over time. In the main, this has enabled London to continue with providing continuity and stability for clients.

Backing the start-up

Despite many conversations and enquiries over time, no one seems quite sure when the first US medical malpractice risk was written in London. I have always gauged it to be around the late 1960s, but what I do know is that US capacity has ebbed and flowed, and some of those involved have decided that they no longer want to write certain risks in certain classes or jurisdictions.

Where London has most importantly and visibly stepped up is in the demand for a longer-term and stable approach to a particular shortage of highly rated, affordable and sustainable capacity. This is highlighted no more so than in the ‘med mal crisis’ of the late 1970s, when physicians practising in higher-risk classes could no longer find affordable insurance cover in certain states to continue to practise at their chosen hospital. Navigating through US and London intermediary channels, this led to discussions with certain London companies and Lloyd’s syndicates about the prospect of supporting fledgling doctor-owned companies who needed to purchase reinsurance to protect their modest balance sheets.

A flexible premium mechanism was devised. This was known as the ‘swing plan’ and enabled these start-up mutual companies to build on profitable results by receiving a return premium. The premium could swing up or down depending on results to the reinsurers, but in many cases the return premiums went towards increasing initially modest surpluses, and began to lessen the reliance on the start-up capital or loans.

These programmes ran well for several reasons. Firstly, because the doctors’ own money was at stake, risk selection was careful and well informed. Their risk management demands were high and the relationship with the hospital heightened due to their own insurance coverage being somewhat tenuous at that stage. The goodwill of reinsurers was providing them with both a stable product and the ability to plan for the longer term.

Whilst the London market also wrote large hospitals, nationwide hospital systems, a myriad of healthcare captives and risk retention groups, and still do today, it is the success story of the PIAA companies that most resonates with me personally when accounting for the special place that London holds for so many of those involved in US healthcare insurance.

London claims representatives and claims co-operation

For a prospective London client, the question often asked of their own local broker is ‘Why and how can we trade with a market so far away, and what do they know about our risk and our jurisdiction?’ Key issues include: changes in local law; the local defence and plaintiff bars and their differing approaches to choosing jury pools; the threat of out-of-state plaintiff attorneys; the insured’s commitment to risk management procedures; nursing shortages; unions; the sourcing of expert witnesses, and many, many other considerations. How can our market monitor such issues when assessing the potential efficacy of each risk?

Over many years, the London market has chosen and relied upon a panel of London underwriting representatives (known as Reps) to be their local eyes and ears. These Reps are mostly defence attorneys from different firms across the country who are aware of each individual market’s risk appetite, approach to risk management, claims procedures and, most importantly, attitude to the reserving and the settling of claims. Over time, these Reps often become very close to the client, advising on and highlighting a whole range of clinical and legal challenges that they may have witnessed elsewhere.

The US domestic market also has a long history of writing medical malpractice business and when London is not a part of a US market programme, it is the most common alternative to it. There are many key differentiators. Mostly, the US market is not a face-to-face broking environment, simply due in most cases to the geography and the sheer size of the United States. In many cases, the US market insists upon a claims control clause, as opposed to London’s claims co-operation clause. The former can, in certain cases, mean that a client will be forced to settle what it may believe to be an egregious or inflated claim, settling at an amount far in excess of what it believes to be fair. That claim settlement will be forever on the claim record of that insured and will in all likelihood adversely affect the pricing of their risk for years to come.

Importantly, London prefers the claims cooperation approach. That is to say that the Rep, working with the market and the insured on any case that may be predicted to pierce the insured’s primary insurance layer, will discuss the reserve amounts on those cases, and decide together on the strategy to be implemented on those that may go to trial. While the lead market may set their own individual reserve, they will not dictate settlement in a jurisdiction over three thousand miles away.

Stepping up next gen

I have touched on a number of reasons why I feel that London has remained a significant part of the US healthcare space over many decades. The creation of alternative structures, a claims cooperation approach and ultimately, many enduring friendships, emanated from those brave enough to risk their careers and reputations by partnering many moons ago with those most in need.

The current market is, in my humble opinion, the most enlightened, diverse, positive, collegial, and dedicated that we have seen for a very long time. The collective willingness and appetite to bring new clients to our market and showcase our wares is unbridled, and seems to show no imminent signs of slowing. London is still calling and perhaps more now than for a very long time.