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. |
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