Preparing for the worst

I was recently asked if there was any possibility of tort reform at the federal level, given that my home state of New Jersey is

not inclined to provide meaningful legislation to curtail runaway verdicts. My response was: “Unfortunately, no and probably not in my lifetime.” That being said, the solution to controlling the costs of medical malpractice for any institution lies within.

Working with healthcare clients to enable them to not only understand their risk but assume a portion of it, is an education process. The ease of writing a premium payment to transfer that risk has been replaced by the desire to control costs for most of my clients. The most sophisticated method for the health care community is a captive to replace primary com-mercial carriers. Having established captives onshore and offshore for my clients has been a solution in both soft and hard market conditions. In my experience, that decision to take risk motivates everyone to work harder; the broker, the risk manager, the adminis-tration of the facility and the staff.

Whether working with a large inte-grated delivery system or an individual hospital, I always ask the management team whether or not they intend to dedicate the resources to mitigate their risks prior to establishing a cap-tive. If not, my advice is to keep on writing that premium check to their primary carrier. Their loss activity will not improve by sheer luck. However, if they are willing to dedicate resources or supplement their own resources with our clinical risk management staff, the decision to move forward is easy. The formation of the captive and the choice of domicile are simple

decisions; the hard work will be borne by focused risk management and claim committee members who are willing to dedicate the time to determine not only how a mistake was made but what can be done to prevent that mistake in the future.

The risk management and claim management committees formed under the board of directors of the captive can’t be relegated to power on paper only. These committees must be committed to working together on a routine basis as opposed to be-ing formed on an ad hoc basis. You can’t afford to pay attention after the losses start to deteriorate; you must assume that no action will cause them to deteriorate. I worked with a client who had great risk management pro-grammes, a state-of-the-art electronic medical record that was excellent and great auditing tools to review medical records. We convinced the underwrit-ers that the programmes they imple-mented were excellent and then they started to cut down on the staff in risk management. During a meeting with the management team, I commented that they had excellent policies and procedures, but if they didn’t rededi-cate the resources to risk management they were only fooling themselves.

One of the benefits of establishing a captive is the ability to access reinsur-

Captive review 13www.Captivereview.Com

Donna vible of willis, New Jersey, explains to Captive Review about how to tackle risk management when medical malpractice is involved, in an absolute and dedicated approach

healthcare report

“a catastrophic event can happen to anyone at any

facility”

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ance markets worldwide. Working with my Willis colleagues internationally allows me to procure the best pro-gramme structures at the best pricing and terms for our clients. If you are going to take a significant level of risk or even a portion of the primary layer, access to reinsurance is the key to protecting the captive and assum-ing that level of risk where the client is comfortable. As market conditions change, the level of risk can fluctuate, which is not necessarily directly tied to soft or hard market conditions, but rather, depends on an understanding of the risk, the controls in place to mitigate those risks and the resulting claim experience.

I am often asked what happens if the claim experience deteriorates, or if a large loss occurs – what will happen to the captive? Clearly, the claim expe-rience is key to the success of the pro-gramme, but the programme structure is critical to the viability of the captive. Taking risk for a catastrophic event

without adequate reinsurance protec-tion is going to severely impact the financial strength of a captive. Access to reinsurance for protection against the shock loss is not only critical but it is available when you are capable of accessing the markets worldwide.

A catastrophic event can happen to anyone at any facility. One exam-ple for a client of mine involved a Perinatologist who was sued for failing to diagnose myotubular myopathy, a known genetic disorder in the patient’s family. During the amnio-centesis a request was made to test for this unusual disorder. An outside laboratory failed to conduct the test, and the infant was born with profound neurological impairment. The verdict came in at $28m. I saw the physician immediately after the verdict and the devastation was overwhelming as this was the first time that he was sued for medical malpractice after decades of providing care. My hospital client was worried about the impact that

this would have on their insurance at renewal and fortunately, their claim experience was otherwise excellent. At renewal we were successful in negoti-ating a reduction in premium at the same attachment. We were able to convince underwriters that the ‘train wreck’ was an event that would not be repeated.

That loss could have caused the captive to call on the parent for ad-ditional capital, but given the fact that the catastrophic level of risk was transferred, there was no additional funding required.

After a large claim, or even an event that could result in a large future claim, the most important risk man-agement tool that you can implement is to share that event with staff. I sug-gest periodic ‘closed case reviews’ with medical staff as a learning experience of not only what went wrong, but how to prevent the same outcome. While it is educational to learn of events from unrelated institutions, it is more meaningful to staff when they realise what happened at their own facility and, equally important, how much that cost the facility.

In my experience, the three ‘Rs’ of a successful programme are:

• Risk management• Reinsurance• Refocus after a claim is made and

develop policies to avoid that loss in the future.

www.captivereview.com14 captive review

healthcare report

Donna vible is senior vice-president and health-care practice leader at willis, specialising in servicing healthcare clients in the New York metropolitan area, with over 25 years of experi-ence as an insurance

broker and claims manager to her name.

“after a large claim, the most important risk management tool that

you can implement is to share that event with

staff”

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