Health-Care Revolution Delivers Opportunities for Surplus Lines Industry

“How long do you plan on living?” asked a wholesale broker at a recent industry meeting. The trends facing every aspect of our health-care system seem daunting at best. Yet, like the wholesale broker who asked this question, most people would hope and plan for a longer life span than any generation before, and depend on superior health services to help deliver their expectations.

Consider the following points, which might be common information to some, but viewed in conjunction are a bit overwhelming.

The baby boomer generation will age as they have done most other things, together. That means some 78 million people will grow gray together, and will put the largest combined demand in history on the heath-care system all at the same time. Lifetime health-care expenditures are concentrated in the last years of life, and this generation will create an enormous demand on an already beleaguered Medicare system. Many of the current challenges in the U.S. health-care system–rising expenses, ever increasing jury verdicts, record industry losses–are occurring at the same time physicians experience flat compensation, increased patient loads and huge increases in the cost of medical malpractice coverage. Let’s say a physician practiced medicine in Connecticut, what might they conclude from the following? (See chart 1 below.)

National trends show physicians are indeed “working even harder for the money.” National trends from the Medical Group Management Association show that the compensation gap is even more acute for primary care physicians while specialists fare better. (See chart 2 below.)

“I’m working harder, I’m putting in longer hours, I have trouble recruiting, and my overhead keeps going up,” Mary Frank, a family physician in Rohnert Park, Calif., and president-elect of the American Academy of Family Physicians, told American Medical News.

A.M. Best’s most recent tallying of results for medical malpractice insurance companies are not particularly encouraging. Though ratios have steadily dropped to 115.4 percent in 2003 from 144.9 percent in 1999, there’s still a long way to go.

Without continued improvement, insurance companies will struggle to insure physicians and remain financially viable. The 2003 results would be more heartening if the industry was not also facing the prediction that in 2005 the overall composite property/casualty price increases will begin to repeat the pre-2002 trends; in other words, price declines, not increases. And on long-tail business, such as medical malpractice, the industry will not realize actual losses for 2003 for years to come. In some states, if a minor is involved, the tail could be as much as 20 years.

So how will professional liability underwriters survive, let alone prosper, in the health-care arena? This is of particular concern for surplus lines, which deals with the hardest to place accounts. What do these trends bode for the industry?

Some of the results are already evident. This becomes clear when viewing the dramatic increase in segmentation throughout the health-care industry. The natural course has been to unbundle the physician’s responsibility to only those most critically within their auspices. This is resulting in whole new areas and methods for delivery of health care. Some examples include certified nurse anesthetist, nurse practitioners, physician assistants, anti-aging, telemedicine, pain management, medi-spas and specialized surgical centers. This trend is coupled with a myriad of complementary alternative health-care providers focusing on preventive care as well as quality of life.

As robust as this has been there is no end in sight to what will, in fact, be a complete redefinition of how to be healthy and, when needed, receive medical care. The surplus lines arena provides the vital capacity for these emerging risks, and the new technology that will be required to integrate them into the delivery system.

Every indication is that there is an ever-expanding area of emerging technology and great opportunity for the industry. The technological changes in information and the resulting treatment are sparking a revolution, which has just begun in the United States. Great Britain alone plans to spend $15 billion to establish a fully integrated, computerized system for their National Health Service, a startling comparison in that the technology expenditures so far in the Bush administration have by comparison been estimated at about $100 million.

Whether this revolution occurs through the public or private sector, it is coming along with new clinical practices, new delivery systems and constant redefinition of the physician’s role in healthcare delivery. What will result, ultimately, is a fully integrated medical system replete with medical profiles, history of treatment, pharmaceutical warnings, limitations, disclaimers, and familial genetic history, to list a few components. And it will be accessible by all treatment providers, and to their patients globally.

At the same time the changing medical system will continue to include a basic requirement, by law, that the information be protected from unauthorized access.

What or who will determine what information is provided, as well as who makes the final decisions on access for parents, spouses, family, employers, and insurance companies, remains to be determined. Doctors, among all other providers, can no longer afford to rely on handwritten notes, nor do they have the time to find each patient’s file, moving information from provider to provider in a paper manila file folder. Speed and access to comprehensive, in-depth information in limited time is ever more critical.

This is an arena in demand of unique, out of the ordinary insurance options, and one that is projected to be ever-expanding. It’s an opportunity tailor made for the surplus lines insurance industry.