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 1960’s, but it could well have been much earlier.

What I do know is that over certain periods of history in this class, 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, and even if they do, the overall capacity is insufficient to support the healthcare industry demand overall.

Where London has most importantly and visibly stepped up is where there has been the need for a more long 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 1970’s, when physicians practising in higher risk classes could no longer find affordable insurance cover in certain states to continue to practice 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 in order to protect their modest balance sheets. These were balance sheets formed from personal assets and or bank loans. In other words, their livelihoods and future prosperity depended quite literally upon the success of these newly formed, mutually owned companies.

These companies were formed state by state and over time, the vast majority of them found themselves reinsured at least at the primary level, by London. Forming an association, these Physicians Insurers Association of America (PIAA) companies found that they were trusted to grow and run their own insurance companies by a number of ‘believers’ from across the pond. Between all parties, including the London brokers, an adjustable premium agreement, called the ‘loss sensitive’ or ‘swing plan’ method, was designed as a way to satisfy the client and the market’s inevitably differing expectations as to the ultimate claim performance.

As the title suggests, once the losses to London were reported, according to the pre agreed formula, the initial deposit premium was adjusted upwards towards a maximum premium or downwards towards a minimum premium, on an annual basis. Over time, the losses would ultimately settle below or to the London layer and the premium would adjust each year until all relevant claims were finally closed. Many of these programmes ran so well that return premiums, towards or at the much lower minimums, went towards increasing the initially modest surplus, and began to lessen the reliance on the start-up capital or loans. In many cases, after a few years, these contracts were ‘commuted’ whereby, given their deep knowledge of their own claims and their belief that they would not ultimately result in a collection from London, the open claims were taken back by the mutual and the London layer was closed off from any further payments. In such cases a significant return premium was given, further enhancing the capital strength of the PIAA company in question.

These programmes ran well for several reasons. Firstly, because the doctor’s own money was at stake. This meant their own risk selection as to who should join and be insured, was a well informed and careful decision. 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. They also knew their own claims and the likelihood of a recovery, or not, from their insured layer(s). Over time, and as confidence grew, their own reinsurance retention(s) did the same. A proof of concept was there for all to see and as a result more physicians believed and joined, bringing more capital. In addition, the goodwill of reinsurers was providing them with both a stable product and the ability to plan for the longer term.

This ‘swing plan’ method also worked because during the formation of most of these groups, the trigger for claims covered switched from an ‘occurrence’’ basis to ‘claims made’ during. That is to say that the claim had to be made during the policy period and if it wasn’t, that year could no longer be applied for coverage. It was easier to judge performance and rate the risk on a year by year basis. Changing from an occurrence form to a claims made form also meant the newly formed PIAA companies were only on risk for claims made going forward and initially at least, not open to the ‘tail’ from previous carriers. This gave them a strong following wind from which to build their base of insureds, premium, capital and surplus.

The doctor mutual or ‘bed pan’ mutual book as they were sometimes called (a title they found understandably disparaging), was to become the bedrock of many a London healthcare market’s income and ultimately, their success. Those PIAA companies (now known as the MPL Association), went on to grow to such a scale that many have become significant stock companies with strong ratings from the relevant agencies. Many of the previously, small single state PIAA companies have become significant multi-state capacity for the overall healthcare space, writing hospitals and other related insureds. A far cry from their modest beginnings.

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