State's Only Med-Mal Firm Built From Scratch

When Arkansas Mutual Insurance Co. was formed in 2007, Arkansas became the last state in the union to get its own medical malpractice insurance company.

After St. Paul Cos. of Minnesota, the largest carrier of medical liability policies, abandoned the med-mal business entirely in 2001, about 2,300 of Arkansas doctors lost their liability insurance coverage. In many states, medical societies formed local mutual insurance companies to fill the hole. But Arkansas took a different path.

"In years past, the medical society had considered creating a mutual insurance company," said David Wroten, executive director of the Arkansas Medical Society. "But it was always determined not to have a large enough market in the state. Then you add the fact that we've always had carriers, and most of those carriers, at least right now, are mutual companies."

Other out-of-state carriers, like State Volunteer Mutual Insurance Co. of Brentwood, Tenn., and Mag Mutual Insurance Co. of Atlanta, swept in to replace St. Paul.

So Arkansas had no med-mal carrier to call its own until 2007. Corey Little, a pharmacist, wanted to create in-state competition for the out-of-state liability insurers that Arkansas doctors used. But it wasn't easy to get the ball rolling. To begin with, he needed $2.5 million in capital. Most other med-mal mutuals were built by state medical societies, a foundation Little didn't have. Moreover, he couldn't start an insurance company with debt.

"So we did research, and found out that most [mutual liability companies] are formed through this structure of a management company," he said.

Little founded Arkansas Professional Management, and when enough money was invested in that company, it borrowed the money to form the not-for-profit Arkansas Mutual.

"That company loaned Arkansas Mutual $2.5 million that [the Arkansas Insurance Department] said has to be in the bank with no liability before we issue the first policy," Little said.

Dr. Tom Robinson of Little Rock, one of the company's founders and investors, said he supported Arkansas Mutual early on because he wanted an in-state competitor.

Out-of-state carriers "cost me, and every doctor in the state of Arkansas, a lot of money, plus money going out of state," he said. "It's not what was best for the doctors in the state.

"I never in my practice got sued, but my rates kept going up. I couldn't understand that either. We had no voice, no say-so. We were just renting a policy."

When Robinson heard what Little was doing, he joined right away. Now Robinson, an emergency physician, is the company's director of physician relations.

 

Uphill Battle

After its formation, the mutual did not immediately find its footing.

"It took almost two complete years to come to fruition and become an admitted carrier by the state, and that's a big deal," Little said.

Also, there's been a bit of a rift between Arkansas Mutual and the Arkansas Medical Society, which did not believe Arkansas needed its own med-mal carrier.

"If you look at when and where other mutuals were formed, it was when there was no carrier, or the carriers in those states either pulled out, or they were down to one, with no competition, or they were in states large enough to support a carrier," Wroten said.

Other questions arose: For example, how much of the mutual's premiums went to the management company to pay off the original investment?

According to Little, 82 percent of each premium dollar goes towards claims, and some of the remainder returns to the management company to pay back the original investment. He said most of the company's employees are paid by the management company.

"The management company will recoup its investment many years down the road, when we've got 2,000 or 3,000 doctors," Little said.

Additionally, Little said, the mutual has had difficulty finding its voice as the Medical Society has historically aligned itself with other liability insurance companies.

"David Wroten has assured me that within the next month or so I'd be able to get in front of the executive committee," Robinson said. "I trust what he says, but it has taken five years from our inception to be able to do that."

Building a client base also hasn't been easy.

"I've been really frustrated over the last few years," Robinson said. "Some physicians get the concept immediately and want to join."

Others, he said, don't want to change carriers, even if their premiums have risen. In the beginning, Little said, potential clients would often tell Little to come back when the mutual was five or 10 years old.

"Our biggest challenge we faced was the calendar," Little said. "I couldn't argue - and don't argue - with doctors that say they wanted us to be around a while."

"There was one case that, to me, epitomized our futility and frustration," Robinson said. It happened when the mutual gave a quote to a large primary care group in the state. Staying with its current carrier, Robinson said, would cost the group about $2,000 more per year.

"Each one of their doctors had been overcharged for 10-15 years that amount of money," he said. "We pointed that out, gave them a true quote. But they elected to stay with their original carrier."

Many doctors still would prefer to put their money with a larger, more established company than a small, young mutual, Little said.

The Arkansas Insurance Department shows Arkansas Mutual's estimated premium for clinic physicians at around $6,637, about $1,000 more than the three most-used carriers, but Little said credits are typically available to offset that rate.

"Given our experience in the market, our prices are competitive," Little said. "We are frequently the least expensive option for Arkansas physicians purchasing medical professional liability insurance coverage."

The insurance department did report that Arkansas Mutual's overall rates dropped 12.5 percent between 2010 and 2011, a steeper drop than any of the competing carriers.

It also reported that Arkansas Mutual earned $730,580 in net premiums last year, compared with $306,779 in 2010.

Arkansas Mutual works like a cooperative: Excess cash, rather than being used as a profit, is redistributed among policy holders as a dividend.

"Basically, doctors are paying a deposit into their own company, and we pay out claims and overhead," Little said. "Those are the only two things premium dollars go for. With all these out-of-state companies, they're here for one reason, and that's profit."

Little said his company caters better to its doctors needs because its employees aren't pressured to make profits. Also, it can pick and choose its clients.

"The key is not the number of doctors; the key is the right doctors," Little said. "We're working hard to build an exclusive club for literally the best doctors in the state."

Little said Arkansas Mutual turns away around 30 percent of its applicants.

"On paper, a physician might look good - it's kind of like applying for a job," he said. "Do you buy a resume or find more out about that person?"

"They only take Arkansas physicians with good records," said David Jacks, a client and a longtime urologist in Pine Bluff. "If you're a member of their company, you're a good physician in Arkansas. I think that will be their reputation from here on out."

Jacks said he wasn't turned off by Arkansas Mutual's youth.

"I was with, for 29 years, a Texas medical liability company," he said. "I had a clean record, but the Texas company was increasing my rates every year."

He said he saw importance in the company's locality.

"State Vol is not an Arkansas company," he said, referring to State Volunteer, which now writes the largest number of policies in the state. "Arkansas Mutual is the only company [of its kind] originated in Arkansas. And who knows our practices, our problems, our difficulties better than our homegrown people?"

Arkansas Mutual has built a base of around 400 policyholders spread around the state. It has eight employees. Some of its major clients include Little Rock Diagnostic Clinic, The Surgical Clinic of Central Arkansas in Little Rock, Park Hill Women's Clinic of Johnson and Arkansas Psychiatric Clinic of Little Rock.

In the future, Robinson said, the mutual's goal is to increase its number and voice.

"That way we can get into the political arena," he said. "We can voice what impacts health care in the state of Arkansas."

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