Hospital Captives

The commercial medical malpractice marketplace is a $10 billion per year industry that has seen several consecutive years of historically low losses and reserve releases. This has been coupled with a severe impairment to investment income, which has shifted insurers' focus back to underwriting profitability. Thus, the industry is in the midst of an extremely “soft market,” characterized by excess supply and not enough demand. There is a greater level of competition than ever before, and insurance rates for physicians are at an all-time low. This is a radical change in the environment from the one we saw during the 2000-2005 shift toward hospital captives, which was plagued by rising insurance costs that were alleged to have driven physicians out of practice. Insurers are now more focused on risk management and loss control, and have excess capital to invest in keeping their infrastructure current.

Despite these market conditions, the majority of hospitals are choosing to insure their newly employed physicians in their captives, collectively with the hospital liability. Hospitals are apparently trying to “beat the market” by charging a lower cost in their captives than they would be paying to commercial markets. The integration of physicians in the captives is providing the hospitals with a bigger risk-versus-reward insurance decision than ever before. Hospital representatives believe that by cutting out the commercial market expenses, they can charge less and also better coordinate a joint defense strategy involving both parties.