In New York, doctors are being further squeezed. The state insurance department just approved a 14 percent rate increase–the largest in a decade–for medical malpractice insurance. Doctors' groups protested.

With the just-approved premium increase, the New York Medical Society pointed out that a neurosurgeon in Long Island would now be charged $309,311 for one year's coverage, while an OBGYN in Brooklyn or Queens would pay $173,061.

New York Insurance Superintendent Eric Dinallo acknowledged the dilemma, calling it the worst of both worlds–physicians who cannot afford to practice medicine, and insurers whose financial condition is rapidly eroding. In New York, for example, mono-line, traditional med-mal insurers at the end of 2005 reported an operating ratio of 136 percent compared with 84 percent for their peers across the country.

How can new mutual companies, organized as RRGs, compete when the giants are teetering on the brink of bankruptcy? Again, the answers are simple.

Recently formed RRGs are not burdened by major past liabilities. Well-capitalized RRGs offer a fresh start. By selective underwriting–accepting only doctors with clean records–they can control losses. By mandating professional risk management, they improve care while reducing claims. And with aggressive claims management, they cause trial lawyers to look elsewhere for deep pockets.

RRGs are not subject to assessment by the state guaranty fund, so they don't have to share the cost of losses built up over the years by the traditional insurance industry. This means RRGs operating in New York will not be assessed for nearly $1 billion in deficits that have accumulated at the traditional med-mal insurance carriers. Recent studies indicate that these deficits are growing at the rate of $30-to-$50 million per month.

In addition, leading RRGs are well-capitalized and covered by comprehensive reinsurance programs to protect policyholders and the companies against catastrophic losses.

As shareholders in RRGs, doctors have an additional incentive to provide the best care because it will help reduce their insurance costs. RRGs generally retain recognized administrators with many years of successful underwriting and claims experience to manage the companies under the watchful eyes of directors and shareholders with a stake in providing the best protection at reasonable prices.

Although the long-term solution to the med-mal crisis is tort reform, malpractice reform has been slow to gain traction. The states that have enacted limits on noneconomic damages, however, have seen premiums go down and doctors move in. Texas, Florida, California and West Virginia have become increasingly attractive to physicians and surgeons as a result of tort reform.

While opposition to the recent rate increase in New York may finally cause the legislature to cap pain and suffering awards, it would be folly to underestimate the trial bar's influence as this inflammatory issue is debated. However, even if tort reform is not enacted in the next few years, doctors with clean records can lower their malpractice insurance costs now by becoming shareholders in RRGs.

Some RRGs guarantee premium rates for three years and provide comprehensive coverage, plus initial purchase of shares at a cost less than the premium rates charged by traditional carriers with all their liabilities and the risk of insolvency.

RRGs are authorized under the Federal Risk Retention Act of 1980, amended in 1986, to write liability insurance exclusively. RRGs licensed in a single state are free to operate in other states without additional licenses. They were created originally in response to the explosion of product liability litigation and the withdrawal from liability lines by traditional insurance companies.

RRG premiums grew from $250 million in 1988 to $2.6 billion in 2006 (according to the July 20, 2007 “Risk Retention Reporter”). Health care and professional services are among the dominant market segments served by RRGs today, with more than 31 of the current 248 listed as med-mal carriers.

While state legislatures grapple with the politics of tort reform and the various proposals for universal health care are debated, patients can receive better care from doctors who join RRGs and follow the principles of professional risk management.

Doctors also come out ahead by lowering their medical malpractice insurance costs at the same time.