Under the provisions of the Liability Risk Retention Act, RRGs domiciled in one state can operate in other states upon filing a registration application notifying nondomiciliary states of their intent to do so.

A common theme among physicians forming RRGs is that the traditional market is not meeting their needs. For at least one of the new RRGs, the med mal market in its state--New York--where the RRG's insureds practice medicine, is in crisis.

The Empire State's residual carrier--the Medical Malpractice Insurance Pool--is running a deficit of about $1.9 billion. A task force appointed by Gov. Eliot Spitzer charged with finding solutions to New York's ongoing med mal insurance financing problems failed to make a year-end deadline to issue a report.

For some of the other RRGs, motivation stems from a desire by insureds to control their own programs and achieve rate stability over the long-term. Many doctors have learned this is not possible with traditional insurers, which reduce rates in soft markets and raise them in hard markets--sometimes to exorbitant levels.

Another motivating factor for physician RRGs is learning--typically through feasibility studies--that their loss experience does not warrant the rates they have been paying to traditional insurers. Often insurers lump physicians together with high-risk specialties. In effect, they are subsidizing higher-risk doctors.

One of the six new physician RRGs reported in the January RRR was sponsored by North Shore-Long Island Jewish Health System, the nation's third-largest nonprofit secular health care system (based on the number of beds) and New York's largest (based on net patient revenue).

The new RRG--North Shore-LIJ Physicians Insurance Company RRG, domiciled in Vermont--will provide professional liability insurance to voluntary staff physicians affiliated with NSLIJ and will also insure an excess layer of NSLIJ's professional liability.

With an annual $4 billion operating budget, NSLIJ is the largest employer on Long Island and the ninth-largest in New York City, serving a population of 5.2 million in Long Island, Queens and Staten Island. Its hospitals serve as academic campuses for medical schools, including New York University School of Medicine and the Albert Einstein College of Medicine.

The RRG will insure only voluntary physicians. Employed physicians are insured through a combination of coverages provided by NSLIJ's Bermuda captive.

Although the property-casualty market has softened in the last few years, with decreased rates and increased availability, RRGs are likely to continue to form to insure doctors in states with tight medical malpractice markets, such as New York.

"Often insurers lump physicians together with high-risk specialties. In effect, they are subsidizing higher-risk doctors."

Karen Cutts