Princeton Insurance Co., an offspring of the New Jersey Hospital Association and one of a few solvent survivors of New Jersey's embattled medical malpractice market, is struggling in an increasingly political climate.
Based on its deteriorating operating performance, insurance-rating agency A.M. Best Co. has downgraded the company three times in the last year, most recently on June 12. The B (fair) rating with a negative outlook marks a significant downturn since the A- (excellent) of a year ago.
As the malpractice insurer for 75 New Jersey hospitals, an 80% market share according to Princeton Insurance, and 10,000 doctors, a 60% market share, the insurer's fortunes are inextricably entwined with the New Jersey healthcare industry.
"Short of self-insuring, I don't know what the options are for hospitals and a lot don't have that option," said Gary Carter, president and chief executive officer of the New Jersey Hospital Association, who also sits on Princeton Insurance's board.
Unlike other provider-sponsored insurance companies that failed, such as PHICO Insurance Co. in Pennsylvania and the MIIX Group in New Jersey, Carter's position on the board is the only remaining business relationship between Princeton and the hospital association. The hospital association got its seed money back at least 10 years ago, Carter said. Then about a year ago, "in a quest for more capital," the major hospital investors sold the business to the New York-based Medical Liability Mutual Insurance Co., he said.
Still, the most recent troubles for Princeton are being played out as New Jersey physicians grow increasingly aggressive in their lobbying for medical malpractice reform. Last week, doctors launched a "rolling political action" effort that will mark the time running out for the General Assembly to pass the Senate version of a medical malpractice reform bill. Each day doctors in two or three assigned counties will lobby elected representatives, close offices or postpone elective surgeries and checkups. The action, which is being coordinated by the Medical Society of New Jersey, will continue throughout the month and will resume in October, just prior to statewide elections, if the Legislature adjourns "without passing meaningful reform," medical society officials said.
Meanwhile, Princeton Insurance's financials dipped low enough last year to trigger "a company action" from state regulators, requiring it to submit a business plan for righting itself, said William McDonough, Princeton's president and CEO. Part of the plan included exiting the business from states other than New Jersey, selling its workers' compensation business, and buying more reinsurance for itself, all of which it has accomplished. A new plan has been filed for 2003, which the state insurance department is reviewing, he said.
In 2002, Princeton Insurance suffered a $59 million net loss on $187 million in premiums earned, according to Mary Cozzolino, a spokeswoman for the state Department of Banking and Insurance. McDonough said the loss was driven by the rise in lawsuit awards. To cover it, the company raised its reserves by $118 million at year-end, eating up a significant portion of a $40 million capital infusion from its parent, MLMIC, A.M. Best said.
McDonough noted that last year when MIIX was embroiled in far worse troubles, Princeton stepped in, writing policies for 3,000 additional doctors. "We responded to what would be a crisis, knowing it would put a strain on our financials, at the request of the insurance department, hospitals and owners," he said. "We're doing everything we can do to weather this storm. ... We're confident as things move forward that we can survive it."
One hospital system that is nervously sitting out the crisis at Princeton is four-hospital Atlantic Health System, Florham Park, N.J. About 25 years ago, long before the merger that created the system, one of its members, Morristown Memorial Hospital, set up a self-insurance trust fund. Created in a "relatively calm market," it actually was at one time over-funded for Morristown's needs and was applied to all the hospitals when the system was formed in 1997, said Stephen Sepaniak, Atlantic's vice president of legal affairs.
"I don't think anyone envisioned it would become as important as it is today," Sepaniak said.
One year ago, Atlantic officials converted the trust fund into a captive insurance company based in the Cayman Islands, where banking and insurance regulations are friendlier.
Nevertheless, Atlantic is not immune from the crisis, Sepaniak said. To counteract rising premium rates for supplemental insurance covering catastrophically high lawsuit awards, the system has been steadily raising the dollar value at which the coverage kicks in. "So we are getting less coverage for more money," Sepaniak said.
And Princeton remains a concern, considering many Atlantic doctors are insured through the company. "We are concerned that Princeton gets healthy and stays healthy," Sepaniak said. "I'd hate to see them exit the market."