New Jersey Medical Professional Liability Insurance Update:

An Interview with Princeton Insurance President & CEO

Aug 18, 2008

New Jersey Physicians interviewed Charlie Lefevre, who was recently appointed President & CEO of Princeton Insurance Company. Following is an excerpt from the interview.

NJP: You’re the new President & CEO of Princeton Insurance, but you’re not new to the company, correct?

Mr. Lefevre: That’s correct.  I joined Princeton in 1982 at a time when the company was expanding its presence with the New Jersey physician community.  I started as a front-line claims consultant and, as is the case today, my job was to make sure physicians involved in medical professional liability claims receive the best possible defense and representation.  I was eventually given the opportunity to provide leadership over the claims department, later transitioning to oversee Princeton’s underwriting efforts. I served as Chief Operating Officer for the company for five years before taking on my current role in June.

NJP:  What is unique about Princeton in this marketplace?

Mr. Lefevre: Several things: the dedication and professionalism of our people, our long-term presence and our unique mission. Our staff has substantial New Jersey-specific experience in their respective disciplines – claims, underwriting, financial management and so on. Just to give one example, the person heading our claims department has almost two decades of independent experience representing Princeton insured physicians as a seasoned defense attorney.  He understands the jurisdiction and the challenges faced by physicians in our volatile claims environment.  As a company, Princeton has the longest continuous New Jersey market presence of any medical professional liability insurer offering coverage today. Our mission is to protect New Jersey healthcare providers and partner with them to provide outstanding patient care. That’s why we exist and that’s all we do.

NJP: What’s happening with malpractice claims today?

Mr. Lefevre: We’ve handled well over 50,000 New Jersey medical professional liability claims over the years, and the most significant factor we’re seeing today is the trend of rising claim severity, meaning the average amount paid to resolve a valid claim. I’m thankful we have our claims staff and New Jersey’s best medical professional liability defense attorneys representing our policyholders. The plaintiffs’ bar is becoming more sophisticated, and I believe our experience and expertise translates into better outcomes than would otherwise be achieved.

NJP: We hear time and time again about the rising costs of malpractice insurance, and how, in some extreme cases, doctors are even forced to leave the state or stop practicing. What are you doing about this problem?

Mr. Lefevre:  Well Princeton’s base rates for physicians have not increased in over two years but there’s more to it than that.  We try to set rates as accurately as possible and we also try to be risk-specific in pricing.  Medical professional liability is widely recognized as one of the most difficult lines of insurance to predict and, therefore, to price.  There’s a reason why New Jersey physicians have seen companies enter the state when conditions have appeared favorable only to abruptly leave a few years later, or worse, go out of business.  One of the key reasons Princeton Insurance has been able to weather these storms is we strive for rate adequacy over the long term.  That’s not always popular, I’ll admit, and there will be short-term periods when some competitors may offer a lower rate, but being there over the long term to defend policyholders and providing the best overall value is more important.

NJP: You mentioned companies going out of business. There are physicians today that are facing the very real prospect of having less than adequate or no coverage because their insurer went bankrupt. Are you doing anything to help?

Mr. Lefevre: We saw the risk and I’m thankful the New Jersey State Department of Banking and Insurance was willing to work with us so that we could offer coverage to help bridge that potential gap for eligible physicians. It became available in July and all of the independent insurance agents representing Princeton have coverage information and applications.

NJP: Do companies that don’t use agents have an inherent pricing advantage over companies that do?

Mr. Lefevre: No. Any person you speak to who can sell you insurance from a particular company is acting as an agent for that company, including that company’s employees. Independent agents typically represent several companies.  We choose independent agents to represent Princeton in the marketplace because we believe it provides the best opportunity to sell our product and the best opportunity for our policyholders to receive independent information and compare us against competitors in a fair manner. Whether it is commissions paid to independent agents or salaries to an insurance company’s marketing staff, it is still but one component of an insurer’s overall Expense Ratio.  The Expense Ratio is a better indicator of the true cost to provide an insurance company’s products and services.  Princeton’s Expense Ratio is one of the lowest – and in some cases less than half – of the companies currently offering medical professional liability in New Jersey.

NJP: Right now there are several companies offering malpractice insurance in New Jersey. At other times Princeton has seemed like the only game in town.  What’s different today? 

Mr. Lefevre: Like the economy, insurance is cyclical and in periods of relatively stable premiums, as has been the case recently, companies perceive better opportunities to profit and enter a given market for that reason. Unlike many industries, however, the expenses associated with the product, in this case a medical professional liability insurance policy, are not known at the time the product is sold. The largest of these expenses will be claim costs and will take many years to develop. Insurance companies try to estimate these costs based on history, but it’s only an estimate. Combine that with the pressure created by competition and, historically, it leads to periods when pricing is not sufficient to ultimately pay for the cost of the product. When that happens, companies leave the marketplace and occasionally some companies become insolvent. As the remaining companies move quickly to charge an adequate amount, prices rise rapidly as they did several years ago and the cycle continues. We’ve seen several of these cycles during our history and that’s why we take a long-term view in setting rates.

NJP: What observations would you make about the competitive nature of the marketplace today?

Mr. Lefevre: We welcome responsible competition. It’s a positive in all business, and professional liability insurance is no exception. It causes companies to efficiently operate, keeping costs as low as reasonably possible while at the same time delivering a quality product. However, given the many pressures on physicians today, it’s tempting to look only at initial price and let that become paramount in the buying decision, overshadowing all else. Meanwhile some companies convince themselves that they can sell the product for less than it will ultimately cost. But history doesn’t end.  Loss costs rise. There will always be upward pressure on prices in order to pay for those increasing costs. While in some years the costs of a policy may decrease or stay the same, overall those costs will increase over time. But what you’re paying for is protection: the expertise of the claims staff and the attorneys that will represent you, the company’s track record, its knowledge of the New Jersey court system, the expert witnesses they use or don’t use. That those key components of the buying decision tend to get lost in a very competitive market in no way lessens their importance.

NJP: What do you see for the future?

Mr. Lefevre: My view is the cycle will play itself out and probably repeat over time.  Our goal is to act responsibly throughout the cycle in order to maintain financial strength and claims paying ability for the long term.  I mentioned our mission is to partner with New Jersey physicians in their efforts to provide outstanding patient care.  That partnership is thriving within our Healthcare Risk Services Department.  We don’t just offer a seminar or two for policyholders to come to; we are actively going out to them. We invest in patient safety initiatives.  We publish scholarly and technical advice prolifically at RiskReviewOnline.com.  We provide risk assessment toolkits for policyholders. We partner with pioneering groups like the Harvard Risk Management Foundation and ECRI. And with over thirty years of New Jersey-specific data, we provide comprehensive loss reviews by medical specialty. It is our sincere hope that these efforts will have a cumulative, positive effect on the delivery of healthcare in New Jersey for the benefit of our policyholders and their patients.

NJP: Thanks for your time Charlie.

Mr. Lefevre: My pleasure. Thanks for all you’re doing as well. 

- accessed on 8/21/08 from NJPhysicians.com