The Doctors’ Company

185 Greenwood Road
Napa, California 94558-0900
U.S.A.
Telephone: (707) 226-0100
Fax: (707) 226-0111
Web site: http://www.thedoctors.com

Private Company
Incorporated: 1976
Employees: 320
Total Assets: $266.9 million (2001)
NAIC: 524128 Other Direct Insurance (Except Life, Health, and Medical) Carriers

Founded in 1976, The Doctors’ Company is the original, and one of the nation’s largest, physician owned and operated medical liability insurers. The Doctors’ Company is the premier company in the TDC Group, which includes six wholly owned subsidiaries, formed to expand and diversify TDC’s policy offerings. With ten regional offices around the country, the TDC Group provides services to its 35,000 member-policyholders in all 50 states. The TDC Group insures individual doctors, nurses, technicians, and other health care professionals; it also writes policies for small group practices, larger medical groups, clinics, and hospitals.

Origins

The Doctors’ Company was founded in response to a crisis in the availability of medical liability insurance that began in the early 1970s. Just as the public’s attitude toward health care was becoming increasingly consumer oriented, advances in medicine were leading to more sophisticated medical practices. Patients’ demand for perfection increased; at the same time, doctors confronted a higher margin for error in treatment. Dissatisfied “customers” became more inclined to pursue legal action against their physicians, and a flood of malpractice suits ensued: in California, malpractice suits filed between 1970 and 1975 accounted for 80 percent of all such suits filed in the first three-quarters of the 20th century. By 1975, malpractice insurance premiums had skyrocketed and many commercial insurance providers were even concluding that medical practice constituted an uninsurable risk. Some relief was anticipated with the California State Legislature’s passage of the Medical Injury Compensation Reform Act (MICRA), which served to rebalance the scales between plaintiffs’ and defendants’ rights.

The California Physicians’ Crisis Committee (CPCC) was formed to take action for medical liability reform, and in 1976 some members of the executive committee of the CPCC founded The Doctors’ Company, the first doctor-owned provider of medical liability insurance. The founders saw several advantages inherent in a business model where doctors provide coverage for doctors. As a member-owned company, TDC was able to focus on satisfying the needs of its member-policyholders without having to respond to the competing demands of outside stockholders. Furthermore, with their medical training and first-hand experience, TDC’s founders saw themselves as uniquely qualified to assess risk across the spectrum of medical practices and to represent and advocate for their clients in negotiations and legal settings.

Still, TDC’s founders recognized that medical expertise alone would not guarantee the company’s success; they took pains to fortify TDC’s infrastructure with staff members possessing legal and insurance expertise and committed themselves to conservative fiscal policies. Also, while TDC often lauded doctors as everyday heroes, the company did not delude itself with the idea that all doctors were alike in their professionalism. As part of TDC’s no-nonsense attitude toward liability coverage, doctor-applicants were rigorously screened to determine their qualifications, modes of practice, and level of competence. Whereas a commercial insurer would likely approve any doctor who belonged to a medical society or to a hospital staff, TDC scrutinized its applicants much more stringently. Applicants deemed to be practicing beyond the scope of their qualifications or taking on other unnecessary risks were charged higher premiums, required to rein in their practices, or rejected for coverage altogether.

As TDC’s founders predicted, MICRA did gradually alleviate the crisis in California. By reconstituting the balance between plaintiffs’ and defendants’ rights, MICRA reinvigorated the defense of capricious and baseless malpractice suits, thereby facilitating the quick and equitable settlement of legitimate ones. Claims costs began to drop significantly. By 1977, when TDC was still less than a year old, the company had established $14 million in assets and was able to redistribute the benefits of lower claims costs to its 2,600 member-policyholders in the form of a $500,000 dividend. Based on the MICRA model, TDC recognized that continued advocacy for liability (or tort) reform was critical to the success of the company; therefore, commitment to this legal advocacy became an essential and ongoing component of the company’s business.

Expansion and Diversification: 1980s–90s

The Doctors’ Company was quick to recognize that the company would only achieve limited success if it did not seek to extend its services beyond the borders of California. In order to do this successfully, the company would also have to export the MICRA model of tort reform to other states. TDC had begun to lay the groundwork for tort reform efforts in other states as early as 1977. By 1979, TDC had gained authorization to offer its medical liability coverage in Nevada, Wyoming, and Montana. By 1986, medical malpractice liability laws had been reformed in Nevada, Montana, and Washington. During these years the original MICRA legislation also came under fire in California. The Doctors’ Company defended it vigorously. In 1986, TDC played a key role in derailing an attempt by the plaintiff’s bar to overturn MICRA.

The Doctors’ Company ushered in a new president in 1985. Manuel S. Puebla, then a 40-year veteran of the insurance industry, brought on board a wealth of experience with medical liability underwriting and claims and regulatory issues, plus the proven ability to foster business development and facilitate government relations.

By 1989, TDC had been authorized to offer its coverage in 37 states, and the company was well equipped to mobilize its forces for liability reform. The company’s Board of Governors endorsed the formation of the first doctors’ political action committee (DOPAC) and work began to develop an effective legislative contact system. By 1990, TDC’s Government Relations Department was exerting pressure for liability reform on both state and federal levels. TDC maintained a high level of advocacy for tort reform throughout the 1990s, with the awareness that, as the U.S. tort system would inevitably influence foreign judicial systems as well, TDC would one day be positioned to offer its insurance services internationally.

One of the notable strengths of The Doctors’ Company was that it managed to be fiscally disciplined and assertively growth oriented at the same time. In the 1980s, TDC created several wholly owned subsidiaries to pursue opportunities to expand its offerings. In 1980, TDC established The Doctors’ Life Insurance Company (TDLIC) to offer life insurance policies to doctors. In 1984, The Doctors’ Company Insurance Services (TDCIS) was established for the primary purpose of making agency licensure available in states where TDC offered insurance coverage other than medical malpractice policies. TDC formed three new subsidiaries in 1989: Professional Underwriters Liability Insurance Company (PULIC), Bernard Warschaw Insurance Sales Agency, Inc. (Warschaw), and Underwriter for the Professions Insurance Company (UFTP). PULIC was established to offer malpractice insurance to health care professionals who were hard to place—that is, unlikely to qualify for regular malpractice insurance from TDC or another medical liability provider due to disproportionate exposure or nonstandard risks. Similarly, TDC acquired the Bernard Warschaw Agency to create specially tailored coverage for individual applicants bearing nonstandard loss profiles. Once an applicant was accepted by the Warschaw subsidiary, he or she was covered either by TDC or by PULIC. UFTP was established to expand the TDC Group’s ability to offer coverage to a range of non-medical professions.

As part of its broad-based diversification strategy, TDC also established two strategic business units, TDC/te and Alternative Risks, in 1995 and 1996, respectively, both designed to tap tributary revenue streams. TDC/te was created to substantiate TDC’s reinsurance business function. This unit developed into a significant revenue source for TDC, accounting for approximately 16 percent of total TDC premium by 1999. Alternative Risks was a body created to pursue new revenues for TDC from alternative, reduced-risk sources. TDC’s efforts to diversify proved visionary: by 1997, over 20 percent of TDC’s premium revenue was coming from niche insurance markets outside the medical malpractice arena. Moreover, during the five year period between 1994 and 1999, TDC managed to nearly double its surplus (the reserve funds it used to pay claims).

In the mid-1990s, the market began to flood with opportunistic insurance carriers eager to capitalize on the favorable climate for medical malpractice policy underwriting. Increased competition resulted in a flurry of lower and lower premium offerings. TDC viewed these aggressive pricing strategies as short sighted and transparent grabs for market share. Despite market pressures, and even while some if its own members complained that the company’s pricing structure was outdated, TDC maintained its commitment to the fair and stable pricing policy that had always underpinned the company’s fiscal strength, refusing to succumb to the price-cutting game. It was not long before TDC was vindicated for its conservatism. By the late 1990s, many of TDC’s competitors were placed under regulatory supervision and even liquidated after it was revealed that their surpluses had fallen too low to cover their claims.

Company Perspectives:

The Doctors’ Company’s core philosophy is to blend our medical expertise with legal and insurance knowledge to provide a comprehensive insurance program that protects its members. Our Board of Governors includes six doctors. The company’s underwriting and claims processing are handled by skilled professionals who understand the needs of physicians. Claims staff work closely with local defense attorneys to evaluate and resolve claims.

In 1997, P.I.E. Mutual Insurance Company of Ohio, a once-reputable physician-owned carrier whose high volume of premiums had constituted nearly 70 percent of Ohio’s medical malpractice insurance business in 1994, revealed that it was facing grave financial difficulties. P.I.E.’s stated mission had been to sell liability insurance to doctors at cost, and the company was known for offering highly competitive prices, but by the end of 1997 its stability was jeopardized by a sharply diminished surplus due, in large part, to precipitous underwriting losses. The Ohio Department of Insurance placed P.I.E. under regulatory supervision and advised P.I.E.’s policyholders to begin looking for new coverage. Ultimately, TDC received the distinction of being the only carrier endorsed by ODI to create a professional liability program specifically to enroll physicians who had been insured by P.I.E. The situation with P.I.E. offered TDC the opportunity to establish a strong presence in the Ohio, which would become an important launching ground for the company’s planned East Coast expansion.

TDC got a similar business opportunity in 1999 when a Florida insurer, Caduceus Self Insurance Fund, Inc., announced that it did not have sufficient funds to pay its claims. Interestingly, Caduceus was a physician-owned company that had also been founded during the national insurance crisis of 1976. Unlike TDC, however, the Florida company had a history of undercutting its competitors with aggressively low premium rates. Here again, TDC had the opportunity to benefit from a competitor’s short-sighted fiscal policies. TDC entered into an affiliation agreement with Caduceus to enroll its members when their policies with the Florida company expired. To properly serve its new members and continue regional expansion in the Southeast, TDC opened its ninth regional office in Florida that year.

By the late 1990s, The Doctors’ Company had developed a superior record of claims defense. The company consistently resolved 80 percent of claims against its doctor-insureds without indemnity payments and without damaging reports being filed with the National Practitioner Data Bank. Furthermore, of the small percentage of litigated claims that went to trial, TDC secured favorable results for its doctor-insureds 80 percent of the time. As a result of these new ventures in the Midwest and the Southeast, and the expansion that ensued from them, TDC’s policyholders enjoyed the added benefits of an enlarged risk-sharing pool and a broadened premium base. Nevertheless, even with TDC’s exemplary record and the real and symbolic victories of the P.I.E. and Caduceus bailouts, the company faced fiercely competitive market conditions as it headed into the 21st century.

Increased Competition in the 21st Century

In an effort to adapt to market pressures, The Doctors’ Company revised its mission statement in 1999 to reflect the accelerated pace of its diversification strategy. More than ever, TDC saw it as essential to extend liability insurance to a wider pool of policyholders, even those outside the medical profession. One of TDC’s efforts to make its services accessible to a broader spectrum of policyholders involved revising its pricing structure to more accurately calibrate premium with loss experience. To further protect itself from the instability of the market and the ever-increasing range of professional liabilities, TDC remained vigilant in its efforts to maintain strong reserves-to-surplus and premium-to-surplus ratios. At the end of 2000, with $500.1 million in reserves, $381.1 million in surplus, and $255 million in written premium, TDC was keeping these ratios well below regulatory standards.

TDC launched a major effort to improve its technology beginning in 1998. After years of preparation, the company introduced a new computer system in 2000. TDC also perceived that member demand for electronic services would only continue to increase and thus looked for ways to offer its members greater access to real-time business transactions as well as state-of-the-art security to protect their privacy. In 1999, the company introduced TDC Easy Quote and Application Online to its Web site to meet the needs of prospective members looking for a quick and easy way to estimate a premium for customized policy and apply for coverage. In another move to embrace technology, in 2000 TDC developed a collaborative program with iScribe, Inc., where TDC doctors would receive a discount on their insurance premiums if they adopted iScribe’s wireless, handheld, electronic prescribing technology.

Advances in technology posed problems for the medical community too, however. Electronic tools such as e-mail promised to transform relationships between doctors and patients, and while there were many benefits to this convenient means of communication, there were also legal risks. In 2000, The Doctors’ Company joined a group of more than 30 medical societies and other malpractice carriers in forming a committee to examine liability issues related to online communication. The committee, called the eRisk Working Group for Healthcare, developed a set of guidelines to protect doctors from liability. Released in 2002, these guidelines included strong recommendations for getting informed consent from patients before using e-mail and for using only encrypted and authentication-secured messaging systems.

Key Dates:

1976:

The Doctors’ Company (TDC) is founded in Santa Monica, California.

1979:

TDC expands to offer coverage in four additional western states.

1980:

TDC forms The Doctors’ Life Insurance Company, a wholly owned subsidiary.

1989:

TDC forms three wholly owned subsidiaries: Professional Underwriters Liability Insurance Company (PULIC); Bernard Warschaw Insurance Sales Agency, Inc. (Warschaw); and Underwriter for the Professions Insurance Company (UFTP).

1994:

TDC launches the first federal Doctors’ Political Action Committee (DOPAC).

1995:

TDC formalizes its reinsurance functions by establishing a separate strategic business unit called TDCRe.

1997:

TDC assumes responsibility for renewing policies formerly underwritten by then-collapsing P.I.E. Mutual Insurance Company of Ohio.

1999:

TDC opens its ninth regional office in Florida; TDC also revises its mission statement to emphasize diversification efforts.

2001:

TDC is the first national physician-owned and -operated insurance provider to celebrate its 25th anniversary.

True to the eRisk Group’s recommendations, in 2002 TDC made a significant commitment to protecting the privacy of its members when it contracted Symantec Corporation, a world leader in Internet security, to provide the company with a range of products to protect its Web site and its internal network against current and future security threats. The move to protect policyholders’ information from hackers was commensurate with TDC’s ongoing commitment to provide its members with the most dependable service in the industry.

In 2001, the market for medical liability insurance was still plagued by tumult. Insurance analyst A.M. Best had issued a rash of downgrades to overly aggressive, poorly performing carriers; other carriers announced plans to discontinue medical-malpractice coverage altogether, citing the unpredictability and too-high risk of the business. While so many companies floundered, TDC was named to the Ward’s 50 Benchmark Group for the sixth time and a third consecutive year. Ward Financial Group was a Cincinnati-based consulting firm that specialized in the insurance industry. In compiling its top-50 list, Ward analyzed the overall performances of more than 4,000 insurance companies over a five-year period. That year, The Doctors’ Company was the first national physician-owned and -operated insurance provider to celebrate its 25th anniversary.

Principal Subsidiaries

The Doctors’ Management Company (TDMC); Professional Underwriters Liability Insurance Company (PULIC); Bernard Warschaw Insurance Sales Agency, Inc. (Warschaw); Underwriter for the Professions Insurance Company (UFTP); The Doctors’ Company Insurance Services (TDCIS); The Doctors’ Life Insurance Company (TDLIC).

Principal Competitors

CNA Financial; FPIC Insurance; ProAssurance.

Further Reading

Baldwin, Gary, “Group Cautions Physicians About Online Liability,” American Banker-Bond Buyer, March, 2001, p. 6.

“The Doctors’ Company Protects Network with Symantec Managed Security Services,” Business Wire, March 13, 2002.

“Malpractice Policies That Earn Profits,” Business Week, March 21, 1977, p. 37

Miller, Susan R., “A Bitter Pill,” Palm Beach Daily Business Review, September 2, 1999.

Solov, Diane, “P.I.E. to Move Policies to California Insurer,” Plain Dealer, November 21, 1997, p. 1C

“TDC Named to Ward’s 50 Benchmark Group of Insurers,” Business Wire, September 10, 1999.

—Erin Brown