Phico Malpractice Insurance

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February 1, 2002

PHICO Insurance Co. Ordered Into Liquidation In Pennsylvania

HARRISBURG, Pa. -- One of the nation's largest medical malpractice insurers, PHICO Insurance Co., was ordered into liquidation Jan. 31 after efforts to rehabilitate or sell the company failed (M. Diane Koken v. PHICO Insurance Co., No. 427 MD 2001, Pa. Cmwlth., Harrisburg).

According to regulators, PHICO's latest quarterly statement reflected a surplus of $6.8 million, a substantial decrease from its year-end 2000 surplus of more than $127 million.

A purchase deal was nixed after the Sept. 11 terrorist attacks. Initial loss estimates for the insurance industry after Sept. 11 were in the $20 billion to $30 billion range, but more recently some estimates have been as high as $70 billion. As a result, the prospective buyer may have been reluctant to underwrite medical malpractice risks.

In November, Pennsylvania Insurance Commissioner M. Diane Koken sued PHICO's officers and directors, accusing them of breaching their fiduciary duties by mishandling PHICO's finances. Koken said the PHICO defendants implemented financially unsound underwriting and pricing practices, ignored the recommendations of outside consultants and released misleading financial information and reports.

PHICO's direct net premiums increased from $172 million in 1996 to $268 million in 1999. PHICO achieved this growth by aggressively underpricing its competitors, even though competition was intense and premiums were already low, Koken said.

By late 1999, the directors knew or should have known that PHICO was facing increased claims and losses, Koken said. The actuarial firm of Milliman & Robertson projected an IBNR deficiency of $135 million by Sept. 30, 1999. But the defendants kept the fundamentally unsound underwriting and pricing strategy in place, Koken said. Copyright 2002, Mealey Publications - A LexisNexis Company

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Thank you for posting this. This is actually very important and will affect many families. You should be calling your attorneys to see if you are dealing with this malpractice insurance company and if so, what this means for your case. Each state deals with this type of thing differently.