2008 TMLT Annual Report

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2008 TMLT Annual Report

CHAIRMAN’S MESSAGEDAVE W. KITTRELLChairmanStrong in 2008The year 2008 drew to a close amid marketturmoil and economic uncertainty. Banks,insurance carriers, Fortune-500 companies— all were affected and the questionremains to what extent. As a TMLT policyholder,know that TMLT is financiallystrong and growing. While we are notimmune from economic conditions, weemerged from 2008 with an increasein surplus and 1,427 new policies. Weare a policyholder-owned, not-for-profitTrust, and our strength comes from thefact that TMLT was designed by physiciansfor physicians.Our strengthsTMLT is strong because it is led byphysicians. The TMLT Board of Governorsis made up of nine physicians, eachpracticing in different specialties andhailing from all over the state. We knowwhat it’s like to treat patients in the midst ofdeclining reimbursements. We know aboutthe challenges of implementing (and payingfor) electronic health records. We know howit feels to worry that a patient’s bad outcomewill turn into a lawsuit. We use this knowledgeand experience to guide TMLT operationsand provide you with sound protectionand responsive service.Another reason for our success — ourresponsible investment philosophy. TMLThas adopted a conservative policy for theinvestment of assets with the objective ofachieving maximum yield with maximumsafety. As this annual report details, Trustassets are invested in investment qualitysecurities to generate income to meetoperating expenses and actuarial assumptions.Despite challenging economic conditions,the Trust remains financially strong.Our relationships with organizedmedicine have also strengthened the Trust.Some of the most prominent medicalorganizations in the state count on TMLTfor support of their programs. These organizationsinclude the Texas Medical Association,the Texas Alliance for Patient Access,the Texas Academy of Family Physicians,TMLT 2008 Board of GovernorsDave W. Kittrell, MDChairmanObstetrics/GynecologySan AntonioPolicyholder since 1979Robert I. Parks, MDVice ChairmanAnesthesiologyDallasPolicyholder since 1993Stuart D. McDonald, MDSecretary-TreasurerPulmonary and Critical CareFort WorthPolicyholder since 1993Alan C. Baum, MDOphthalmologyHoustonPolicyholder since 1984Donald R. Butts, MDColorectal SurgeryHoustonPolicyholder since 1979Cristie Columbus, MDInfectious DiseasesDallasPolicyholder since 2000Arthur F. Evans, MDNeurosurgeryLindalePolicyholder since 1979David G. Joseph, MDFamily PracticeAustinPolicyholder since 1997Jimmy L. Strong, MDPediatricsAbilenePolicyholder since 19902


From left to right: Arthur F. Evans, MD, Alan C. Baum, MD, Donald R. Butts, MD, Bob R. Fields, Dave W. Kittrell, MD, Robert I. Parks, MD,Stuart D. McDonald, MD, Cristie Columbus, MD, David G. Joseph, MD, Jimmy L. Strong, MDand a number of county and specialtysocieties. Over the years, we have workedtogether to ensure the passage of medicalliability reform, reach physicians withCME programs, provide scholarships tomedical students, and to provide residenteducation programs. These partnershipshave helped us achieve our respectiveobjectives, form strong friendships, andgain a better understanding of the issuesimportant to physicians.TMLT is strong because of our experiencein Texas. TMLT offers one line ofcoverage and offers it in one state —Texas. Our entire business focus is onTexas physicians and how to protecttheir practices.Our rates are set based on the claimexperience of Texas physicians. OurTexas-based claim staff and defenseattorneys understand the Texas legalsystem, the venues, and the judges.Our risk management staff travel to everycorner of the state to meet physiciansand discuss their specific risk exposures.This experience is put to work for youevery day.Share TMLTHaving been a TMLT policyholder foralmost 30 years, it gives me great satisfactionto know that more than 14,500 Texasphysicians are now protected by TMLT.As TMLT policyholders, these physiciansreceive more than just medical liabilityprotection. They have gained a strong ally— an ally dedicated to safeguarding theirprofessional reputations and careers.If you know of physicians who arecurrently looking for medical liabilityprotection, please let them know aboutthe value of TMLT. You can direct themto www.tmlt.org or share this annualreport, which details the Trust’s servicesand financial strength. TMLT is strongertoday than at any time during our 30-yearhistory. In today’s troubled economy,we are proud that more than 14,500physicians count on us to protect theirreputations and careers. Thank you foryour continued support.Another reason for our success—flexibility. TMLT’s founders recognizedthe importance of allowing physicians toregulate their own company. CurrentlyTMLT is not subject to regulation by theTexas Department of Insurance. As aresult, we have the flexibility to respond tochanges in the medical liability environment.During the crisis years from 1999to 2002, this flexibility allowed TMLT toraise rates as claim frequency and severityreached record levels. We survived thecrisis while other carriers fled the state.Once medical liability reform was passedand claim frequency and severity stabilized,TMLT reduced rates accordingly.The ability to adapt to changing marketconditions has made TMLT the premiermedical liability carrier in the state.Sincerely,Dave W. Kittrell, MDChairman3


PRESIDENT’S MESSAGEBOB R. FIELDSPresident and CEOMany will remember 2008 as the yearour economy suffered its worst collapsesince The Great Depression. Billions ofdollars were lost in the stock market,millions of workers lost their jobs andunprecedented government bailouts wereneeded to prevent several huge companiesfrom failing. It was a year that separatedthe weak from the strong, the companieswith proactive vision from those withreactive leadership.At TMLT we have long believed ina conservative investment philosophy,keeping our investments in equities insmall percentages of our overall investmentportfolio. Some of our competitors werewilling to take greater risks for higher gainsand experienced substantial capital lossesby year-end. Their balance sheets sufferedfrom their lack of respect for risk.Our good news to policyholders is that,despite the economic challenges of 2008,TMLT was successful in increasing itsprofit from last year and building policyholdersurplus for the seventh straightyear. By controlling our claims and underwritingcosts, by achieving excellent policyholderretention, and by continuing to writenew business, TMLT was able to produceoutstanding results again in 2008. Thissuccess enabled the Trust to finalize conversionto a new, state-of-the-art softwaresystem. It also enabled us to purchase, forthe first time in our 30-year history, our ownoffice building. TMLT is now the proudowner of the 120,000 square foot, five storybuilding shown on the front cover of thisannual report.During 2008, we were once againpleased to announce an average 4.7%rate reduction for 2009, our sixth straightrate reduction since 2003 tort reform. Inaddition, we announced our fourth consecutivedividend for 2009. A credit of 22.5%will be applied to renewing policies. Theresult of all those cumulative rate reductionsand dividends means that a renewingpolicyholder in 2009 will be paying about50% of what he or she paid for medicalliability insurance in 2003. What otherproduct or service can you purchase athalf the 2003 cost? Obviously, tort reformworks—not only for the benefit of physicians,but also for their patients throughgreater access to healthcare.One of the keys to our organization’ssuccess is our unique structure. We area self-insurance trust owned by physiciansand governed by physicians. Ournine physician governing board members,elected by the policyholders of TMLT, areclosely involved in all major decisions ofthe Trust. These include claim philosophyand defense of Trust members; underwriting2008 Executive TeamBob R. FieldsPresident and CEOJohn AlexanderSr. Vice President - Underwriting ServicesRay DemelSr. Vice President - Chief Financial OfficerGail NicholsVice President - Human Resources& Admin. ServicesJane HolemanVice President - Risk ManagementJill McLainSr. Vice President - Claim OperationsDon ChowSr. Vice President - Sales & MarketingTreg RussellVice President - Management InformationSystemsDana LeidigVice President - Communications & Advert.4


and sales; risk management; rate settingand dividend approval; donations by theTrust; and, protecting tort reform.Another key to TMLT’s success hasbeen the talent and performance of its165 member staff shown on the last pageof this report. Many of these outstandingemployees have been with the Trust forover twenty years and serve as leadersand key members of our team. It hasbeen through the efforts of our dedicatedstaff, coupled with the support of ourphysician board members, that TMLThas achieved its leadership position inthe Texas market. I have worked withthese employees for many years, I havewitnessed their creativity and drive, andI am exceedingly proud of their contributionsto our company.In our organizational model, whichhas stood the test of time, profit is notour main objective. Providing the highestquality insurance coverage for the lowestpossible price is our number one goal,year in and year out. The preservationof your livelihood and reputation is whyTMLT was created and wrote its firstpolicy on January 1, 1979.History shows that some of ourcompetitors will distribute excessearnings and profits to stockholders orinvestors. TMLT uses excess earningsto lower rates and expand coverage forits physician members.During the first five months of 2009,our TMLT legislative team will beworking closely with our friends at TMAand the Texas Alliance for Patient Access(TAPA) to protect our hard-fought gainsin 2003 tort reform. In addition, we wantto keep the regulation of TMLT withinthe hands of our physician membersand governing board. They have done awonderful job of overseeing the managementof the Trust for 30 years and there isno need to make any changes now.As you read the rest of this annualreport and learn of our successes achievedin 2008, I hope you will be proud of theorganization your physician colleaguescreated long ago. They had a specialdream of founding an organization thatwould insure doctors in all specialties andterritories in Texas and that would standstrongly behind doctors even during yearswhen the business climate was unfavorable.With your help, together we havemade their dream come true.Bob R. FieldsPresident & CEOBack row (l-r): Jane Holeman, Treg Russell, Gail Nichols, Jill McLain, John Alexander, Dana Leidig, Don Chow.Front row (l-r): Bob R. Fields, Ray Demel.5


Claim OperationsJill MclainSr. Vice PresidentClaim OperationsTMLT’smission – “to be on theleading edge of industry change to providea standard for coverage and service to ourpolicyholders by which all others arecompared”- is no better exemplified thanin our efforts to achieve, maintain, and maximizethe benefits of effective tort reform.Since September of 2003, Texas physiciansand their patients have enjoyed a vastly improvedclaims environmentas a result of the tort reformpassed by the legislature thatyear. TMLT’s efforts were instrumentalin achieving thesereforms. Since then, we havebeen a mainstay of TAPA, aleading advocate for physicians,and we have providedsubstantial support for theefforts to resist encroachmenton the legislative andconstitutional gains that weremade in 2003.With an improvedenvironment and a significant reduction inthe volume of non-meritorious lawsuits,Texas has been able to recruit new physiciansin record numbers. We know that weneed to be vigilant in protecting the tortreform gains, and one way of doing that isby showing how the reforms are workingand serving the interests of all Texans.One of the big benefits of tort reformhas been a reduction of claims intakeand frequency, which continues today.Since 2004, following the initial substantialpost tort reform drop in intake, thenumber of claims filed has continued tomoderate. In 2008, we took in 20% fewernew claims than in 2004. Claim frequency,which reached a high point of over 25% onnon-mass litigationprior to tort reform,ran 8.4% in 2008.This has provided theimpetus needed bymany physicians tochoose Texas as theirhome. Many previouslyunderservedareas now haveaccess to primaryand specialty care.Physicians candevote their timeto taking care ofpatients instead of reading legal documentsand preparing for depositions and trials.Because elements of damage are clearlydefined in Chapter 74 language passed in2003, all parties are better able to evaluatecases and amicable resolutions on meritoriousclaims are more likely. In 2008,TMLT tried only 23 cases to verdict, of“Our willingness to resistnuisance settlementsalso discourages attorneysfrom filing claims beforedetermining that thereis some evidence ofnegligence involved.”6


# of Physiciansrisk management8JANE HOLEMANVice PresidentRisk ManagementRisk management services are an integralpart of TMLT’s unwavering commitment toprotect the practice of medicine, improvethe quality of health care, and reduce therisk of potential claims. Providing proactiverisk management services to policyholdersdifferentiates the Trust from other medicalliability carriers. Our customized servicesare designed to meet theindividual needs of ourpolicyholders.In 2008 the RiskManagement Departmentmaintained its reputationas innovative andprogressive in the medicalliability industry byproviding a wide rangeof programs and services.Risk management staffidentified important,timely risk managementtopics, developed and implementednew programs, tracked important trends,and enhanced existing services. The RiskManagement Department participated in anoutcomes measurement study to determinethe relationship between physician practicereviews and claims experience and theinitial results of the study were positive. Weplan on continuing similar studies in otherareas of risk management offered by TMLT.TMLT’s Risk Management Committeeis composed of physician leaders who arevigilant in overseeing a wide range of riskmanagement services and activities. Thiscommittee identifies specific trends andchallenges in the delivery of health care,and shares this information with us so thatwe can improve our services to better meetthe needs of our policyholders. They arealso key in helping us keep our policyholders’medical-legal knowledge current.Practice ReviewsThe professional risk managementstaff completed practice reviews for 2,368policyholders in 2008, approximately 16%of our policyholder base. This comprehensiveoffice evaluation is designed to assistphysicians and their staffs in identifyingareas of risk in their practices. Improvedinternal electronic processes at TMLTexpedite the dissemination of follow-upinformation to participating physicians. Asa result, 94% of physicians submit timelyresponses, indicating plans for implementingchanges in their offices to assistin mitigating risks. Nearly 48% of TMLTpolicyholders receivethe practice reviewpremium credit. Themedical record reviewcomponent of thepractice review reflectsa trend in the implementationand use ofelectronic health records(EHR). In 2003 TMLTrecognized electronicsystems had the potentialto assist physiciansin decreasing liabilityexposure in several areas. Appropriate useof an EHR system may decrease diagnosticerrors, as well as improve documentation,tracking of diagnostic test results, patientreferrals, patient communication, andaccess to practice guidelines. At that point,TMLT offered an additional premium creditfor policyholders participating in practicereviews and utilizing an EHR system.“TMLT will continue tomonitor and evaluate EHRuse in physician practice asa disincentive to lawsuitsand enhancementto defensibility.”2,5002,0001,5001,0005000Physician Practice Reviews2005-20081,7481,8072,0902,3682005 2006 2007 2008Years


# of ParticipantsOnly 56 physicians received premiumcredits for EHR use in 2003, comparedto 962 in 2008. Forty-one percent ofall physicians participating in practicereviews in 2008 were also utilizing anEHR system. As the movement towardsthe electronic documentation in medicalrecords continues, TMLT will continue tomonitor and evaluate EHR use in physicianpractice as a disincentive to lawsuitsand enhancement to defensibility.Following a request for proposal bythe governing board of the Texas MedicalLiability Insurance Underwriting Association(JUA), TMLT was selected to providerisk management services to JUA policyholders.The JUA is the Texas-sponsoredinsurance program for physicians withlimited or no access to other sources ofprofessional liability insurance. TMLTpractice reviews, CME courses, theReporter newsletter, and individualtelephone consultations are currentlyavailable to JUA policyholders. In ourdiligent efforts to continually improvethe health care environment and patientsafety in Texas, we are proud to offerthese services.EducationThe Risk Management Departmentpositively impacts the quality ofhealth care for Texans by educating andprotecting physicians. Since 1999 TMLThas been a provider of continuing medicaleducation accredited by the AccreditationCouncil for Continuing Medical Education(ACCME). TMLT is positioned to identifythe educational needs of our policyholders,and respond appropriately, developingeducation programs to assist our physiciansin mitigating their risk.The course, You’ve Received a Letterfrom the Texas Medical Board: What’sNext?, a one-hour course in 2007, wasexpanded to a three-hour course in 2008.A need for further education on this topicwas identified as a result of input from theTexas Medical Association and countymedical societies. Ongoing vigilanceby the Texas Medical Board (TMB)impacts our policyholders resulting in atopic that continues to be of particularinterest. This course was offered duringthe spring seminar series with 378 physiciansattending. The one-hour coursewas presented to 30 physician groupsand county medical societies. Receivingextremely positive feedback, this coursecontinues to be available upon requestin 2009.TMLT’s Risk Management Committeeprovided valuable input in developmentof the fall seminar series topics. Theseincluded changes in the physician-patientrelationship, evolving demographicsof medicine, communication amongproviders, and emerging technology.“Health Care Rock and Roll: Medicine inTransition” was presented in six locationswith 699 physicians attending.The Risk Management Departmentcollaborated with the Claim Department inevaluating the feasibility of accreditingthe Claims Review Committee (CRC)for CME. Subsequently, the CRC wasaccredited for 4.5 hours of CME. Duringthis activity, physicians of various specialtiesreview open claims involving complexmedical issues, and evaluate physicianrisks in diagnosis and treatment.Responding to the most commonpolicyholder inquiry, we developed a newone-hour CME course. Data gathered fromrisk management telephone consultationswas reviewed, reflecting physician concernregarding the physician-patient relationship.“Complexities in Beginning andEnding the Physician-Patient Relationship:When Can We Call It Quits?” focuses onthe establishment of physician-patientrelationships, when it may be necessaryRisk Management Education Programs2005-200818,00016,00014,00012,00010,000012,456 13,043 14,66216,1402005 2006 2007 2008Yearsto terminate them, and strategies to avoidpatient abandonment allegations.PublicationsRisk management representativeswrote five one-hour CME articles aswell as contributed closed claims studiesto each edition of the Reporter. Recognizingthe importance of timely notificationregarding pertinent health care issues,staff monitored FDA notices and specialtysociety postings for risk alerts related toproblems discovered with medicines andother health related products. This information,posted on the TMLT web site, wascontinuously updated. Current advisoriesmay be found at www.tmlt.org.We continue to receive positivefeedback from physicians across Texasregarding the scope and quality of thevalue-added risk management services.A family practitioner from Houstoncompleting a practice review surveystated, “Your professionalism and upbeatattitude is refreshing and pleasant. Weappreciate your time in assisting us withimproving our office processes. We don’tget many visitors whose sole purpose is toactually help us. Thank you, Tanya.”9


Thirty years of achievement1979First TMLT logo.TMLT begins issuing policies,Mario Ramirez, MD becomesthe first policyholder. TMLTemploys 15. John Lomenzois named president.1983TMLT’s fifth anniversary – policyholdercount reaches 2,900. First partial returnon surplus deposit issued.1988TMLT’s 10th anniversary – policyholdercount exceeds 5,000.1991John Lomenzo retires atthe beginning of the year.Sam Branham takes reins aspresident and CEO.1992TMLT receives full endorsement from theTexas Medical Association (TMA). TMLTreceives full endorsementfrom the Texas Academy ofFamily Physicians and becomesa charter member of the GoldenCircle Educational Grant Program.1994TMLT’s 15th anniversary –policyholder count exceeds7,500. TMLT earns theendorsement of the Dallas, Tarrant,and Travis county medical societies.1995TMLT’s subsidiary, Texas MedicalInsurance Company, is formed. The TexasDepartment of Insurance (TDI) orders arate rollback for regulated carriers. TMLTparticipates. Sam Branham resigns.1997TMLT web site is launched.1999TMLT’s 20th anniversary – policyholdercount exceeds 9,500. TMLT earns theendorsement of the Harris and Bexarcounty medical societies.October 1999TMLT 2000 campaignlaunches, alerting TMLT policyholdersthat a medical liability crisis is looming.TMLT announces rate increases averaging13%.November 1999TMLT becomes fully accredited bythe ACCME.2000January 2000TMLT participates in TMA’s first medicalliability data study to evaluate the 3 largestcarriers in Texas. The study confirmsthat claim frequency and severity areescalating.May 2000The Texas Department of Insurance(TDI) finds that regulated medical malpracticecompanies in Texas lost a totalOriginal 1979 TMLT Board Membersof $103.5 million in 1999. TMLT postedan $11 million loss in 1999 as well.2001January 2001TMLT participates in TMA’ssecond data study. Results show 1 in 4physicians faced a malpractice claim in2000.May 2001The TDI finds that regulated medical malpracticecompanies in Texas lost a total of$229 million in 2000. TMLTlost $7 million.July 2001TMLT plays a key role in theformation of a medicalliability consortium – theTexas Alliance for PatientAccess (TAPA) – to pursue medicalliability reform in 2003.2002January 2002TMLT policyholder count reaches 10,500.The TDI announces the number of medicalliability carriers in Texas has droppedfrom 17 to 4. TMLT continues writingbusiness for all specialties in all areasof the state.1996Tom Cotten named presidentand CEO. TMLT becomes a GoldCorporate Affiliate of the TexasMedical Group ManagementAssociation.10


April 5, 2002Texas Governor Rick Perry announcesa plan to solve the medical liabilitycrisis in Texas. Among the governor’ssuggestions, capping noneconomicdamages at $250,000.May 6, 2002House Committee on Insurance holdsa public hearing on medical liabilityinsurance. TMLT staff testify before thecommittee.July 2002In the face of a decline in surplus dueto claim frequency and severity, TMLTannounces surplus call to policyholders.Fall 2002TMLT staff serve on the TAPA legislativecommittee to develop a health careliability reform agenda modeled afterCalifornia’s MICRA statute.2003January 24, 2003Governor Rick Perry declares medicalliability reform an emergency issue forthe 78th Texas Legislature.June 2, 2003The Texas Legislature passesHouse Bill 4, including a$250,000 cap on noneconomicdamages.June 2003The historic “rush to the courthouse”begins. From June to October 2003, theTMLT claim department received 1,489lawsuits, compared with 523 lawsuitsreceived June to October 2002.Summer 2003The Wall Street Journal publishes aneditorial calling the Texas medicalliability reforms, “Ten-Gallon TortReform.”September 2, 2003TMLT announces it will reduce rates by12% if the voters pass Proposition 12,the constitutional amendment allowingthe legislature to set caps on noneconomicdamages.September 13, 2003Proposition 12 passes, ensuring themedical liability reform measures enactedin 2003 will withstand judicial scrutiny.TMLT announces rate reductions of 12%,to take effect January 1, 2004.December 31, 2003The year ends with 10,922 TMLTpolicyholders.2004TMLT’s 25th anniversary – policyholdercount exceeds 12,000.October 2004TMLT announces a 5% rate reductionto take effect January 1, 2005. This is thesecond consecutive year of post tortreform rate reductions.2005TMLT awards $35,000in medical studentscholarships in the first TMLT MemorialScholarship competition.June 2005TMLT and TAPA lead efforts to protect2003 tort reform during 2005 legislativesession.October 2005TMLT initiates first 5% dividend creditfor 2006 renewal based on Trust earningsand strong capital position. The dividendamounts to approximately $10 million.TMLT again reduces rates by 5% effectiveJanuary 1, 2006.2006You’ve Been Sued: SuccessfullyNavigating the LitigationProcess, TMLT’s firstDVD-based CME programis released by the TMLT RiskManagement Department.August 2006Tom Cotten resigns. Bob Fields is namedActing President and CEO.October 2006TMLT announces another 20% dividendcredit for 2007 renewal. The dividendamounts to approximately $35 million.TMLT announces another 7.5% ratereduction effective January 1, 2007.December 31, 2006TMLT ends 2006 by winning 73 of 75cases taken to trial. This represents thehighest win percentage record and thelowest trial loss record in TMLT history.Policyholder count at the end of theyear was 14,163.2007June 2007TMLT, TMA, and TAPA are again successfulin protecting 2003 tort reform during2007 legislative session.June 25, 2007Bob Fields is named Presidentand CEO.September 2007TMLT announces a 6.5% rate reductionand 22% dividend credit to be effectiveJanuary 1, 2008. Policyholder count at theclose of 2007 was 14,585.2008January 2008The IN RE WATSON case was filed inDallas, marking the first federal constitutionalchallenge to the Texas $250,000damage cap.September 2008TMLT announced an average4.7% rate reduction and22.5% dividend for 2009.October 2008Stock market drops 40% in less thanone year but TMLT surplus grows.11


TotalsUNDERWRITING SERVICESJOHN ALEXANDERSr. Vice PresidentUnderwriting ServicesFor the past 30 years, TMLT’s UnderwritingDepartment has been optimizingservice and value for its physician policyholders.Today, more Texas physicianschoose TMLT to protect their professionalreputations and financial assets than anyother liability provider. This was evidentagain in 2008 when the Trust issued morethan 1,400 policies to new members, increasedits policy count to14,986 and retained morethan 92% of its policyholdersthrough renewals.Enhancements inpolicy administration andsuperior customer serviceset the theme for performancehighlights in 2008.Making over 360 personalvisits to groups during theyear, the Account ServicesTeam delivered detailedrenewals and provided in depth informationon market trends and claim experience.Additionally, the Customer ServiceTeam met the day-to-day needs of insuredphysicians and administrators by providingcompetent and timely answers to questionsreceived by telephone. Increasing efficiencyand accentuating the ease with whichphysicians can do business with TMLTare among the top priorities of the underwritingstaff.The Texas medical liability marketplacewas inundated with carriers benton securing new business at unsustainablylow premium rates in 2008. As aresult, achieving profitablepolicy growthwas challenging, butTMLT found success byadhering to its provenrisk selection process.Because recent historyis replete with timeswhen medical liabilitycarriers who offered thelowest price quicklyabandoned Texasphysicians once claimfrequency and severity spiked, buyersshould always determine how a carrier willperform and treat them when market conditionsexperience a downturn.TMLT has a record of staying thecourse and following a proven discipline“Since the passage of tortreform measures in 2003,the average premium for anindividual physician policyat TMLT has been loweredfrom $23,247 to $10,656.”Policy Growth2001-2008Total policy countNew policies16,00014,00012,00010,0009,940 10,489 10,92212,24613,22014,163 14,58514,9868,0006,0004,0002,00001,7292,084 1,8201,3641,4691,636 1,494 1,4272001 2002 2003 2004 2005 2006 2007 2008Years12


that augments lasting financial stabilityand rate integrity. Since the passage oftort reform measures in 2003, the averagepremium for an individual physicianpolicy at TMLT has been lowered from$23,247 to $10,656. That’s a reduction ofmore than 50%! This was accomplishednot only through rate decreases, but alsoby expanding discount opportunitieslinked to risk management programs andby increasing the credits earned each yearfor a claims free profile.To avoid drastic swings in premiumsfrom one year to the next, TMLT annuallyconducts a careful analysis of its rateswith knowledgeable actuarial consultants.The Trust decided to lower rates across allmedical specialties in 2008 by 6.5%. For2009, an overall average reductionof 4.7% was enacted. Under this plan,physician base rates will decrease withina range of 1% to 10%, depending uponthe medical specialty and rating territory.Once a new application has beenapproved by the Underwriting Department,our goal is to issue the policy asexpeditiously as possible. The newbusiness written in 2008 was issuedwithin 15 days of receipt of the completedapplication 94% of the time.Renewal policies were issued within30 days of their renewal dates 79% ofthe time. This difference was a resultof increased levels of competition. Thevolume of alternative quotes and proposalsfurnished to TMLT policyholders resultedin delays in renewal orders.The importance of up to date informationon a physician’s medical practicecannot be overstated. In view of thevaluable time required to complete aTMLT renewal application, the UnderwritingDepartment redesigned it andcondensed the document from seven pagesto one. The new questionnaire format willbe utilized in 2009 and soon will be availableon the members-only section of theTMLT web site.In 2009 there will be two enhancementsto the TMLT coverage form.First, an endorsement providing limitedpremises liability coverage that had beenavailable for an additional premium, willbe added at no charge to all policies.Although this endorsement of coveragedoes not eliminate or replace the needfor a separate general liability policy,it does potentially fill a gap that mayexist between TMLT’s medical professionalliability coverage and the standardcoverage under a general liability policy.Premises claims brought by patients aresubject to a limit of $200,000 and mustarise out of your ownership or leaseholdinterest in the premises.The second enhancement involves anexpansion of coverage for substitutephysicians who assume responsibility foryour patients during a scheduled absence.When you request locum tenens coverageon your 2009 policy, you may do so forup to 21 days in each policy periodwithout an additional premium charge.Days requested in excess of 21 will incura fee of $500 per day.The Underwriting Department’scontribution to the success of TMLT in2008 was made possible through thededicated efforts of its team of highperformingemployees. The staff includes18 members who hold licenses issued bythe Texas Department of Insurance. Wealso received valuable guidance from ourphysician board members. In particular,the members of the Underwriting ReviewCommittee evaluated our recommendationsfor underwriting actions and madeprudent decisions on accounts that werepresented to them in 2008.Moving forward, we remain committednot only to growing policy count, but alsoto increasing the value of a partnershipwith TMLT. Financial stability, operationalstrength and underwriting discipline allposition the Trust for continued prosperityand success. We sincerely appreciate yourbusiness and look forward to meeting yourprofessional liability coverage needs in theyears ahead.13


SALES AND MARKETINGDON CHOWSr. Vice PresidentSales and Marketing14The continuation of soft market conditionsserved to make 2008 another challengingyear with the level of competition intensifying.New competitors sought to gain marketshare at our expense. For start-up carriers,the emphasis has been on top line growthseeking revenue opportunities throughaggressive pricing and underwriting practices.At TMLT, strategic decisions regardingrates and dividends have insulated usagainst the erosion of our policyholderbase. Our retention ratio remained ahealthy 92.6%.TMLT is well placedto confront the challengesposed by competitorsseeking to impact ourleadership position. Inspite of aggressive effortsby adversaries to reverseour momentum, werealized a net growth oftwo percent, ending theyear with 14,986 policies.Since the passage oftort reform, more than14,000 new physiciansare reported to have moved into Texas,providing even greater opportunities for theTrust. According to the latest TMA data, ourmarket share—based on TMA members inactive practice—exceeds 50%.Besides retention, the other componentnecessary to achievegrowth is new businessand, despite severeconditions, we held ourown. In 2008, actualresults included 1,427new policies and writtenpremium totaling $7.4million. These resultswere driven primarilyby physicians in solopractice, who continueto be receptive to thevalue propositionoffered by the Trust.Although competitivepricing is an importantcomponent in their purchase decision, sotoo is the commitment to claims management,risk management, and underwritingservices.With respect to physicians in grouppractice, market dynamics played a significantfactor as incumbent carriers aggressivelypriced the product to enhance theiropportunities for retention. This may haveoccurred in the form of proactive ratereductions or succumbing to competitivepressures. The challenges were difficultwith the incumbentgetting “last look.”Achieving successfulresults in this segmentproved difficult inspite of strong effortsby the sales staff. Ouremphasis is strengtheningthe TMLT brandand cultivating relationshipswith prospectivephysicians regardless ofpractice mode, specialty,or geographic location.Market conditions willchange inevitably, providing even greaterchallenges for Texas physicians. When thatoccurs, TMLT will be ready to respond.In the distribution of our insuranceproduct, TMLT depended on the effortsof our agent partners. For 2008, they“Data from the TexasDepartment of Insuranceshows that our 2008 writtenpremium base of $168.9million is greater thanthe five closestcompetitors combined.”


SUPPORT SERVICESGAIL NICHOLSVice PresidentHuman Resources &Admin. ServicesAs with all departments at TMLT,the Human Resources/AdministrativeServices Department is dedicated toextending quality customer service toour valued policyholders as well as toall of our internal customers – the TMLTemployees. Our ongoing mission is toensure that each employee has the tools,training, and quality environment inwhich to perform his or her individualjob successfully and that TMLT remainsan “Employer of Choice.” One indicatorof achievement in this area in 2008 wasTMLT once again ranked as a top finalistin the Austin Business Journal’s BestPlaces to Work in Central Texas contest.We were elated to learn that as a resultof the responses our employees gave ina workplace survey, we placed numberfour among medium sized companies inCentral Texas participating in theindependent survey.One particular area of concentrationfor our HR team in 2008 was enhancingwellness activities and programs. TheWeight Watchers® at Work program,originally introduced in 2007, continued tobe popular among a number of employeeswho dedicated their lunch hours once aweek for a 17-week period to learning16healthy ways to eat, as well as participatingin discussions on how to loseweight and keep it off. A total of three17-week sessions were held during theyear with very positive results by year end– an astonishing combined weight loss ofmore than 1200 pounds.To provide additional incentive anda convenient way to maintain physicalfitness, TMLT purchased several fitnessmachines for employees to utilize beforeor after work or during lunch hours.For many who wouldn’t normally haveaccess to this type of equipment, thissmall investment is just one way that wecan promote a healthy environment andlifestyle. Another healthy initiative introducedin November was an incentive tohelp stop smoking by offering a limitedreimbursement for the cost of a smokingcessation program or for the purchase oftools to help stop smoking.TMLT employees have alwaysgiven generously to local charities bydonating their time and/or money. In2008 Human Resources joined with theCommunications and Advertising Departmentto coordinate and promote severalfundraising activities within TMLT. As aresult of a raffle in June, our employeeswere proud to present a check to FamilyEldercare for almost $1300. In what hasbecome an annual Halloween tradition,departments challenged each other to seewhich department could put together thebest gift basket or baskets. Staff membersdonated all of the items that went intomaking the baskets, which we thenraffled off in-house on Halloween.Proceeds of $1,137 were donated to thePeople’s Community Clinic, which offersmedical care to those with little or nohealth insurance. Ending up the year,everyone pulled together to provideholiday gifts to ten homeless and/orat-risk families recovering from crisisor emotional distress through theLifeworks Holiday Help Project. Otherareas of employee participation in 2008included food donations to the CapitalArea Food Bank, Komen Race for theCure, Heart Walk of Austin, United Way,and quarterly blood drives benefiting theBlood and Tissue Center of CentralTexas. Giving back to our communityis something that all TMLT employeesdo proudly.The Human Resources/AdministrativeServices department will always have asits top priority providing quality customerservice as well as an environment inwhich our valued employees can thriveand do their very best to consistently meetthe needs of every policyholder. We notonly want TMLT to be an “Employer ofChoice” but also to continue to be your“Provider of Choice” for your professionalliability coverage.DANA LEIDIGVice PresidentCommunications &AdvertisingIn business, effective communication maynot appear as a line item in the financialstatement, but it is vital to the bottom lineand overall success of any organization.Businesses and organizations thatclearly and consistently communicate theirproducts and services to their constituencieshave a decided advantage over theircompetitors. Telling your story in a waythat is memorable or communicatingvalue through excellent customer serviceby phone or email can result in a lasting


impression that garners a steady stream ofreferrals and renewal business.At TMLT, our governing board andexecutive management are committed toexcellence in communication. In 2008 thecommunications staff collaborated witheach department at TMLT to help designthe most effective communication plansfor strategic projects. These included theweb site, www.tmlt.org, and the internalweb site, iTMLT; the print and electronicadvertising campaigns, the Reporterand other newsletters, marketing collateralsand exhibit materials, and specialprojects such as the TMIC dental program.We worked internally with the HumanResources staff to help position TMLTas an organization that cares about itscommunity by developing a communityservice plan where employees couldget involved.We collaborated with the governingboard on the TMLT Memorial ScholarshipProgram which completed its fourth yearof conferring eight $5,000 medical studentscholarships in 2008.The 2008 work of TMLT’s small teamof professional communicators was recognizedin several communication evaluationprograms this year. Our Case Closedseries—volumes 1, 2, and 3—won anAward of Excellence from the Society forTechnical Communicators. This seriesof books features actual closed claims,details the legal allegations, how the caseresolved, and the risk management lessonsfor each scenario. Case Closed Volume3 won a Bronze Award for Best OverallEditorial from the Publications ManagementMagnum Opus Awards. The article“Potential pitfalls, risk management forthe EMR” received a Silver Award forBest Feature Article from the MagnumOpus Awards. In the 2008 InternationalAssociation of Business CommunicatorsBronze Quill competition, the 2007annual report Trust and the Reporterreceived Awards of Merit, and TMLT’sinternal web site iTMLT received theBronze Quill Award.The most valued awards, however,come from policyholders who have called,written, or emailed us that TMLT publicationswere well researched and written,that the topics were timely and interesting,and that they found the informationhelpful. As the author RudyardKipling said, “Words are, of course, themost powerful drug used by mankind.”Communicating effectively with Texasphysicians, organized medicine, the legislature,and other business associates is ourpriority and we are dedicated to it.TREG RUSSELLVice PresidentManagementInformation SystemsOver the course of 2008, our primaryfocus was to complete the conversionof Texas Medical Insurance Company(TMIC), our wholly owned subsidiary,to our new insurance processing system.Capitalizing on the experience gained duringour 2006 conversion of Texas MedicalLiability Trust (TMLT) data, we were ableto reduce the conversion time down to onefifth of that required by the TMLT conversion.This shortened timeframe helpedminimize the impact to our policyholdersduring this period of transition. In all,734 reports, forms, and letters werecreated or modified to support theneeds of TMIC. We also continued toimprove the insurance system to bettermeet our requirements at TMLT, completing163 separate enhancements and otherprojects during the year.With the advent of our dental liabilitycoverage program this year, we added thenecessary functionality to our systems tosupport that business. We developed theability to process those policies in ourinsurance processing system. Collaboratingwith the Communications & AdvertisingDepartment, we developed a webpresence for the dental program withfeatures such as quote requests, onlineapplication, and payment processing. Thisreinforced our goal of making it simpleand cost effective for us to process dentalbusiness without taking our attention awayfrom providing the best physician supportwe can.In the spring of this year we completedthe implementation of a new phonesystem. This system has features thatwill let us more effectively route callswhich will ultimately allow us to improveresponsiveness to our policyholders. Otherfeatures will allow us to better determinewho is available to take a call and providecapabilities that will allow for remote useof our phone system.Along with planning for the newphone system, we reviewed our local,long distance, and Internet services. Wewere able to bundle these services inorder to take advantage of lower rates.We anticipate an expense reduction ofover $1,500 a month while reducing ourexposure to phone outages and increasingour Internet capacity.As part of our cost control efforts,we reviewed outstanding projects toreassess their value to TMLT and ourpolicyholders. Two large projects werediscontinued resulting in over $200,000in savings.We also began working to reduceour dependency on the insurance systemvendor for programming support. As wegain expertise in-house, we will be able tosubstantially reduce support fees over thenext couple of years.17


MESSAGE FROM THE CFORAY DEMELSr. Vice PresidentChief Financial Officer18TMLThad an outstanding year in2008. Our financial condition continuedto improve as reflected in the accompanyingsummary financial data for 2008 and2007. Our 2008 results, achieved in theface of intense marketplace competitionand unprecedented turmoil in the financialmarkets, demonstrate the power of ouroperating strategy and long-term focus. Webelieve that continuing to execute the samestrategies that producedthese excellent results willbenefit our policyholders.Total assets and surplushave grown to all timehighs. Surplus grew to$275 million at the endof 2008 and net incomefor 2008 was $31 millioncompared to $24 millionfor 2007. Our financialstrength has afforded usthe flexibility to declarea $33 million dividend toour policyholders as theyrenew in 2009. We alsolowered our rates in 2008for the fifth consecutive year.Investments in fixed maturity securitiesand equities comprise the largestsingle asset class on our balance sheet. InSeptember 2008, unprecedented eventsoccurred in the financial markets thataffected our investmentresults. Asa result of thisturmoil in the U.S.credit markets,the overall marketvalue of our fixedmaturity securitiesdeclined in2008. We believethat this declinein market value istemporary becausewe have the intentand the ability tohold the securitiesto maturityand recover our cost. We do not believethat we have a material exposure to anylosses in our fixed maturity securities due tosubprime issues. The equity markets wereextremely volatile in 2008 and this volatilityhas carried over into 2009. We evaluated allof our equity investments at the end of 2008and determined that some of these investmentshave been “other than temporarilyimpaired,” meaning that they have declinedin value enough tobe written down as ifthey had been sold.We believe that theserealized and unrealizedlosses will nothave a material impacton our financial condition.Liquid and highquality fixed maturitysecurities comprise ourinvestment portfoliowith more than 95% ofthese investments representedby investmentgrade securities rated Aor higher as determinedby national rating agencies. Our total investmentin equities at the end of 2008 representedapproximately 10% of surplus.During 2008, we purchased the buildingwhere TMLT has been headquartered forthe past ten years. Purchasing the building“During 2008, we havesustained and increasedour financial stability duringdifficult market conditionsthrough responsible pricingand loss reserving practicesand through conservativeinvestment practices.”


MillionsMillionsMillionswill allow us to have the needed space inthe future for additional growth as wellas afford us the advantage of controllingfuture rent increases. With a reduction ofquality investment opportunities in 2008,the building purchase was a sound alternativeinvestment for TMLT.We also took the opportunity tocommute a portion of our reinsurancecoverage attributable to the continuedfavorable results of Texas tort reform.Commuting reinsurance relieves thereinsurers from their obligation for futureclaim reimbursement to TMLT in returnfor a partial refund of premium to TMLT.Taking on this additional risk shows howconfident we are in the results of tortreform and how confident we are in thefinancial strength of TMLT to weather anyunforeseen uncertainties.The decline in written premiumsfor 2008 was primarily the result ofrate reductions based on diminishingclaim trends and competitive pressures.These rate reductions are partially offsetby our strong retention ratio of 92.6%.Throughout 2008 we experienced betterthan expected loss trends which had afavorable impact on current year earnings.Even with this favorable loss reserve“Our financial strengthhas afforded us theflexibility to declare a$33 million dividend to ourpolicyholders as they renewin 2009. We also loweredour rates in 2008 for thefifth consecutive year.”development, we remain committed tocareful reserving practices.Investment income remained fairlystable in 2008. While our total amount ofinvestments increased during 2008, overallinterest rates declined because of marketconditions. Also, a significant amountof money was withdrawn from the fixedmaturity investments during the yearin order to fund the purchase of thebuilding, which also contributed to lowerinterest income. During the year, TMLTincurred net realized capital lossesprimarily owing to declines in marketvalues of a portion of our equity investmentswhich were considered to be otherthan temporarily impaired.During 2008, we have sustained andincreased our financial stability duringdifficult market conditions throughresponsible pricing and loss reservingpractices and through conservative investmentpractices. While premium rateshave declined in recent years and reducedinterest rates and the economic marketshave had an impact on our earnings,we believe that 2009 will be anothergood year for TMLT – especially if thecurrent claim trends and premium pricingremain stable. As mentioned above, ouryear-end 2008 surplus was $275 million.Maintaining a proper level of surplus iscritical to the success of TMLT as surplusrepresents a cushion that can absorbthe impact whenever liabilities increaseunexpectedly or investments lose value.We are committed to maintaining prudentoperating and financial results and conservativelyinvesting our assets. We realizethat our policyholders value an insuranceorganization with financial strengthand we intend to manage our business toprotect that financial strength and security.$700Total Assets - Consolidated2005-2008$654.4 $662.4 $667.0Policyholders’ Surplus - Consolidated2005-2008Dividends2005-2008$600$500$400$588.7$300$250$200$203.4$227.7$254.0$275.1$40$30$32.9$35.1 $34.1$300$150$20$200$100$100$50$10$902005 2006 2007 2008Years02005 2006 2007 2008Years02005 2006 2007 2008Years19


FINANCIALSCondensed Consolidated Financial Information(Unaudited, In Thousands)Financial HighlightsTotal AssetsReserve for LossesDirect Premiums WrittenPolicyholders’ SurplusDecember 3120082007$666,974 $662,384267,044257,348168,851175,968275,075254,042Balance SheetsAssetsFixed Maturity SecuritiesEquity SecuritiesCash and Short-Term InvestmentsPremiums ReceivableReinsurance ReceivableOther AssetsTotal AssetsLiabilitiesReserve For LossesUnearned PremiumsPolicyholder Dividends PayableOther LiabilitiesTotal LiabilitiesPolicyholders’ SurplusTotal Liabilities and Policyholders’ Surplus$398,70229,44343,48750,53661,20083,606$666,974$267,04478,70632,94913,200391,899275,075$666,974$404,67249,14445,54257,06349,82456,139$662,384$257,34883,22233,98233,790408,342254,042$662,384Income StatementsNet Premiums EarnedNet Investment IncomeRealized Gain (Loss) on InvestmentsOtherTotal RevenueYear Ended December 312008$162,60919,549(9,529)1,665174,2942007$137,35619,5247,82634164,740Loss and Loss Adjustment ExpensesPolicyholder DividendsOther Operating ExpensesTotal ExpensesIncome Before Income TaxIncome Tax ExpenseNet Income60,95534,11834,848129,92144,37313,316$31,05766,04135,12732,227133,39531,3457,140$24,20520The foregoing unaudited condensed consolidated financial information has been derived from theaudited consolidated financial statements. These statements are available upon request.


From the entire TMLT staffThank you for 30 wonderful years!

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