The Education of a Medical Malpractice Underwriter

In this podcast, Megan Sullivan-McIntyre, Head of TransRe’s Medical Malpractice team in New York, reflects on her career and explores:

  • What makes an effective underwriter
  • What makes an effective leader
  • The similarities and differences between long tail specialty casualty and other lines

Can’t listen now? Read the edited transcript

Megan began her underwriting career at Medical Liability Mutual Insurance Company (MLMIC). She joined TransRe in 1997.

Do you think women bring a different perspective to leadership?

I joined TransRe when they were expanding professional liability. I often say I got hired because I had a heartbeat. Luckily that heart kept beating and I worked hard, learned the business and aligned myself with people that knew more than I did. So long as I continued to learn, I stayed. I’m still learning. I think I’m different from some of the people I have worked for, because I don’t have an ego. I don’t know if that’s a female thing, but I live by the mantras: work hard and get through it. Plow through the work. Raise your hand. ‘Pick me’.

At times in your life when you have the time, put that time and effort in to your work. I’m very detail oriented. I don’t know if that’s a female thing, but it has served me very well as an underwriter. Not much gets past me, and when it does, I get angry at myself for missing it. Detail takes time and patience.

Reinsurance has been male dominated. Does that affect how you work?

It is becoming less male dominated, like almost every other industry. In the past, many women gave up their careers to care for children. Early on, an older woman asked me about working when I was pregnant. ‘When I was your age, the minute you were showing you had to quit your job.’ I thought it strange, but I also remember early in my TransRe career that many women left to care for their children. It’s hard to be a mother and be good at your job. We didn’t have telecommuting in those days. My first child was born in 2003, not so long ago. But in those days it was in the office, five days a week, in a suit. For economic reasons, I didn’t really have a choice. You plow on and figure it out.

The industry still revolves around golf, baseball and football, which I don’t enjoy or do. It can be challenging to connect with customers and brokers, but not everyone golfs. Things are becoming more inclusive and family friendly. We don’t go out as much after work, but maybe that’s because I’m getting older and I don’t go out as much. We do a lot more at work, with fewer people, which means more work and fewer to delegate. We have internal projects where we pair up with different groups of people, so it naturally becomes more inclusive.

When I think about my generation of underwriters, and I think about Paul McKeon (CUO, TransRe North America) he started in healthcare liability at Continental. I didn’t work with him, but he joined as part of their graduate program. Many of those hires were women, who still work in the industry. Almost all the men in his program have risen to senior roles, while the women are in good underwriting positions, but not very high leadership roles. That’s kind of interesting. I don’t know if being a good multitasker is always a good thing. Maybe it’s biological, maybe the extra skill women bring is having to be a mom.

Historically women have earned less than men. Maybe that disparity is getting smaller, but it certainly existed years ago. When you’re in your early 30’s and you’re having a baby, and childcare costs X and your salary is Y, so working will only net out $200 more a week, is the stress worth it? That drove a lot of women to stay home. Had women been paid more along the way, it would have been a different calculation. When our old CEO once asked me ‘why do all the women quit?’ my half joking answer was ‘because you don’t pay them enough.’

Does the same type of person still get ahead in reinsurance?

Some women feel they have to act like men to advance. I don’t think that’s true, but it can be hard to separate my personal view from deep institutionalized social bias. Our harassment training references unconscious bias. Organizations do it because the issue exists and it is silent.

People get ahead for many reasons. Often, they are clearly the better person (smarter, work harder, more efficient). They work smart. But there is also nepotism. It is important to understand that it exists. Don’t feel defeated when you’re not selected. Some people, both men and women, just have natural leadership qualities. They just do. They’re the person everybody wants to be around at the cocktail party. They’re the person you hope accepts your invitation to your social event. Maybe they were that way in high school, maybe not. I always say to my children ‘you don’t want to peak in high school.’

At the beginning of your career you had a job before insurance?

I graduated college in 1991, a tough time to find a job. I was lucky to land a management training job at a bank. It didn’t pay much, but it was a job. I interviewed on campus, I didn’t know anyone, and I think there were 75-80 applicants, two or three rounds of interviews. I became a credit manager trainee, learning how to lend money on high interest rate loans – furniture store no- payments, no-interest-for-six-months loans. When a customer filled out an application, I was the person on the other end of the fax machine. I approved you. I pulled your credit in five seconds, figured out your debt to equity ratio, and decided how much to lend you. A month later I would call you to borrow more. I had sales goals and I had bad debt goals, because I also had to turn around and collect the debt.

How do they judge the profitability of the accounts?

It’s a classic problem that plays out all over the insurance industry. You control underwriting but you’re also selling. It’s the direct writer paradox. I had to collect, so I had an incentive to sell loans to people who were likely to make payments. The worst part of my job was debt collection Tuesday nights. There’s a lot of tension in that job. There was an art to collecting money, but I hated it because of the social tension. At the time, New York’s usury laws were 25% interest rates and New Jersey’s were 39%. The person who borrows $500 for the weekend at 25% or 39% can’t be the sharpest tool in the shed. All they see is the payment of $25 a month. ‘I can handle that for 36 months.’ I had an interest in selling money to someone who at least made the first six, nine months. I didn’t want to call them right away, but I had sales goals.

The job didn’t pay well either. I waitressed on the weekends to make rent and pay student loans. I worked seven days a week for two years straight. I was young, but I knew the day I started that job that I wasn’t going to stay. I did not go to college for this. It was a big, sterile office in upstate New York. I called a friend who worked in HR, and said ‘I’ve never quit a job before, because I’ve never had a job.’ She helped me type my resignation with a date in 18 months’ time. I needed to figure out my plan B before then. Always have a plan B!

I saved money, and thought about the job I wanted to do, where I wanted to live. I wanted to go to New York City, so I saved and planned. There was no internet in those days, and no cell phones. It was hard to look for a job in another city. I went through the New York Times ads and sent resumes in the mail. It was very hard. I really had to quit the job and make my focus the unpaid job of looking for another job.

To be successful requires a sophisticated mix of skills. (Re)insurers have tension between sales and underwriting. Companies that get the mix wrong have blown up. But lending was a good training: underwriting, distribution, claims. I ran my own insurer, having to deal with all the consequences of bad decisions on one end or the other. If I didn’t produce enough, I didn’t hit my goals, but if I said “I’ve got to produce now’, I would end up with bad risks. I didn’t realize then that the skills I was learning were transferable to insurance, but they were.

Selling money was easy, but the front end controlled who was better risks. A lot depends on the type of debt – Sears, JCPenney etc. That provides insight into somebody’s thought processes and integrity. If you have 25 credit cards maxed out at clothing stores, that doesn’t really say a lot, honestly for your character. I hate to judge people, but I saw it happen too many times that eventually they filed bankruptcy.

Are you an advocate for using credit scores for insurance?

When I first moved into insurance, I was surprised we did not look at credit, because credit tells you a lot about a person. You can go a long way underwriting a business or a person on their debt profile. It tells you if they pay their principal and interest. For insurers, non-payment of premium is the credit risk, but at least the policy can be cancelled. The bigger risk is fraudulent claims. In medical malpractice that means a different behavioral characteristic.

How did you join a medical liability mutual insurer?

Back then, you were taught not to bad-mouth your prior job. How do you say, ‘it was great, but I quit?’ When I said I wanted to relocate, the hiring manager pressed a bit further. I started to talk but he stopped me and said ‘don’t say any more. My son worked for that company’ and he gave me the job. I quit a job in a market where there weren’t a lot of jobs.

The move was great. I was happy. I was in New York City, in a department with 8-9 people my age. We had fun and the job was not so hard. All physicians had the same policy limit in one state, but with many different specialties. It took time to learn the different specialties and the common procedures of each. If someone had a terrible loss history, I would ask the staff physicians to help me understand whether the claim was bad luck or bad practice.

Because the job wasn’t too demanding, I took CPCU classes at night, at what was The College of Insurance, now part of St. John’s. I also took night classes as a non-matriculated student at the Fashion Institute of Technology (FIT). One night I would learn about risk management and insurance ethics. The next night cut fabric and use industrial sewing machines. I learned how to make a skirt. You learn to make your own work clothes if you don’t get paid enough! FIT classes were inexpensive because it was in-state tuition. I learned about reinsurance in my CPCU class. My employer didn’t buy reinsurance, and I was a direct writer with no brokers, so it opened up a whole new world to me.

In what way is insurance more sophisticated than reinsurance?

Our industry has a status hierarchy, with reinsurance seen as being at the top, judging insurers and applying capital to them. However, the sophistication of insurance is underappreciated. When I saw policy language, I realized I didn’t understand it. I do remember learning, and it has always stuck with me, that insurance is a recession proof job. The more society advances, the more we have, the more we own, the more we want to protect it. Insurance is an industry that will always be here. The reinsurance world is changing, with capital markets and different industries are getting into what we do.

I don’t know why I thought reinsurance was more sophisticated. As a direct writer, I talked to doctors all day. They are not famously good business people and they work long hours. To talk to a doctor, call at 430am before they start work. They can also be nasty. They just paid you $100,000 for a policy and they don’t understand the value until they make a claim. I had to explain the difference between claims made and occurrence coverage to a doctor, whereas reinsurers deal with insurers, who get it.

Reinsurers love jargon. Stop and listen to your colleagues talk shop. Maybe that’s just an easy way out. The hard thing is explaining protection to a lay person.

Insurance is cyclical, but the cycles are not the same as an economic recession.

When I started at TransRe in 1997, it was hard to write medical malpractice in New York. There were two admitted carriers and the state set the rates. It was very transactional, but I didn’t know that then. It was a soft market and I was a facultative underwriter and I used the tools I was given – an actuary and a black box rating model that nobody knew how to program. You had to start all over again if you typed in the wrong number. It was the worst technology I’ve ever used in my career. Whoever wrote the program was no longer with the company, and nobody knew the code. The actuary soon rewrote a rating model in Lotus Notes. That was my first experience with spreadsheets.

I would go to Paul (McKeon) and say ‘XYZ wants to write this for $30,000, and my price is $898,000. What did I do wrong?’ Paul would check my process and say ‘no, you’re pretty much right. 30 times the market price. Don’t worry. Keep looking through every submission.’

We were inundated with submissions and everything was paper. In my first year, I think I wrote $3 million of facultative reinsurance, a decent number because I didn’t get many $900,000 policies. They were mostly buydowns for hospital captives or larger unique deals ie straight up facultative. I would write high excess layers at minimum rates. That was 1997 to 2001. Then St. Paul exited the market on December 12, 2001. 9/11 hardened many markets, but medical malpractice was driven by St. Paul, the largest writer in every state. Other companies lost surplus to rising jury verdicts and awards and people say ‘St. Paul pulled out at the wrong time.’ But if they hadn’t pulled out, the market might not have hardened. My new colleague, Tonya Davies, and I couldn’t keep up with prices. We’d use our tools to price it at $600,000 for the layer, and the customer would say ‘we just sold it for $1.8 million. Can you support us?’ ‘Why yes, I think we can!’ We couldn’t keep up with trend, but the trends were in the right direction and we grew that facultative book from $3 million to $30-$40 million.

That was my entry into a hard market. I didn’t even know it. I didn’t even realize it. It just happened. I haven’t seen anything like that since, and I’m not sure I will.

Is it still useful to think about ‘hard’ and ‘soft’ markets?

I’m not sure. It is easier to make money in a hard market, but is it a good strategy to spend so much time talking, thinking, wishing, hoping for a hard market? Hope won’t pay the bills.

In a soft market you have to underwrite, know what you’re doing and have good people around you. That’s when you work the hardest for the littlest. The right decisions often mean less premium. You work hard, but you can’t justify extra headcount and resources. Then the market hardens and you write all the premium without really needing all the intelligence and resources. You have volume. I find soft markets really, really challenging. It takes resources to attempt to pick the cream of the crap – a lot of time, energy and unsuccessful outcomes.

And after years and years of a soft market, that’s got old.

How do you stay motivated?

The hard market arrived three years into my career, and I learned a lot. You believe in what you do and in the company you work for. You see the environment change. You see how senior management tries to energize people to try new things. I’m not sure I could have stayed in the soft market at another company. I get to do podcasts.

Can you talk about horizontal vs vertical job opportunities?

When I interview people, I tell them TransRe is a fairly flat organization. We don’t have many layers of middle management. That limits the vertical movements, but there are lots of opportunities for young up-and-comers to demonstrate their business acumen, intelligence and creativity. We have a lot of project groups where we pair different people from different backgrounds to solve problems. These are things that keep people motivated.

Are there lines of business that still baffle you?

I think this is a fictitious debate. To paraphrase, the short tail people say to the long tail people ‘I don’t know how you make money. You don’t know where and when the bad thing will happen, or how much it will cost. How do you know what the price should be?’ And the long tail people say, ‘your whole book could blow up tomorrow.’ Both are exaggerations. Each has uncertainties and unknowns, but it’s all reinsurance. How can you oppose the idea that your colleagues make money in a different way? There is something about becoming good in one area that walls you off a bit from other parts. Obviously, people can run an entire company and we have a CEO who understands all the different lines of business, but that is a rare skill. Take my line, I’m trying to figure out what it costs today to pay for claims in 10 years. A lot can happen. Trends change.

On its face, property looks easier (to me) partly because it’s a much larger market with greater price discovery. There are so many models, but they are just models. Weather patterns change. That is a bit like tort reform. Sometimes tort reforms in our favor and losses improve. Sometimes it makes things worse. A plaintiff lawyer becomes very active and very successful. That changes our landscape. We couldn’t anticipate that. Medical malpractice is another form of bodily injury.

Casualty is a big class and underwriters must specialize. I think D&O is incredibly hard to figure out. Take Enron. The whole world was fooled by Enron. How could a junior underwriter at AIG figure out whether Enron was a good D&O risk? I don’t know. I think more about underwriting than pricing. Medical malpractice is a lot about pricing, and we have actual experience, losses, frequency of loss and severity. We can estimate predicted loss cost. That is harder in D&O. I don’t walk around saying my job is hard and everyone else’s is easy. Property supports a tremendous volume of business and accounts, and that leads to a lot of data mining.

For certain lines deep specialization gives you a competitive advantage, in others a broader perspective is required. Specialty casualty protects a professional, someone who has put a lot of time and effort into their life and career. We have a very specialized product to protect our customers, but we are also dealing with injured people, who sometimes die as a result of bad outcomes, or babies who will never live a normal life. Some general casualty underwriters don’t want to deal with that.

How much medical knowledge do you need to be a successful MedMal underwriter?

I was a finance major! I was lucky because my first job was at a mutual insurer run by physicians. I could talk to doctors every day. I learned a lot from them, but not medicine. We kept a manual, a set of guidelines. Every time we learned something from a doctor, we added a guideline to help us understand what the procedure was, why they did it and what were the risks. Some claims people come from nursing backgrounds and that’s very helpful when handling claims. Nurses join insurers and reinsurers because front-line nursing is a tough job. Defense attorneys have very specialized medical knowledge too. Everyone in our industry is a specialist.

Does that mean medical malpractice insurance sales are also very specialized?

Absolutely. My colleagues in larger lines talk about Aon, Guy Carpenter, Willis and other brokers. My world is so small, there is one office for Guy Carpenter, one office for Aon, one office for Willis that serves medical malpractice. We’re only a $9 billion industry. Cyber is a small industry. So is Aviation. That’s hard to pick the right risks, because not all the business is in the reinsurance market, which makes it hard to balance your portfolio.

That doesn’t mean it’s a completely stable market. Insurers look at our results and think we make a lot of money. The market hardened, prices went up 50-100% in places, and our frequency trends dropped. No-one can explain that yet. We all tried to price 15 points of margin into deals, and we made 50. Everyone made money. New entrants see that and they want some, so they hire from within the circle, or someone new joins, but the circle doesn’t get much bigger.

So there’s an informal social brake on growing the market too much?

If someone knows nothing and enters the market, even the brokers will (and do) say ‘give me a break.’ It will be a headache for them if an insurer doesn’t know what they are doing. How can they advise their clients to buy that ‘protection’ with no proven ability to manage and pay claims? The biggest hurdle to entry is A+ paper. That stops anyone wandering in and saying, ‘I have no idea what I’m doing, but it looks attractive…lets write a ton of it.’ A+ entities are responsible organizations.

The excess workers comp market is similar. There aren’t a lot of players. That market makes medical malpractice look big. Not a lot of people do it. It is very long tail. I think there’s a relationship between the size of the market and the length of the tail. Many people say, ‘it’s very difficult to assess.’ The smart money is already at the table. How many new players with A+ want to wait 15 years to know how much profit they made? We still get claims from early 2000s. Not all the time, but every now and again. By the time you recognize the profit, you’re well into a soft market. Long tail writers don’t get praised when they write the premium, and they shouldn’t, but by the time the rewards show, it was so long ago that nobody wants to talk about the past!

Thinking of someone you admire, what quality do you admire most, that you want to emulate?

The most successful people I have worked with have one trait that I don’t possess. They have honed the art of delegation. I don’t delegate enough. That’s a detriment to me and those around me, who would benefit from the work and other opportunities. Successful people manage that well. They are smart and could do it themselves, but delegating frees them up to do more of what they’re supposed to do, and gives someone else an opportunity to learn something new, work on a new task, a new deal or something different.

Sounds great, so why not do it?

I have a fear of relying on other people to get things done. At the end of the day, it has to get done so I just do it. It’s similar to how I raise my children. I do too much for them. I want the beds made, so I just make them. I am starting to make them do it. I fear that delegating creates more work for me. Maybe they wont do it right. Delegation also brings an emotional, cognitive kind of burden, to manage the performance of somebody. It’s about communication and that can be stressful. If they screw up, how do you tell them? You have to break into their world a little bit and reorient around a new task. That is a socially costly thing to do. I’m exaggerating a bit to describe the behavior, but I feel communication is a difficult thing to do well. Delegation takes a lot of communication, and not always easy, pleasant communication. Maybe the person isn’t a superstar and they don’t want more work, but you give it to them anyway. Everyone wants that next job managing, or they think they do, but it’s hard. Different things make different people tick. I like managing, but it’s different. Just because you’re a good underwriter doesn’t mean you’re a good manager. Just because you’re a good portfolio manager doesn’t mean you’re a good people manager.

I look at successful people and they have that leadership quality, the ability to seek out people and give them opportunities. That frees the leader’s time and builds strength in the organization. It also requires patience, another key strength. I want to be a leader and have the skills I need. I want to foster the best in everybody. If that means stepping back and passing work to others, I need to be better at that. And I need to be patient, because not everyone thinks like me.

Megan, thank you very much.


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