BETA ended 2010 in its best financial condition ever. Thanks to a near 100% member and insured retention, and even with a third year of base rate decreases, BETA had record revenues of $92.2 million. We were able to reduce prior year claims reserves by $43.7 million and allocated $33.8 million to member dividends. This will allow BETA to continue to stabilize pricing at or below current levels for at least the next three years. Realized gains on investments of $10.3 million and $10.0 million in interest earnings also helped produce impressive pretax operating income of $47.9 million. The fund balance on December 31, 2010, grew by $23.9 million to $174.9 million. Assets now total $486.3 million, up 7% from 2009.

A special dividend for active members of almost $19 million was declared by the BETA Council which will be returned in three installments: 25% in early 2011, 50% in August 2011 and 25% in August 2012. Dividend amounts were based on premiums paid and claims experience during each of the eight contract years, 2002-2009, which produced the excess reserves.

The soft insurance market experienced for the past several years continues, seemingly without an end in sight. With claims frequency at record lows throughout the healthcare professional liability insurance market, another year of claims reserve releases bolstering year-end results, impressive investment results, and surplus positions at near record highs, insurers continue to look at this line of business as a likely source of profits. Fortunately, California has not experienced the often seen unjustified pricing by insurers trying to establish a foothold in this line of insurance. Most hospitals and medical groups understand and want the benefits of fair pricing, price stability, demonstrated commitment to California healthcare providers, and high quality services and have learned that an unbelievable price is always just that and cannot be sustained year over year.

BETA’s investment portfolio was almost $400 million at year end, an 8% increase from 2009, with 60% of funds in U.S. Treasury and Agency securities. With a focus on highly rated investments, BETA has 85% of its invested funds in “AA” or better rated securities. During 2010, investments yielded a return of 6.2%, producing an outstanding investment ratio of 34%. Because of low reinvestment rates, however, BETA is only budgeting for an investment return of 3.3% in 2011.

Claims frequency continued to be at historically low levels with 2.51 claims per 100 exposure units, up slightly from 2.43 in 2009. The claims frequency experienced in the past five years is 35% lower than the claims frequency experienced ten years ago. Unfortunately, although frequency is flat, claims severity continues to increase, especially on the high severity claims greater than $1 million.

For the year, BETARMA opened 954 claims, closed 921, and had 1,011 open claims at year end. Eighty-two percent of the 826 healthcare professional liability (HPL) claims were closed with no indemnity payments, which is the same as in 2009. These claims cost BETARMA $7.4 million in defense expenses, an average of $10,943 per claim, 8% more than in 2009. Of the 152 HPL claims closed with an indemnity payment, the average total cost was $251,636, consisting of $195,658 in indemnity expense and $55,978 in defense costs, which is a 2% decrease over 2009 average indemnity payments. Overall, defense expenses represented 30% of all claim costs.

Although large HPL claims ($1 million and higher) represented only 1% of the number of closed claims, they represented 48% of total incurred HPL claims costs. The five largest claims closed in 2010 averaged $3.8 million in incurred costs, with indemnity costs representing 96% of the total.

Total incurred costs for the 46 directors and officers’ liability closed claims were $948,999, for an average of $20,630 per claim. Defense costs represented 81% of total incurred costs. There were 48 auto claims closed at an average cost of $33,655.

During 2010, Health Providers Insurance Reciprocal, RRG (HealthPro) closed 194 claims at a cost of $10,566,231, 58% of which was indemnity payments. Eighty-nine percent of all HealthPro claims closed without indemnity, but had average defense expenses of $25,440.

A critically important component of BETA’s success is its reinsurance program. Both BETARMA and HealthPro retain a significant portion of every claim above which reinsurers absorb the risk of the high severity claims. The reinsurance program is very diversified with 18 companies in the U.S., London, Europe and Bermuda providing coverage. Reinsurance support allows BETA to offer optional higher limits and provides special coverages necessary to respond to unique loss exposures and claim scenarios.

BETA has always been about much more than attractively priced liability insurance coverage. From our beginning in 1979, BETA has worked cooperatively with our members and insureds to enhance patient safety, improve clinical outcomes and reduce the risk of adverse events. With few enterprises as complex as healthcare facilities, the challenges to creating comprehensive, effective and supported patient safety programs are daunting, especially in light of the financial obstacles facing many hospitals.

As discussed in greater detail in this report, BETA continued to expand its risk management services. Center stage is our Quest for Zero: Excellence in OB, an initiative focused on improving reliability and reducing risk in obstetrics.

Supporting this initiative, BETA continued working with Advanced Practice Strategies’ California Collaborative and over 1,200 OB clinicians to enhance education, communications, documentation and teamwork. Congratulations go to the six members demonstrating 100% compliance with the 2010 criteria and earning a 5% premium credit:

Lompoc Valley Medical Center*
Mendocino Coast Healthcare District*
Natividad Medical Center*
Plumas Hospital District
Salinas Valley Memorial Healthcare System
Sierra View District Hospital*

Other outstanding risk management programs and services include participation in the Institute for Health Improvement’s Perinatal Improvement Community with six of our members, funding for emergency medicine seminars and online courses, a pilot program involving six members with Emmi to provide online patient education related to their surgical procedures, and our highly attended symposiums and online webinars.

A special thanks to Ed Maring (former board member at Del Puerto Health Care District) who served as a BETA Council member for almost 22 years, during most of which he was Vice Chairman or Treasurer-Auditor. Always insightful, a financial wizard, and one of the nicest people you would ever meet, his departure from BETA is a significant loss.

We would also like to welcome three newcomers to the BETA Council:

Jackie Garman, Vice President and General Counsel, Children’s Hospital and Research Center Oakland

Kathy Omachi, Board Member, Sierra Kings District Hospital

Wes Alles, Chairman of the Board, El Camino Hospital

And, during 2010, BETA welcomed five new member facilities and medical groups:

Marin General Hospital
Palo Verde Healthcare District
Pleasanton Emergency Medical Group
Physicians for Healthy Hospitals, Inc.
West Coast Critical Care Specialists, Inc.

To all our members and insureds, thank you for your support of BETA and your commitment to patient safety. Together we will continue to enhance risk management programs and reduce liability costs.

* two years in a row

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