The Physicians' Assurance Corp. was ordered liquidated by Franklin County Common Pleas Court at the request of the Ohio Department of Insurance.
The Worthington-based company insured about 350 companies and a total of 8,000 central Ohio residents.
"At the end of 2008, TPAC had capital and surplus of just over $2.5 million," which was the minimum requirement, said Carly Glick, Insurance Department spokeswoman.
The low number triggered a more-regular monitoring of the company's finances by the Insurance Department.
"For the first six months of 2009, their losses exceeded $2.4 million and their surplus was down to $418,000," Glick said. "Because of their insolvency, they agreed to the liquidation order."
Policyholders are protected by the state, which took over Physician's Assurance.
Current claims and those made during the next 30 days to 45 days, up to $100,000, are covered by the Ohio Life & Health Insurance Guaranty Association, a nonprofit group that provides customers of insolvent insurers a measure of protection. Amounts totaling $100,000 or more must be presented to the state liquidator, Glick said.
"(Physicians' Assurance) policies will be terminated in 30 to 45 days, so we strongly urge these people to contact their insurance agent or broker about new coverage," she said.
Those affected should get quotes from at least two health insurers, said George Stadtlander, chief managed-care officer of Medical Mutual of Ohio.
"Look for an insurance partner that has been in business for a while in central Ohio," he said. "They've just gone through a disruptive experience and don't want to put themselves in a similar situation."
Physician's Assurance was started by three local doctors: anesthesiologist Brett Wheeler, ophthalmologist Alice Epitropoulos and urologist George Ho. It was licensed by the state on Feb. 1, 2008.
The goal was to provide a low-cost health-insurance option for small companies, such as medical practices, that were struggling to cope with rising health-insurance costs.
"There's no magic to this, and their deals with hospitals and doctors were comparable to ours," Stadtlander said. "But they offered rates 15 to 20 percent lower than the rest of the industry, so how could they sustain this business model? They couldn't."