Malpractice Insurers Make More, Pay Out Less
The American Association of Justice recently completed a study of the 2006 financial statements of fifteen insurance companies that specialize in medical malpractice.
We would like to say that the results or this study are “startling,” but considering that most of the work that we do on behalf of our clients involves insurance companies, we are sad to say that we are not surprised at all.
The premise of the report is that medical malpractice companies have raised their rates consistently for the past seven years and have gained incredible profits as a result. They have claimed that the reason for the rate hikes has been an onslaught of medical malpractice lawsuits and enormous payouts to plaintiffs. They have claimed that rate hikes were necessary to stave off insolvency. They have fed stories to reporters about doctors unable to continue to practice due to the high insurance costs. They have used these stories as fodder for their lobbyists, who have politicked and pressured and made all the right donations to all the right politicians in order to make it even more difficult for malpractice victims to access the courts.
All of these claims turned out to be made out of hot air. From claims of near insolvency to claims of record payouts to claims of “frivolous lawsuits”, our nation’s medical malpractice insurers have put on a smoke and mirrors show of poverty while charging more, paying out less and earning record profits.
Incurred Losses versus Earned Premiums
“The Bottom Line…Paid losses are rising rapidly due to out-of-control litigation and skyrocketing jury awards. In this environment, according to research by Brown Brothers Harriman, ‘…it has been extremely difficult – if not impossible – for insurance companies to earn a profit writing’ medical liability insurance.” – Health Coalition of Liability Assets
“$18.4 Million Dividend to be Shared with Policyholders for 2005-2006 Policy Year;
\nCurrent Rates Extended through June 2008.” – News Release from ISMIE insurance company, 4/18/2007
Out of the fifteen malpractice insurers mentioned in the study, all of them experienced a dramatic rise in earned premiums, and all of them experienced a drop in incurred losses (expected and past payouts.) What this means is that they were seeing the benefits of their rate hikes and none of the financial losses that they were predicting.
HCI experienced an 81.7 million dollar drop in payouts. MedPro is paying out 74 million dollars less, and according to their website, they now have an AAA S&P Financial Rating. ISMIE, as mentioned above, are offering 18.4 million dollars worth of dividend sharing to their policyholder’s thanks to a 54.2 million dollar drop in payouts.
And while the payouts have gone down, the earnings from the rise in policy rates for these same companies have gone up, which means that it has been very successful few years for our so-called beleaguered medical malpractice insurance companies. ProMutual has seen a gain of 84.9 million dollars in paid premiums. MAG Mutual earned 115.9 million dollars. Continental Casualty now has 87 million more than they used to.
What is amazing is that, despite these enormous profits, malpractice insurers and the tort reform organizations that they fund are still maintaining the fiction that each and every malpractice insurer is teetering on the edge of bankruptcy and that these enormous premium costs are still necessary. That they were even necessary in the first place has been shown to be extremely debatable. In 2005, an examination of the financial reports of malpractice insurers showed that the number of claims and payouts remained flat over the previous four years, even as the premium rates climbed dramatically.
Even the Insurance Information Institute claims that there isn’t really a problem:
In a study of medical malpractice claims closed between 2000 and 2004 in seven large states, published in March 2007, the U.S. Department of Justice’s Bureau of Justice Statistics found that most were closed without payment.
Now that the insurers have made their money, perhaps they can drop the rates down to a reasonable level. And since there is not and never has been a medical malpractice crisis, perhaps the tort reform organizations can stop doing everything that they can to limit the access of average Americans to the courts.