Liability premium increases slowing, yet rates remain at record highs

15% of insurance companies expect "significant" rate increases over the next year. In 2003, 83% held that outlook.

By Tanya Albert Henry — Posted Nov. 15, 2004

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More than 67% of medical liability insurers say premiums seemed to be leveling off in 2004, according to results from the annual Medical Liability Monitor rate survey that looks at how much medical liability insurers are charging doctors.

But that's a thin silver lining in what is still a substantial cloud.

Rates are not leveling off everywhere. Triple-digit increases are still being reported by some carriers, the survey showed. And physicians who are experiencing smaller increases are still paying record-high rates.

Also, no one is predicting the end of a "hard market" that has insurers pulling out of certain areas and being more choosy about which physicians they'll insure.

"The crisis we see is not over," said American Medical Association President John C. Nelson, MD, MPH. "It's a tough time for doctors right now in the liability arena."

Tort reform that includes a $250,000 cap for noneconomic damages remains the AMA's No. 1 legislative priority.

Those with a hand in the insurance business agree that the problem isn't solved.

"A lot of the big increases are behind us, but insurers have had big losses," said Lawrence Smarr, president of the Physician Insurers Assn. of America, an association of doctor-owned and/or operated medical liability insurers.

The 2004 rate survey asked companies to report their mature claims-made manual insurance rates with limits of $1 million/$3 million as of July 1 for three specialties: internists, general surgeon and ob-gyns.

Among the 788 rates that were reported, the majority of increases fell within the 6.9% to 24.9% range. That's an improvement over last year, when the majority of increases fell between the 10% and 49% range.

Barbara Dillard, editor of Medical Liability Monitor, noted that although the increases might be smaller, they are being added on to historically high insurance bills.

"Even though Dade County, Fla., obstetricians, for example, experienced only an 11.3% increase, their annual premiums were reported at $277,241 by one insurer," she said. "Illinois obstetricians are paying as much as $230,428, and in Michigan, it's as high as $193,819."

Location matters

Where physicians practice medicine did make a difference in how much they paid.

Medical Society of the State of New York associate counsel Moe Anster said rates continue to be trending upward, not stabilizing.

But in Nebraska, the environment is stable. Physicians there pay some of the lowest premiums in the country, and they credit tort reforms first enacted in the 1970s for the friendly environment. "We have doctors moving here from other states," said Sandy Johnson, executive vice president of the Nebraska Medical Assn.

In some states, whether a practice is in an urban or a rural area often makes a difference in rates, too.

Physicians in large urban areas tend to pay higher rates than doctors in other parts of the state, the survey showed. For example, internists in the Detroit area insured by APCapital are quoted $33,514 under the survey's criteria. The rate quoted for internists insured with that same company in other parts of the state (with the exception of the Saginaw and Grand Rapids areas) is $16,757.

"On the east side of the state [where Detroit is], we are hearing anecdotal stories about problems that physicians are experiencing," said John MacKeigan, MD, president of the Michigan State Medical Society. "A number of physicians in Wayne County have been forced to take employment situations with hospitals. It's the only way to continue practice. ... On the west side of the state, we're not hearing the same difficulties."

Dr. MacKeigan said the latest numbers are discouraging. Michigan has some tort reforms, including tough expert witness standards, a rule that holds physicians responsible only for their portion of the damages and a cap that is tied to inflation -- more than $350,000 now.

"We are trying to get a handle on why we are paying some of the highest rates in the country," he said. "We are looking at alternative dispute resolution mechanisms."

For the most part, though, doctors in states with tort reforms tended to fare better than those in states without reforms, according to the survey.

For example, in California, where there is a $250,000 cap on noneconomic damages and other tort reforms, the highest reported rate for an ob-gyn in the Los Angeles area was $89,953, according to the survey. In Illinois, where the state Supreme Court has struck down previously passed caps, the highest rate reported was $230,428 in the Chicago area.

"The tort system is broken," said Harold L. Jensen, MD, chair of ISMIE Mutual Insurance Co., a policyholder-owned and -operated company. "The hard market is not over."

NORCAL Mutual Insurance Co. executives said they see a difference in the need for rate increases based on whether tort reform is in place. The company needed a 2% rate increase in California this year and took a 20% increase in Rhode Island after actuaries said a 51% increase was needed in the state, which lacks reforms.

"So much hinges on the local tort laws," said Phil Hinderberger, senior vice president and general counsel for NORCAL. As long as California's MICRA is in place, "we're looking at rate increases that track the cost of living."

Looking ahead

Compared with past years, fewer insurance firms expect to have to raise rates "significantly" in the coming year, the rate survey showed.

About 15% of firms that responded to the 2004 Medical Liability Monitor rate survey said they expect rates to increase significantly next year. In 2003, 83% forecast significant increases in the next year. (The survey did not quantify "significant.")

Physicians in states that have passed tort reforms in recent years are particularly optimistic. Mississippi and parts of Ohio are starting to see some stabilization.

In Texas, where voters enacted a $250,000 cap and then passed an initiative that made the cap constitutional, about half the state's physicians have seen a decrease in rates, with the Texas Medical Liability Trust decreasing rates by 17%.

"We're beginning to turn the corner," said Texas Medical Assn. President Bohn D. Allen, MD. "We're just keeping our fingers crossed that other states get relief."

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Leveling off?

It's still a tough insurance market, but more than half of the liability premium increases reported in 2004 fell into the 1% to 24.9% range, an improvement over 2003, when only 44% fell into that range.

Size of increase 2003 2004
100% or more 1% 2%
70% to 99.9% 1% 4%
50% to 69.9% 4% 4%
25% to 49.9% 27% 15%
10% to 24.9% 31% 35%
0.1% to 9.9% 13% 22%
No change 20% 13%
Rate decreases 2% 5%

Note: Numbers may not equal 100% due to rounding.

Source: Medical Liability Monitor, 2004 and 2003 rate surveys

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How biggest markets stack up

These five states account for nearly 40% of the physician medical liability insurance market. Here is the highest rate and its county reported for each specialty in each state.

Internal medicine General surgery Ob-gyn Tort reform
Florida (Dade) $69,310 $277,241 $277,241 Passed (2003)
Illinois (Cook) $58,514 $183,560 $230,428 No
Texas (Cameron Hidalgo) $36,018 $128,239 $165,054 Passed (2003)
New York (Nassau Suffolk) $25,091 $108,466 $146,615 No
(Los Angeles)
$20,283 $68,007 $89,953 Passed (1975)

Source: Medical Liability Monitor 2004 rate survey

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Who's paying what

By specialty, these are the geographic areas with the highest or lowest reported premiums as of July 1. Companies reported the numbers based on their manual rates for specific mature claims-made policies with limits of $1 million/$3 million. They do not reflect credits, debit, dividends or other factors that could reduce or increase a premium. The ranking is by state, based on the highest and lowest rate reported in each state for each specialty. It is not an average for all of the rates reported for that specialty in that state and rates may vary by geographic area.

Highest rates 2003 2004 Change
Florida (Dade) $65,697 $69,310 5.5%
Illinois (Cook) $34,099 $58,514 71.6%
Michigan (Wayne) $39,562 $63,898 61.5%
Ohio (Northeastern) $18,883 $41,998 122.4%
Texas (Cameron, Hidalgo) $38,568 $36,018 -6.6%
General surgeons
Florida (Dade) $226,542 $277,241 22.4%
Illinois (Cook) $99,806 $183,560 83.9%
Michigan (Wayne) $120,538 $193,819 60.8%
Missouri (Kansas City) $64,875 $132,314 104.0%
Pennsylvania (Philadelphia) $131,348 $135,406 3.1%
Florida (Dade) $249,196 $277,241 11.3%
Illinois (Cook) $138,031 $230,428 66.9%
Michigan (Wayne) $163,807 $193,819 18.3%
Pennsylvania (Philadelphia) $128,114 $172,178 34.4%
Texas (Cameron, Hidalgo) $136,020 $165,054 21.3%
Lowest rates 2003 2004 Change
Idaho $3,770 $3,770 0.0%
Minnesota $3,375 $3,375 0.0%
Nebraska $3,212 $3,212 0.0%
South Dakota $3,697 $3,697 0.0%
Wisconsin $5,147 $5,147 0.0%
General surgeons
Georgia (North Ga.) $17,003 $17,003 0.0%
Idaho $14,514 $14,514 0.0%
Minnesota $11,306 $11,306 0.0%
Nebraska $9,621 $10,976 14.1%
South Dakota $9,597 $11,545 20.3%
Idaho $19,320 $19,320 0.0%
Minnesota $18,307 $19,630 7.2%
Nebraska $16,194 $16,194 0.0%
South Dakota $14,662 $17,638 20.3%
Wisconsin $23,677 $23,677 0.0%

Source: Medical Liability Monitor 2004 rate survey

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