Liability line should be profitable in 2006

The medical liability line of insurance appears ready to be profitable in 2006, according to a recent study, although physicians should not expect to see immediate premium reductions as a result.

The study, published by Hartford, Conn.-based Conning Research & Consulting Inc., lays out an argument for profitability based on a more predictable tort climate, improving investment prospects, and sustained insurance rates.

The study credits tort reform efforts, especially in those states declared to be in a medical liability crisis by the AMA, as having a significant effect on the steadying climate.

"While this may provide only short-term relief, it may form the basis for solving some of the longer-term issues" that are plaguing the tort system, according to the study.

Many publicly traded insurance companies tend to agree with the study's conclusion, saying that insurance rates were now adequate considering the current frequency and severity levels. Tort reform efforts have helped add some predictability to the system, said Frank O'Neil, a spokesman for ProAssurance Corp., a medical liability insurance company based in Birmingham, Ala.

However, because of the nature of the medical liability insurance industry, predicting a profit does not necessarily translate into a reduction in rates, he said.

Unlike car insurance companies, which generally can close the book on claims on an annual basis, liability insurance companies sometimes have to wait years before some claims are resolved.

Projecting that the line of insurance is headed back to profitability "is saying medical malpractice companies have done a better job of writing and pricing between 2002 and 2005," O'Neil said.

"If losses stabilize, rates will respond," he said.

Even though the study is optimistic about the future of liability insurance as a business, it tempers its enthusiasm by saying it's too early to judge if the tort environment will stay steady long term.

Even with state tort-reform victories, the system may adapt and attorneys may develop new approaches to bringing claims, said Stephan Christiansen, director of research for Conning and the author of the study. That means all the players in health care need to collaborate on an overall solution that includes improving technology and preventing medical errors, he said.

"One of the messages of the report is to take advantage of the easing of the pressure," he said. "The concluding point is no single part of the environment can fix this by themselves."

According to the study, the current climate may also entice more companies into the market, and those companies could look to land business by cutting prices. Their lack of experience, however, may drive them into insolvency as claims come in and losses pile up, O'Neil said.

"Physicians need to understand who they're buying from and what the terms of coverage are," O'Neil said. "You have to ask yourself if the rate is too good to be true."