Loss estimates in liability study disputed

Recent studies by consumer groups have stirred debate over the liability insurance crisis, claiming insurers are to blame for inflating estimated losses to justify rate hikes.

But physician groups and insurance industry experts call the reports misleading at best and continue to advocate tort reform to combat skyrocketing premiums. Physicians also have issued reports refuting the consumer groups' findings.

Using data compiled from insurers' annual statements, the Foundation for Taxpayer and Consumer Rights issued a report in December 2005 that found that from 1986 to 1994, insurers reported to state regulators initial estimated losses of $39.5 billion, but actually paid out 30.4% less than that, $27.5 billion.

Physicians Insurers Assn. of America President Lawrence Smarr said the report authors "cherry-picked" the years studied. He said data from the same source the study used show that in later years, insurer payouts actually exceed estimates.

Smarr called the study an attempt to "take the tort reform train off the track" by shifting blame onto the insurance industry.

Carmen Balber, consumer advocate at the Foundation for Taxpayer and Consumer Rights, said the group doesn't expect insurers to be on the money with estimates. But she said when estimates "are consistently higher, there is clearly something wrong with the formula."

She said the years analyzed in the study, "False Accounting: How Medical Malpractice Insurance Companies Improperly Inflate Losses to Justify Sudden Surges in Rates and Tort Reform," reflect the average of five years it takes to process a claim before payouts are made.

Contributing to the study was Jay Angoff, a former Missouri Insurance Commissioner, who authored a similar July 2005 report for the Center for Justice and Democracy. Angoff's study also claimed insurance companies were culpable of increasing premiums to gain profits.

The American Medical Association and the National Assn. of Insurance Commissioners in October 2005 issued reports dismissing Angoff's study as "flawed" because it misused the data. The American Academy of Actuaries also discredited Angoff's work as "unsound."

Responding amid the recent flurry of debate, the AMA in December 2005 produced another report summarizing research from 1975 to 2003 that found insurers in states with caps on noneconomic damages had lower payouts than insurers in states without caps. The AMA report, "The Impact of Caps on Damages: How are Markets for Medical Liability Insurance and Medical Services Affected?" also found that in the long run, states with caps increased physician supply.

Caps not only affect how much is paid out in medical liability lawsuits, but doctors in those states have seen premiums grow at a slower rate, the AMA study concluded.

The AMA said it released the reports to help physicians understand the flood of research on the medical liability insurance environment.