Cautious optimism greets second year of stable, lower liability premiums

For the second straight year, medical liability insurance rates are easing nationwide, with nearly 84% of company-reported rates holding steady or dropping in 2007. That's according to the latest Medical Liability Monitor survey, the largest of its kind to track how much insurance carriers charge physicians.

The report showed that more than half of premiums -- 53% -- did not change. That's up from 47% of companies reporting that result in 2006. Another 31% of rates inched downward -- 34% more than last year and roughly triple the number of decreases in 2005.

While those signs show things are looking up, doctors and insurance executives were quick to note that they are not out of the woods just yet, because premiums in many areas of the country remain sky-high.

"The good news is the cliff you are dangling from is two feet lower. The bad news is it's still a 200-foot drop," said American Medical Association Board of Trustees member Robert M. Wah, MD.

For instance, Illinois physicians in 2007 saw some of the largest double-digit rate decreases at around 50%. But some internists, general surgeons and ob-gyns in Cook County still pay among the highest rates in the nation at $50,464, $127,083 and $178,291, respectively. Florida had the highest rates in those three specialties. Some general surgeons and ob-gyns there spent $275,466 in 2007, also despite cuts. The Monitor asked major carriers to report their manual rates as of July 1 for mature claims-made policies with limits of $1 million/$3 million for the three specialties.

But increases are slowing, giving doctors some repose, Dr. Wah said.

The percentage of rate hikes in 2007, at 16.2%, was almost half the 30.5% figure reported in 2006.

Insurers noted an overall drop in the frequency of lawsuit filings as a main factor in keeping rates stable or lower. Barring any major changes in that trend, no firms responding to the Monitor believed "significant" increases would be necessary in the near future, consistent with last year's responses.

Guarded hope

In addition to premiums still being so high, doctors and industry experts have caution flags up for other reasons as well.

"What keeps me awake at night is what we perceive to be an increasing number of large claims," said James D. Hurley, a medical liability consultant with the global actuarial firm, Towers Perrin, and editor of the Monitor's 2007 survey results.

Litigation expenses also are on the rise, he added. The decline in claims appears to be counterbalancing severity and defense outlays for now, Hurley noted. Should claims costs outpace the frequency trend, however, it could pressure insurers to raise rates to keep up, he warned.

The dependability of tort reform also remains a question mark in insurers' minds.

Survey respondents generally agreed that no new significant reforms passed in 2007. None expressed faith in the prospects for federal reform, compared with one respondent who did so in 2006.

A single major shake-up this year in Illinois has the state's $500,000 award limit hanging in the balance. A trial court on Nov. 13 struck down the 2005 cap as unconstitutional.

The challenge now heads to the state Supreme Court for a final say.

"We are starting to see signs that [reforms] are going to make a difference," said Harold L. Jensen, MD, chair of Illinois' largest medical liability carrier, ISMIE Mutual Insurance Co. The company has reduced its rates by 5% overall since 2005, due to what Dr. Jensen called a "halo effect" of the legal measures. Other Illinois companies posted double-digit reductions in 2007, the Monitor data showed.

"But if the cap disappears, all that does, too."

Some states making tort reform work

Still, doctors and insurers said the survey results show tort reform's trail of success, with the most prominently defined path leading to Texas. Voters in 2003 passed a $250,000 noneconomic damage cap as a constitutional amendment, making a judicial challenge difficult. Monitor data showed the state posted some of the lowest rates in the country for ob-gyns in 2007, as some insurers there continued with cuts for the third consecutive year.

Elsewhere, despite their reluctance to drastically change rates, more insurers are helping to reduce doctors' premiums through rebates or credits, which generally are not reflected in their reported rates.

"So there is other good news out there," said Lawrence E. Smarr, president of the Physician Insurers Assn. of America, a trade group of doctor-owned medical liability companies.

About 15% of Monitor survey respondents said they introduced new credits to policy holders in 2007. All but one firm said they were "monitoring" use of such discounts.

For example, The Doctors Company in July issued rebates that translated into a 7.5% rate reduction for some physicians in California, Colorado, Florida, Georgia, North Carolina, Ohio, Texas, Virginia, Washington and Wyoming.

Increased competition also is helping keep premiums in check, experts said. Twenty-five percent of insurers responding to the Monitor indicated that they are entering new markets. Every company said it was open for new business, a change from 2006 when 10% of companies imposed moratoriums on new policies.