Liability premium outlook improves as many physicians see lower rates

For the third year in a row, medical liability insurance premiums have slackened nationwide, with 93% of companies reporting stable or reduced rates in 2008.

The figures from the annual Medical Liability Monitor survey showed that 43% of premiums fell -- 12% more than in 2007. Another 50% of rates did not change in 2008, a slight drop from 53% the prior year, according to the report, which tracks how much liability insurers charge physicians.

Overall, carriers registered an average 4.3% drop in premiums nationwide, compared with generally stable rates in the past two years and significant hikes from 2003 to 2005.

Though the improvements appear to paint a rosier picture for physicians, they only begin to chip away at the near record-high premium levels that mounted in recent years, said American Medical Association Board of Trustees member William A. Hazel Jr., MD.

Florida topped the charts this year with the highest rates among all of the three specialties surveyed. Internists, general surgeons and ob-gyns in Miami-Dade County paid as much as $54,710, $214,893 and $238,728, respectively.

Doctors in Illinois, Michigan, New York and Ohio were next with some of the most expensive premiums, despite cuts nearly across the board. The Monitor survey asked firms to report their manual rates for mature claims-made policies with limits of $1 million/$3 million as of July 1, 2008.

Still, a scant 7.4% of premiums went up in 2008, less than half the percentage of rate hikes in 2007, the report says. The majority of increases were less than 10%, compared with decreases ranging up to 30%.

Industry experts emphasized that rates are shrinking from high levels. The good news, barring any major changes, is the trend is likely to perpetuate in the year ahead, said Lawrence E. Smarr, president of the Physician Insurers Assn. of America, a national trade group of medical liability companies owned or operated by doctors.

"Stability really is the guide word right now," he said.

Signs of a softer market

An overall decline in lawsuit filings, including in states without tort reforms, has helped taper rates. Experts say such rate reductions are a sign of a so-called soft or improved market.

Several factors have contributed to the drop, including an increased emphasis on patient safety and risk management measures, said Chad C. Karls, a medical liability consultant with the global actuarial firm Milliman Inc. and editor of the Monitor's 2008 survey results.

Tort reform has played a part in certain regions, he said. Texas has been held up as one example. Overall, rates there have tumbled 25%, with similar decreases in claims, since voters approved a 2003 constitutional amendment limiting noneconomic damages to $250,000 for physicians.

A combination of damage caps and rising litigation costs also may be forcing plaintiff lawyers to be more selective about lawsuits they pursue, Karls said.

In many states, competition is up, and more insurers are helping to reduce doctors' premiums through various credits. But those rebates are not reflected in insurers' reported rates, "so actual [premium] costs are down more than they appear," Karls said. Nearly all insurers surveyed by the Monitor responded that they are not restricting the use of credits, while one-third issued new ones in 2008.

Illinois' largest liability carrier, ISMIE Mutual Insurance Co., refunded more than $10 million to its members in 2008, said company Chair Harold L. Jensen, MD. He attributed the benefit to an improved medical liability climate -- including a drop in claims and a 5% rate reduction -- after lawmakers passed a $500,000 noneconomic damage cap in 2005.

"The public has become aware that [the medical liability system] is not just a lottery, that there are costs involved, and they are sharing those costs in terms of loss of care," Dr. Jensen said.

Cautionary tales

But doctors and insurance executives cautioned that the signs of a brighter day could be eclipsed by other factors.

For one, the staying power of tort reform "is a huge question mark," Dr. Jensen said. Lately, all eyes have been on Illinois, where the state Supreme Court in November 2008 heard oral arguments in a constitutional challenge to the cap, after a trial court in 2007 struck down the law. A decision is pending. If the cap disappears, it could take the market improvements with it, Dr. Jensen warned.

Even Texas' statute, despite the constitutional safeguards, faces an attack by trial lawyers at the state and federal levels.

The AMA's Dr. Hazel said effective reforms are "critical ... so no patient is prevented from getting needed health care because of the broken liability system."

Meanwhile, litigation expenses and claims payouts are climbing, experts said.

"Claims severity is continuing its upward march," particularly as health care costs escalate, Karls said. So far, those forces have been offset by the drop in claims frequency. But there are early signs that the slowdown in lawsuit filings may have reached bottom, he said.

Industry experts do not expect lawsuit filings to spike to the high levels experienced earlier in the decade. Still, as claims severity quickens its pace, "at some point it will catch up," the PIAA's Smarr said. And to keep up, "rates may have to go up, too."