Liability premiums stay stable, but insurers warn this might not last
■ An overall dip in lawsuit frequency -- 30% or more in some places -- is the driving force behind premium moderation.
By Amy Lynn Sorrel — Posted Nov. 23, 2009
For the fourth straight year, medical liability insurance premiums have eased nationwide.
That's according to the annual Medical Liability Monitor survey, which showed 94% of premiums holding steady or dropping in 2009. Fifty-eight percent of premiums had no change, up from 50% in 2008. Another 36% of premiums fell, down from 43% last year.
While those figures are encouraging, physicians and insurance executives say premiums still must shrink from sky-high levels. Insurers expect improvements to continue into next year but are cautious of some potentially unfavorable trends suggesting that results could be short-lived.
"It does ease the pain, but the pain is still there because rates are still dramatically higher" than they were before rising in the early 2000s, said Robert D. Francis, chief operating officer of The Doctors Company, a Napa, Calif., physician-owned liability insurer that participated in the survey.
Meanwhile, jury awards are climbing steadily, counteracting the major premium reductions needed to get back to more reasonable pre-2000 levels, he said. "So we're getting to the end of the point where rates are going to keep coming down," Francis said.
Florida saw significant rate reductions, as much as 22% in some regions. But it topped the charts again this year with the highest rates nationwide for internists, general surgeons and ob-gyns, at $57,859, $191,422 and $201,808, respectively. The Monitor asked carriers to report manual rates as of July 1 for mature claims-made policies with $1 million/$3 million limits for those specialties.
But increases have slowed significantly. Only 6% of premiums nationally went up in 2009 -- down from 7% in 2008 and 16% in 2007 -- with nearly all premium hikes under 10%.
Competition also was up. No company withdrew from any state, and more than 10% of survey participants began writing business in new states.
Insurers are proceeding cautiously, however, given past experience.
An overall dip in the frequency of lawsuit filings -- 30% or more in some parts of the country -- remains the driving force behind the premium moderation, said Lawrence E. Smarr, president and CEO of the Physician Insurers Assn. of America, a trade group for doctor-owned and -operated liability companies.
"But we've seen this happen before in the 1980s, when claims unexpectedly dropped off, and it was followed by a rapid rise" that culminated in the spikes of the 2000s, he said. "For this reason, insurers are being very cautious and taking reductions only when they are truly justified."
For now, the decline in claims appears to be drowning out a rise in severity and litigation expenses, said Joseph M. Inwald, editor of the Monitor's 2009 results and president of Inwald Consulting Services, a Michigan-based insurance consulting firm.
But frequency is leveling off or rising in some areas, and if claims costs catch up to or outpace lawsuit filings, it could pressure insurers to raise premiums to keep up, Inwald warned.
When asked by the Monitor, some insurers said "never event" reporting and electronic medical records could trigger more claims.
Francis said tort reform has contributed significantly to the drop in frequency, although its staying power remains questionable, causing some insurers to hold back on cuts until reforms are confirmed by the courts. Premiums did not decline as precipitously in Illinois and Georgia, he noted, where damage caps are being challenged in the states' highest courts.
Still, some say the survey results indicate tort reform's success.
The premium cuts Ohio physicians saw in 2009 and the preceding three years coincided with a series of reforms lawmakers passed from 2002 to 2005, including a $350,000 noneconomic damage cap, said Tim Maglione, senior director of government relations for the Ohio State Medical Assn. Claims since have dropped 34% statewide, and three times the number of companies are now competing, compared with earlier in the decade.
"Is medical liability insurance still very expensive for many specialties? Yes," Maglione said. "But all these things add up to what we think is a really good case study for the cause and effect between a state legislature enacting meaningful tort reform and a more stable insurance marketplace for physicians."
In states without tort reform, patient safety improvements have helped moderate premiums, Francis said. But AMA Chair-elect Ardis Dee Hoven, MD, said the recent stability "will be short-lived in states without meaningful medical liability reform." The AMA is seeking inclusion of medical liability reforms in federal comprehensive health system reform.
A House bill that would eliminate certain antitrust exemptions for liability insurers could hurt their ability to share data and effectively price premiums, the PIAA's Smarr said.
Insurers "will have to be more conservative in pricing policies because more uncertainty means more risk, and that translates to higher prices for doctors."