Report suggests claims are falling as rates keep rising

These are the key findings in the recent report from the Center for Justice & Democracy in New York City:

  • Actual payouts. Over the last five years, the amount the major medical malpractice insurers have collected in premiums has more than doubled, while their claims payouts have remained essentially flat. The increase in the premiums collected by these companies was 14 times as great as the increase in their claims payments on a gross basis and 21 times as great as the increase in those payments on a net basis (after reinsurance).
  • Incurred losses. Incurred losses are claims that an insurer projects it will pay in future years on policies in effect in that year. When insurers raise their rates to a much greater extent than their actual claims payments would justify, they argue that the rate increase is necessary because they must increase their reserves to account for what they expect will be higher claims payments in the future. However, the report shows that some malpractice insurers substantially increased their premiums while both their claims payments and their projected future claims payments were decreasing.
  • Surplus. Surplus is the extra cushion an insurance company accumulates over and above the amount it has set aside to pay its estimated future claims. Because of the overall surge in malpractice premiums with no corresponding surge in claims payments during the last five years, the leading malpractice insurers have increased their surplus by more than a third in only three years, and they are now charging more for malpractice insurance than either their actual payments in malpractice cases or their estimated future payments in malpractice cases would justify.

Data available on specific companies

The following companies are examined in the report: Lexington Insurance Co.; GE Medical Protective Co.; The Doctors Company; ISMIE Mutual Insurance Co.; Health Care Indemnity Inc.; MAG Mutual Insurance Co.; Medical Assurance Co.; ProMutual Group; First Professional Insurance Co.; State Volunteer Mutual Insurance Co.; NORCAL Mutual Insurance Co.; ProNational Insurance Co.; Continental Casualty Co.; American Physicians Capital Inc.; and Evanston Insurance Co.

These are some of the specific company findings:

  • Health Care Indemnity Inc. (HCI), an affiliate of HCA, increased its premiums by $173 million, or 88%, while its claims payments fell by $74 million, or 32%. As a result, in 2004 it paid out only 43 cents in claims for each premium dollar it collected.
  • Lexington Insurance Co,, an affiliate of AIG, reported that its net written premiums increased from $21.1 million in 2000 to 483.0 million in 2004 — an increase of $461.9 million, or 2200% — while its net paid losses increased by only $52.9 million. As a result, in 2004 it paid out only 14 cents in claims for each premium dollar it collected.
  • ProNational Insurance Co., an affiliate of ProAssurance Corp., increased its premiums by $87 million, or 79%, while its claims payments fell by $43 million, or 63%. As a result, in 2004, it paid out only 13 cents in claims for each premium dollar it collected.
  • Medical Assurance, another ProAssurance affiliate, increased its premiums by $151 million, or 89%, while its claims payments fell by a third. As a result, in 2004, it paid out only 10 cents in claims for each premium dollar it collected.

The full CJ&D report is available on the group's web site at www.centerjd.org.