Over-inflation of Insurance Losses

A recent study by the Foundation for Taxpayer and Consumer Rights suggests that medical malpractice insurers have routinely over-inflated their losses by billions of dollars creating a “crisis” and using it to justify enormous increases in physicians’ premiums. Losses between 1986 and 1994 were overstated by 46 percent annually. The researchers found that insurers reported $39 billion in losses, but only paid out $27 billion in claims.

They also found a correlation during economic downturns when investment incomes were lower than expected, that the insurers annual statements to regulators were even more over-inflated. In 1989 loss estimates were 66percent overstated and in the last 4 years or so, the overstated losses have led to huge rate increases in the cost of malpractice coverage to physicians.

There is a real need for insurance reform. This same organization has some thoughts and recommendations that certainly sound reasonable. Below are some of their thoughts.
This info comes from the following source:
http://www.consumerwatchdog.org/malpractice/fs/?postId=997&pageTitle=How+to+Address+the+Insurance+and+Malpractice+Crises+Facing+the+Nation

The real cause of the cyclical insurance crisis, and the driving force behind the contrived malpractice lawsuit crisis, is the cash flow underwriting practices of the insurance industry. Unless the destabilizing premium surges and mismanagement caused by the "insurance cycle" are stopped, the result will be periodic "crises" in the insurance market, each an opportunity to scapegoat victims' rights in order to cloak massive premium gouging, arbitrary cancellations and reduced coverage. California's Proposition 103 is a model:

Limit insurance rates, expenses, loss projections and profits. One of the reasons that the insurance industry has been able to squeeze its customers in the malpractice insurance market and elsewhere is the lack of serious regulation and oversight of the industry. Most state regulation of insurers is weak to non-existent, reflecting the fact that officials responsible for oversight are typically beholden to the industry through previous or promised employment. Following the lead of California, there must be greater regulation of the industry's prices and underwriting practices. To prevent wild fluctuations in insurance rates and instability that can lead to insolvency, state insurance departments should set upper and lower limits on permissible rates that insurance companies may charge. All rate increases should be subject to the prior approval of an insurance commissioner, who should be accountable directly to the voters by election. Similarly, insurers should be prohibited from arbitrarily canceling or refusing to renew policies. There must be more effective insurance disclosure laws, so that citizens, consumers and policymakers can review lawsuit and claims information to determine the extent of malpractice claims, whether the price of premiums is justified, and what further measures need to be taken to limit malpractice. Finally, state insurance departments need more resources to effectively and independently monitor the industry.

Repeal the industry exemption from the antitrust laws. The insurance industry is not subject to federal regulation and it is exempt from the federal antitrust laws, and even from Federal Trade Commission scrutiny without explicit Congressional approval. Congress should repeal these barriers to competition and oversight.

Mandate fair rating practices to reward good doctors. Currently, insurance companies use narrowly defined subcategories to classify physicians who apply for malpractice liability insurance. Because there are so few physicians in some of the specialties, insurers cannot spread the risk effectively: the result is extremely high premiums for certain specialties, such as obstetricians. These rating systems force a majority of good doctors to subsidize the few bad ones. (It should be noted, however, that physicians collectively bear some responsibility for higher premiums to the extent that they do not discipline negligent physicians within their own ranks.)

Instead, insurance companies should be required by law to spread risk more equitably by placing physicians in a reduced number of underwriting categories. However, in order to differentiate poor doctors from the rest of the pool, insurance companies should charge rates based on a physician's own experience with malpractice claims. This practice, known as "experience rating," is much the same as the practice of rewarding good drivers with a discount on their auto insurance. It would ensure that doctors with histories of negligence or incompetence pay more, and doctors with clean records would be rewarded with lower rates.

Protect the Doctor-Patient Relationship. In 1990, the Texas Medical Association invited doctors who had practiced at least 20 years without a malpractice lawsuit to explain how they handle their relationships with their patients. Over 200 doctors responded, and almost all of them focused on improving communication with patients as the key to avoiding lawsuits. In the current era of profit-driven medicine, protecting the doctor-patient relationship -- and the ability of doctors to properly treat their patients -- is essential. Force insurance companies to cooperate. Insurance companies should be required to forward all claims and settlement information involving malpractice claims against physicians, hospitals and other medical professionals to state licensing boards.

As you can see, there are certainly areas that could be changed to make things fairer. If nothing changes, we can anticipate further loss in physicians and access by patients.