Tort reform is necessary to alleviate the national medical malpractice crisis and the Terrorism Risk Insurance Act (TRIA) will likely be extended, claimed panelists at the Professional Liability Underwriting Society’s International Conference held Nov. 3-5 in San Diego.
Participants in the panel titled “Medical Professional Coverage Alternatives and Tort Reform” discussed the various causes of high medical liability insurance premiums currently affecting about half of the states in the nation.
“I don’t think it’s any one factor, it’s a coalescence of factors that have put us into the difficult situation that we’re in now,” said Daniel J. Sherry, an attorney at Marshall, Dennehey, Warner, Coleman & Goggin, a practice that represents hospitals in Philadelphia. “It is clear that what we’ve been doing has not been working.”
Sherry said that a major contributor to skyrocketing premiums is high noneconomic damage awards in medical malpractice cases. “As much good as physicians do, there are a lot of people who sit on jury panels who feel that they’ve been a victim of the system,” he said.
Robert E. Curtis, senior vice president of Zurich Corporate Solutions, agreed that high jury awards are contributing to high premiums.
“A lottery mentality is happening on injuries,” he said. “From our standpoint, we’re seeing the severity side increasing but we’ve noticed a flat line on frequency of these claims.”
All panelists agreed that tort reform, specifically in the form of caps on noneconomic damages, is imperative.
“The noneconomic side of the med mal world is a significant factor that has been difficult,” said Alan Lieban, insurance risk manager for Wellpoint Health Networks. “In terms of the extent to which Wellpoint can control or influence the direction of those awards, it goes back to legislative reform.”
Most of the panelists pointed to California as the best example of tort reform, referring to the Medical Injury Compensation Reform Act (MICRA) in 1975. “The most seasoned example on tort reform is still California,” said Barry Couch, president and CEO of HealthSure Insurance Services. “Since MICRA’s enactment, medical liability premiums have increased 420 percent nationwide, whereas in California, their rates have increased 168 percent.”
Couch said that Texas’ recent experience with tort reform closely resembles California’s MICRA model. HB 4, passed in Texas in June 2003, included a $250,000 cap on noneconomic damage awards. The tort reform legislation covered products liability and asbestos cases, as well as medical malpractice.
Before the tort reform legislation was enacted, lack of availability and affordability drove doctors and hospitals out of buying insurance or moving into legitimate self-insurance alternatives, he said. However, according to Couch, the state of medical malpractice in Texas has greatly improved since implementing tort reforms. “Texas went from probably one of the five worst litigious states to one of the five best litigious states with the tort reform that was past last session,” he said. “So far we’ve had a significant amount of interest in insurance carriers coming to the state.”
Curtis cautioned that the effects of tort reform on medical malpractice insurance premiums only materialize with time. “We look at tort reform and it’s there to help mitigate costs. But just because you have tort reform it doesn’t translate that that’s what’s going to happen,” he said. “Just because you enact tort reform, doesn’t necessarily mean that right away everyone wants to jump back into the state or we’re going to see lower rates.”
Homeland security
In “The Terrorism Risk Insurance Act–the Gathering Storm,” panelists discussed how terrorists think and the effects of 9/11 on the industry, the importance of extending TRIA and professional liability exposures related to terrorism.
Kim Quarles, senior vice president of Willis of New Hampshire Inc., said that insurers were not prepared for a terrorist attack three years ago because terrorism was considered a foreign issue prior to 9/11.
Darius N. Lakdawalla, an economist with RAND Corporation, said that it is likely that such an attack will happen again, with terrorists seeking high value targets. “They want the biggest bang for their buck,” he said.
Quarles said that capacity for terrorism insurance is improving and rates are starting to decrease, but underwriters are still enforcing higher premiums for hotels, retail stores, government and military buildings and high impact areas such as Times Square. She said that the industry is gradually shifting the risk away from reinsurers to primary insurers to insureds, but TRIA’s extension is still important.
Christopher Yaure, risk manager for terrorism and emerging risk at GE ERC, said that TRIA would most likely not be extended before Jan. 1, 2005 renewals. He said if TRIA is not extended, alternatives include private solutions or no terrorism reinsurance options whatsoever.
Lakdawalla said he believed TRIA would be renewed. “The government will most likely remain involved in the terrorism insurance business because getting insurance could become like an arms race,” he said. Protecting yourself against terrorists may hurt your neighbor, who will become a more vulnerable target, he said.
Yaure said that there may be potential professional liability exposures for future terrorist acts, including directors and officers, architects and engineers and agents and brokers.
Wayne Baliga, senior vice president at Virginia Surety Company Inc., said that most people are not buying professional liability coverage for terrorist acts. He said that a study concluded that 90 percent of business executives did not believe their company was a potential terrorist target. He reiterated the importance of agents and brokers conveying risks associated with terrorism to their clients.
“Was the client advised of potential exposures?” he asked. “Was supplemental coverage offered? Can the agent prove in writing both the offer and acceptance or rejection of coverage?”
Baliga said that most companies had not made any significant security changes since 9/11 and that this is a possible D&O exposure.
“Companies should have a business continuity plan, a claim management plan, a risk management and a crisis management plan,” he said. “Underwriters should be asking these questions of the insured. A board and management that are aware of risks but do not address them and directors and officers without a clue and without a plan will be held accountable.”
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