Weak Competition Drives N.H. to Require Prior OK of Med-Mal Rates

October 20, 2005

Medical malpractice insurers writing in New Hampshire will be required to get advance approval of any rate changes during the next year following an order by Insurance Commissioner Roger Sevigny.

The switch to prior approval from the usual file-and-use rate system was triggered by his finding that the state’s current $20 million malpractice insurance market is not competitive.

Malpractice insurers have been permitted to utilize new rates 30 days after filing them with the state. The prior approval requirement will apply to rates for physicians, surgeons and hospitals until Oct. 13, 2006, Sevigny told insurance Journal.

State law holds that a market is presumed to be competitive unless the commissioner determines that a reasonable degree of competition does not exist. The department held a public hearing on the competitive nature of the market on July 18, at which David Withers, actuary for the department, presented evidence of a highly concentrated market.

Sevigny told Insurance Journal that he adopted much of that analysis, and even noted in his order that there was no testimony that a competitive market did exist.

For physicians and surgeons, four private carriers out of a grand total of 47 control 95 percent of the market. The statute defines a “highly concentrated” market to be one in which four insurers control 75 percent or more. The companies are Medical Mutual Insurance Company of Maine (48.1%), ProSelect Insurance Company (41.6%), Medical Protective Insurance Company (3.9%) and Homeland Insurance Company of New York (2.3%), which is an excess and surplus carrier.

When the state’s insurer of last resort, the Joint Underwriting Authority, is included in the rankings, it comes in third with a 19.1 percent share.

The order cites the Herfindahl Hirschman Index, a barometer of competiveness, under which a reading between 1,200 and 1,800 is a sign of a moderately concentrated market and one of 1,800 or higher is a highly concentrated market. For the state’s malpractice market for physicians and surgeons, this index tops 3,000; for hospitals, it registers 1,200 in New Hampshire.

The theory behind the law triggering prior approval is that if there is no competition to keep rates from becoming excessive, then the state must step in.

The control of a few insurers over the market leads to “a clear and significant reliance on one company’s data, loss costs and rates,” even though this control does not appear to be intentional by the company, Sevigny found.

Also, he wrote that given the long-tail nature of medical malpractice claims and the current market conditions, “the potential for excess profits or excess losses, either of which is a concern, is real and justifies a higher level of scrutiny for submitted rate filings.”

Sevigny acknowledges that prior approval is not a condition that is likely to attract more competition to the market. “But then again we have not had insurers beating down our doors to get in either,” he told Insurance Journal.

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