Rising claims costs, not stock market losses, are the real culprit behind increasing medical malpractice premiums for Illinois physicians, a policy analyst for the American Insurance Association (AIA) told legislators at a hearing in Springfield.
“When half of the doctors in Illinois are insured by a physician-owned mutual company, the notion that doctors are paying for insurers’ bad investments rings a bit hollow,” said Paul C. Blume, Jr., vice president of AIA’s Midwest region. “Increasing claims costs, not declining portfolios, are the root of the problem in the marketplace, in Illinois and throughout the country.”
The hearing was chaired by Sen. Susan Garrett (D-Lake Forest), who announced in February that she would spearhead an inquiry into what the American Medical Association has called a medical liability “crisis” in Illinois and many other states.
The notion that insurers are somehow “gouging” physicians to make up for losses in the stock market is a fallacy, Blume told the panel. The percentage of insurance carriers’ investments that are in the equity markets is small. According to a study conducted by Brown Brothers Harriman on behalf of the National Association of Insurance Commissioners (NAIC), in 2001 medical malpractice insurers had 9.03 percent of their investments in the equity markets. The Brown Brothers report concluded that as a result of that small percentage, the decline in equity valuations is not the cause of rising medical malpractice premiums.
“When the investment markets were strong in the mid- to late-90s, insurers were able to keep premiums lower than they would have been, because their investment income in essence subsidized premiums,” Blume said. “While the fluctuating stock market has minimized the extent to which those premiums can be subsidized, a sharp increase in mega-claims of more than a million dollars has been the real driving force behind increasing rates for physicians.”
According to industry rating agency A.M. Best, in 2001 the medical liability insurance industry incurred $1.53 in losses and expenses for every dollar they collected in premium. Best ranked medical malpractice as the second-least profitable property/casualty line of insurance in 2001, trailing only reinsurance, which paid out upwards of $30 billion in claims from the Sept. 11 attacks.
“Medical liability insurance must be made more affordable for Illinois doctors, which can only be accomplished by bringing carriers back to the market and letting increased competition drive premiums down,” Blume said. “As long as insurers know that they will lose 53 cents for every dollar they bring in, that won’t happen.”
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