A Downward Spiral.Medical malpractice Improper, unskilled, or negligent treatment of a patient by a physician, dentist, nurse, pharmacist, or other health care professional. insurance is losing its place as a top performing line of business in the property/casualty industry. Medical malpractice insurance was once known as a top performer in the property/casualty market. A new study by Conning & Co., however, points to a recent deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. of the commercial line, transforming it from its leading rank to "one of the industry's worst-performing lines of business." After 12 years of outperforming the property/casualty industry as a whole, the medical malpractice line ended its streak when its operating ratio Operating Ratio A ratio that shows the efficiency of management by comparing operating expense to net sales: spiked spike 1 n. 1. a. A long, thick, sharp-pointed piece of wood or metal. b. A heavy nail. 2. A spikelike part or projection, as: a. from 87.4 in 1998 to 106.0 in 1999, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Conning's "Medical Malpractice Insurance: A Prescription for Chaos 2001." Over the past several years, severity of losses, underpricing Underpricing Issuing securities at less than their market value. underpricing The pricing of a new security issue at less than the prevailing price of the same security in the secondary market. Underpricing helps ensure a successful sale. , rapidly changing customer markets and the nation's conversion to managed care have brought new challenges to the medical malpractice insurance industry and have contributed to its deterioration. Health-care professionals face the daily challenge of ensuring that their delivery of medical care to patients is both accurate and safe. However, up to 98,000 Americans die each year, with hundreds of thousands more sustaining various injuries, as a result of preventable medical errors See also medical error As a general acceptance, a medical error occurs when a health-care provider chose an inappropriate method of care or the health provider chose the right solution of care but carried it out incorrectly. , according to a report by the Institute of Medicine, part of the Washington, D.C.-based National Academy of Sciences. As the eighth leading cause of death in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. , medical malpractice accounts for more deaths than those caused by breast cancer, AIDS and traffic accidents. The institute estimates the number of deaths due to preventable pharmaceutical errors alone total more than 7,000 annually. Despite these startling star·tle v. star·tled, star·tling, star·tles v.tr. 1. To cause to make a quick involuntary movement or start. 2. To alarm, frighten, or surprise suddenly. See Synonyms at frighten. numbers, only one in eight incidents of medical malpractice ever results in a legal claim by an injured in·jure tr.v. in·jured, in·jur·ing, in·jures 1. To cause physical harm to; hurt. 2. To cause damage to; impair. 3. patient. Nevertheless, the number of medical-malpractice claims as a whole continues to rise. According to the Physician Insurers Association of America nonsurgical errors are the most frequently reported claims with the largest payouts, while activities performed by primary-care physicians during ordinary office visits--those involving diagnostic interviews, evaluations and consultations--are the largest source of malpractice malpractice, failure to provide professional services with the skill usually exhibited by responsible and careful members of the profession, resulting in injury, loss, or damage to the party contracting those services. claims, accounting for 20% of all reported claims. Jury awards for medical-malpractice claims also continue to climb. In one year alone, the median award for malpractice claims rose 7% to $800,000 in 1999, from an average of $750,000 in 1998, according to the latest edition of Jury Verdict Research's "Current Award Trends in Personal Injury." In an attempt to stifle this rise, 20 states have placed specific medical-malpractice caps on jury awards, resulting in cheaper premiums for consumers. While the early 1970s gave rise to a period of crisis for the medical-liability industry, marked by several private insurers leaving the marketplace because of rising claims and inadequate prices, the following decade brought a new hard market to insurers. During the mid-to late '80s, medical malpractice insurers profited from significant rate increases primarily from hospitals and institutions. In addition, 16 "successful" domestic insurance companies--those still operating at year-end 1999--were created during the late 1980s, with at least nine more originating during the next decade, according to Conning. During the late '90s, insurers began experiencing the underpinnings of a deteriorating de·te·ri·o·rate v. de·te·ri·o·rat·ed, de·te·ri·o·rat·ing, de·te·ri·o·rates v.tr. To diminish or impair in quality, character, or value: medical-liability market, as cutthroat cut·throat n. 1. A murderer, especially one who cuts throats. 2. An unprincipled, ruthless person. 3. A cutthroat trout. adj. 1. Cruel; murderous. 2. competition for market share drove down prices. Severe Losses The severity of losses, however, is the major underlying factor in the market's deterioration, Conning said. "While most carriers would say that their frequency has either remained the same or decreased slightly, the severity of losses at this point is simply out of control," said Geri Riley, assistant vice president and co-author co·au·thor or co-au·thor n. A collaborating or joint author. tr.v. co·au·thored, co·au·thor·ing, co·au·thors To be a collaborating or joint author of: "He and a colleague . . . of the Conning study. While the average medical-malpractice award was $2 million between 1994 and 1997, the average award exceeded $3 million in 1998-1999, Riley said. "In addition to being exacerbated by competition, the loss side has and will continue to drive this deterioration," Riley said. Judy Hart, vice president and marketing leader of General Electric Employers Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Corp. healthcare segment, agrees. "We are experiencing a severity of losses that's driving the problems facing the industry, particularly over the last couple of years." While all consumer markets are feeling the effects of an increased number of severe incidences and the increased severity of those cases, hospitals are hardest hit, she said. Recent industry numbers point to the hard-felt losses. Despite a 5.5% increase in direct premiums written by the top-100 medical malpractice companies in 2000, total loss ratios spiked to 83.2 from 77.7 in 1999. Also during 2000, medical malpractice primary insurers reported a 133.5 combined ratio and 105.9 overall operating ratio, according to A.M. Best Co. data. The combined ratio has jumped substantially from 1999 levels, where a 129.5 combined ratio and 106 overall operating ratio were reported. During that year, the findings showed that the medical malpractice line under-performed all other liability lines except state fund workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. . Over the past few years, nearly one-quarter of medical malpractice insurers saw deteriorating underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. profitability to unsustainable levels, resulting in negative operating cash flows Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. , a declining asset base and, in some cases, declining policyholder Policyholder An individual who owns an insurance policy. surplus. A.M. Best analysts believe that the industry needs price increases of about 20% to 25% to return to an economic breakeven breakeven 1. The level of output or sales necessary to cover fixed expenses. Companies in industries that have high fixed costs and, consequently, high breakevens, such as automobile and steel manufacturing, are likely to exhibit large fluctuations level for underwriting in the market. For very poor markets, price increases of closer to 50% are needed. Underpricing While many insurers concur CONCUR - ["CONCUR, A Language for Continuous Concurrent Processes", R.M. Salter et al, Comp Langs 5(3):163-189 (1981)]. with Conning's findings, their views vary on how strong of a decline the industry is now experiencing and what other factors are driving the deterioration. Donald J. Zuk, president and chief executive officer of SCPIE SCPIE Southern California Physicians Insurance Exchange Cos., the 14th-largest medical malpractice writer in 2000, based on direct premiums written, blames the market's unsettled state on an increase in capacity and cutthroat prices. In addtion, he says competition is driving the industry's decline. Today we have 40 or 50 companies competing against each other in an industry that grows at about 1% a year." Capacity has to start shrinking through merger activities and proper rating, which is already beginning to occur, he said. "But even proper rating, if you still keep 50 people out there writing it, will sooner or later result in another war." When the dust settles and people look back on the accident years between 1995 and 2000, they are going to find that this line of business really did quite poorly during that time, said Howard Friedman, chief actuary actuary One who calculates insurance risks and premiums. Actuaries compute the probability of the occurrence of such events as birth, marriage, illness, accidents, and death. and senior vice president for corporate business development with ProAssurance Corp., the newly formed company resulting from the merger of Medical Assurance Group and Professionals Group. He pinpoints a reduction of prices caused by companies' entrance into the marketplace during the '90s as a cause for this poor performance. Other insurers also say pricing drove the decline. "To some extent, the carriers and insurers may have created the environment by not pricing their products properly," said Robert Schultz, vice president of strategic development for Princeton Insurance Co. Although it experienced a deterioration of its medical liability book of business in 1995, Princeton noticed an upswing Upswing An upward turn in a security's price after a period of falling prices. last year, with a combined loss and expense ratio of 102.7. Customer Markets Changes in customer markets during the past decade significantly impacted the industry By the end of 1999, all customer markets were involved in poor underwriting results, particularly those in the commercial market comprised of large hospitals, nursing homes and managed-care organizations. According to Conning, nursing homes continue to be a "black hole" in this marketplace, especially in Florida, where by 1999 the availability of medical malpractice insurance was almost nonexistent non·ex·is·tence n. 1. The condition of not existing. 2. Something that does not exist. non . The Centers for Medicare & Medicaid Services estimate that nursing homes will account for $150.7 billion of total health-care expenditures in 2008. While nursing homes are feeling the worst effects in the declining marketplace, hospitals are also experiencing some difficulties along the way. The hospital consumer market represents about 30% of the total domestic medical malpractice insurance market, at about $1.8 billion in premiums, according to Conning. Rising severity losses have contributed to hospitals' share of worsening wors·en tr. & intr.v. wors·ened, wors·en·ing, wors·ens To make or become worse. Noun 1. worsening - process of changing to an inferior state decline in quality, deterioration, declension results. "Institutions have been harder hit by severity, because they're viewed as the deep pockets," said Larry Halpin, vice president of professional liability with Farmers Insurance Group. While a typical claim filed against a physician or a group of physicians could have policy limits in excess of $1 million, if the incident occurs within a hospital, many plaintiffs' counsels are making a claim against the institutions that generally have policies of $10 million to $50 million. "Plaintiffs' counsels are going to look toward deep pockets and look to involve hospitals, with larger settlements going against the hospital community," Halpin said. In recent years, more claims have been filed against physicians as a way to bolster This article is about the pillow called a bolster. For other meanings of the word "bolster", see bolster (disambiguation). A bolster (etymology: Middle English, derived from Old English, and before that the Germanic word bulgstraz cases against the institutions they are affiliated with. "The plaintiffs bar has been very effective in using claims against physicians to help fund cases against institutions--a dynamic we didn't see 10 years ago," said Kevin Retrnberg, president of global health care for St. Paul St. Paul as a missionary he fearlessly confronts the “perils of waters, of robbers, in the city, in the wilderness.” [N.T.: II Cor. 11:26] See : Bravery Cos., the largest writer of medical malpractice insurance. St. Paul recently announced its decision not to renew the medical malpractice policies of 1,262 physicians and surgeons Physicians and surgeons are medical practitioners who treat illness and injury by prescribing medication, performing diagnostic tests and evaluations, performing surgery, and providing other medical services and advice. . As a result, the Georgia insurance commissioner imposed a three-year suspension on the company's insurance license for new policies, which would take effect Sept 1. In June, St. Paul challenged the legality le·gal·i·ty n. pl. le·gal·i·ties 1. The state or quality of being legal; lawfulness. 2. Adherence to or observance of the law. 3. A requirement enjoined by law. Often used in the plural. of the order and filed an emergency motion to stay the effect of the order. The court stayed the effect of the commisioner's order, pending its ruling on the matter, according to the company. Hospitals are protecting themselves by either self-insuring, turning to offshore captives or reducing risk exposures within their facilities, Riley said. Many hospitals are eliminating potential risk areas, such as children's wards Children's Ward (retitled The Ward from 1995 to 1998) was a British children's television drama series produced by Granada Television and broadcast on the ITV network as part of its Children's ITV strand on weekday afternoons. and high-risk departments, to avoid potential claims. The customer market segment made up primarily of doctors, surgeons and physician groups so far has remained relatively immune from severe bouts Bouts is the name of
n a failure to assess a patient's condition. Harm may be inflicted by the failure to administer treatment to a potentially treatable condition. . "The largest challenge this customer market presents to medical malpractice insurers is the expansion in both the quality and the quantity of services they perform in response to the negative impact that managed care has had on their income level," the Conning report said. Conning reports that physicians' claims between 1986 and 1990 had an average annual increase of only 0.1%. "Physicians have historically had a pretty good experience, and I think the study shows that no matter what group you have these days the trend is for upward exposure," Riley said. She points the finger at managed care for destroying many patient-doctor relationships, saying that the trend will likely continue. Malpractice and Managed Care The United States' conversion to managed care is a hard-hitting force behind the deterioration of the business line, according to Conning's report. "The health-care industry has been suffering from the ravages rav·age v. rav·aged, rav·ag·ing, rav·ages v.tr. 1. To bring heavy destruction on; devastate: A tornado ravaged the town. 2. of managed-care negotiations, which is now the driving force of its revenue," agreed Farmers' Halpin. Institutional customers told Farmers in renewal negotiations that reimbursements from managed care and Medicare were inadequate. These inadequacies have resulted in financial pressure that caused health-care institutions and physicians to go to insurance companies and brokers to try to haggle down malpractice insurance Noun 1. malpractice insurance - insurance purchased by physicians and hospitals to cover the cost of being sued for malpractice; "obstetricians have to pay high rates for malpractice insurance" prices, Halpin said. This is a trend that has been steadily felt by the industry during the past decade. Whether or not the medical liability market will continue to decline in the coming years remains a mystery. Conning expects medical malpractice underwriters to see continued unsatisfactory results through 2002, and insurers also remain somewhat skeptical that the deterioration will soon begin to spiral spiral /spi·ral/ (spi´ral) 1. helical; winding like the thread of a screw. 2. helix; a winding structure. upward. "I think we are going to see continued difficult times, because the problems facing the industry today aren't just going to go away," Rehnberg said. Rate improvements and refined risk management and claims-handling approaches are some of the ways insurers plan to commit themselves to transform the declining market. "I think stability and consistency have always been crucial to any underwriter underwriter n. a company or person which/who underwrites an insurance policy, issue of corporate securities, business, or project. (See: underwrite) UNDERWRITER, insurances. One who signs a policy of insurance, by which he becomes an insurer. that is going to stand the test of time," said Dick Bucilla, executive vice president of Lexington Insurance and senior executive vice president of AIG AIG addressee indicator group (US DoD) AIG American International Group, Inc AiG Answers in Genesis (religious group in defense of Scripture) AIG Artificial Intelligence Group AIG Australian Industry Group Health Care. Responsible carriers already are raising prices to appropriate levels for physicians and hospitals, Halpin said. They also are dealing with distribution networks by providing customers with enough information to rationalize ra·tion·al·ize v. 1. To make rational. 2. To devise self-satisfying but false or inconsistent reasons for one's behavior, especially as an unconscious defense mechanism through which irrational acts or feelings are made to appear why their costs may be rising. "On the other hand, those insurers just trying to grab the market share are falling by the wayside," he said.
Medical Malpractice: Top Writers by Line - 2000
Medical-malpractice insurance covers negligence or wrongdoing
by a physician, hospital or other provider of health care
2000 Direct
Premiums % Change Market Share (%)
($ Thousands) in Premium 2000
St Paul Companies $575,184 -3.7 9.1
MLMIC Group 499,719 2.3 7.9
GE Capital Ins Group 320,977 22.0 5.1
Health Care Indemn 243,144 -3.6 3.9
CNA Ins Companies 232,050 -7.7 3.7
Zurich/Farmers Group 230,061 16.6 3.6
Norcal Group 212,374 9.8 3.4
Miix Group 209,750 -13.2 3.3
Dootors Co Ins Grp 204,966 2.7 3.3
Phico Group 182,476 -13.2 2.9
Medical Assur Group 168,266 3.7 2.7
Illinois St Medical 163,848 1.9 2.6
AIG 156,569 47.5 2.5
SCPIE Companies 154,021 2.5 2.4
Professionals Group 137,854 0.8 2.2
Physicians Rec Insrs 133,995 2.8 2.1
Allianz of America 131,442 20.2 2.1
Hum Group 131,030 14.0 2.1
APCapital Group 122,265 1.2 1.9
FPIC Ins Group Inc 112,872 14.6 1.8
Top 20 Companies $4,322,864 3.3 68.6
Total U.S. Companies $6,304,315 4.1 100.0
Adjusted Loss Ratios
1999 1998 2000 1999 1998
St Paul Companies 9.9 9.5 131.6 85.1 81.6
MLMIC Group 8.1 7.6 51.6 53.1 10.2
GE Capital Ins Group 4.3 4.0 51.4 57.8 60.5
Health Care Indemn 4.2 4.6 95.5 89.7 75.1
CNA Ins Companies 4.2 5.2 56.6 63.8 76.1
Zurich/Farmers Group 3.3 3.3 145.0 115.7 111.4
Norcal Group 3.2 2.9 66.1 60.6 53.9
Miix Group 4.0 3.5 111.8 84.9 85.1
Dootors Co Ins Grp 3.3 4.6 51.5 48.2 61.0
Phico Group 3.5 3.5 90.0 126.5 58.1
Medical Assur Group 2.7 2.5 35.9 32.0 24.6
Illinois St Medical 2.7 3.0 68.6 72.1 60.8
AIG 1.8 3.7 70.1 286.0 124.3
SCPIE Companies 2.5 2.0 46.1 55.6 17.7
Professionals Group 2.3 1.9 98.2 39.7 104.9
Physicians Rec Insrs 2.2 2.1 38.9 63.4 116.1
Allianz of America 1.8 1.5 49.1 40.6 31.4
Hum Group 1.9 1.8 106.2 91.1 86.5
APCapital Group 2.0 1.8 65.6 44.3 52.3
FPIC Ins Group Inc 1.6 1.7 73.6 47.6 65.4
Top 20 Companies 69.1 70.7 80.3 76.2 68.4
Total U.S. Companies 100.0 100.0 82.7 78.2 69.2
% of
Company's
Premiums
St Paul Companies 10.5
MLMIC Group 83.4
GE Capital Ins Group 13.8
Health Care Indemn 100.0
CNA Ins Companies 2.3
Zurich/Farmers Group 1.3
Norcal Group 99.8
Miix Group 98.9
Dootors Co Ins Grp 97.5
Phico Group 76.2
Medical Assur Group 86.8
Illinois St Medical 99.9
AIG 1.2
SCPIE Companies 98.5
Professionals Group 51.1
Physicians Rec Insrs 99.8
Allianz of America 2.7
Hum Group 79.1
APCapital Group 60.2
FPIC Ins Group Inc 84.7
Top 20 Companies 7.5
Total U.S. Companies 2.0
To access the statisticalstudy online, visit www.bestreview.com
and clickon this story. The full statistical report and the data
in spreadsheet format can be downloaded.
The Future of Med Mal The future of medical malpractice insurance may depend on several forces the authors of a recent study believe will define the changing market. These forces include reinsurance affordability and availability, state and federal regulations and laws, and the increased use of the Internet, according to the Conning & Co. study, "Medical Malpractice Insurance: A Prescription for Chaos 2001." Reinsurance Due to the size of awards and small carriers' need for primary-coverage assistance, medical malpractice remains a reinsurance-intensive line. Reinsurers and primary insurers alike are feeling the same effects of the declining business line. However, many reinsurers are beginning to change their strategies in the marketplace to transform falling market results. "Reinsurers are finally getting hard-nosed and demanding more premium dollars for reinsurance, which is putting pressure on some of the mutuals," said Donald J. Zuk, president and chief executive officer of SCPIE Cos. The industry also is experiencing a firming market, which may have some effect on its future in this marketplace. "The reinsurance industry as a whole is going through a second cycle of renewals and rate increases, therefore making it a fairly firm market," said Geri Riley, assistant vice president and co-author of the Conning study. Because of the long tail of medical malpractice, rates for this line haven't really caught up with the rest of the industry's reinsurance rates, she said, adding that reinsurance market price increases appear to be moderate, with no meaningful reductions in capacity Zuk said the medical malpractice reinsurance market should begin easing by 2004. Law and Regulation An increase in state and federal statutory and regulatory causes of action has been a major driver of medical-malpractice litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. over the past two decades. The tort-reform efforts of the 1970s and 1980s have been replaced with "a focus on the accountability of health-care providers and payers," the Conning study said. The need for tort tort, in law, the violation of some duty clearly set by law, not by a specific agreement between two parties, as in breach of contract. When such a duty is breached, the injured party has the right to institute suit for compensatory damages. reform remains a central focus of most insurers today. General Electric Employers Reinsurance Corp. is a strong supporter of such reform. Major changes have occurred in this area over the past several years, and insurers are optimistic op·ti·mist n. 1. One who usually expects a favorable outcome. 2. A believer in philosophical optimism. op that it will continue to drive medical liability's future results. "Tort reform plays a definite role in what ultimate outcome medical malpractice professional liability claims are going to have, while also providing benefits to injured parties Noun 1. injured party - someone injured or killed in an accident casualty victim - an unfortunate person who suffers from some adverse circumstance ," said Judy Hart, vice president and marketing leader of GE Employers' Re. Physician groups and medical societies, such as the Pennsylvania Medical Society; are working to reform states' tort systems. Many of the issues currently before the federal government may have some impact on medical malpractice. However, it is too early to predict how those issues, including privacy and patients' bill of rights, will affect the industry. "It can take some sort of rebounding impact that they couldn't even guess would happen, because you're dealing with people's health care and those who don't want to take responsibility blame it on others," Riley said. Internet Usage Nearly every industry is feeling some effect of the Internet, and the Conning study says medical malpractice insurance is no exception. "It is already starting to be impacted by it, both in some good and some not-so-favorable ways;' Riley said. The advantages of faster processing of prescriptions and the elimination of misread mis·read tr.v. mis·read , mis·read·ing, mis·reads 1. To read inaccurately. 2. To misinterpret or misunderstand: misread our friendly concern as prying. physicians' handwriting HANDWRITING, evidence. Almost every person's handwriting has something whereby it may be distinguished from the writing of others, and this difference is sometimes intended by the term. 2. are two ways that the Internet is anticipated to reduce or eliminate medical errors. However, the privacy of information readily accessible on the Internet is still a concern for medical malpractice insurers. While the Conning study indicates an already-felt impact of the Internet, several insurers believe it has had little to no effect on the marketplace. "I really don't think the Internet is going to have a huge impact on our business in the near future," said Robert D. Francis, senior vice president of underwriting with ProAssurance Corp. "With a product that involves tens of thousands of dollars per policy and awards reaching in the millions, customers are not going to turn that kind of business over to the computer and process it like a commodity." It may be too soon to predict what role the Internet will have on medical malpractice insurers. "Some insurers are taking steps with respect to provisions in policies trying to minimize or exclude liability as it relates to Internet activity," said Robert Schultz, vice president of strategic development for Princeton Insurance Co. "For example, there is no question about the fact that if you've got a doctor providing medical advice to a client over the Internet in a state other than where the doctor is located, the physician is required to be licensed in that state where the client is located." Princeton Insurance recently participated on the sidelines On the sidelines An investor who decides not to invest due to market uncertainty. on the sidelines Of or relating to investors who, having assessed the market, have decided to avoid committing their funds. of a study by Medem, an online heath heath, tract of open land heath, tract of open land characterized by a few scattered trees, abundant moss cover, and numerous low shrubs, principally of the heath family (see heath, in botany). network founded and financed by the American Medical Association American Medical Association (AMA), professional physicians' organization (founded 1847). Its goals are to protect the interests of American physicians, advance public health, and support the growth of medical science. and other medical groups, that evaluated Internet exposures for doctors and established guidelines guidelines, n.pl a set of standards, criteria, or specifications to be used or followed in the performance of certain tasks. for Internet usage. |
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