Med-mal 'crisis' is officially over, says insurance reform group.

Rates of medical malpractice insurance coverage have seen a "wholesale collapse" across the country, and the medical malpractice crisis is "over." So says a new study by the nonprofit group Americans for Insurance Reform (AIR).

In February, the New York-based consumer advocacy coalition released a report, Insurance "Crisis" Officially Over--Medical Malpractice Rates Have Been Stable for a Year, which shows that the insurance industry has entered a "soft" market--one that features lower premium rates and more competition.

Over the past six months, rates for doctors have remained steady in every state--even in those without caps on med-mal compensation. Also, rates in the last quarter of 2004 increased only 3 percent, compared with a jump of 63 percent during the same period in 2002. The report uses data from the most recent Council of Insurance Agents and Brokers survey of market conditions.

Fluctuations in insurance rates are "predictable cycles, having to do with an economic cycle based on the investment market," said Joanne Doroshow, executive director of the Center for Justice and Democracy in New York City and coauthor of the study. "Lawsuits are not driving this."

Among the study's findings:

* An independent insurance-rating agency found that in states with med-mal caps, doctors' insurance rates rose higher--median premiums went up as much as 48 percent--than in those without caps, where median rates went up 36 percent.

* Tort "reform" advocates have never promised that damages caps would lower doctors' premiums--and, in fact, states with the strictest caps, like Maryland and Missouri, have seen some of the largest rate increases.

* Total compensation paid to medical malpractice victims fell 6.9 percent from 2001 to 2002; when adjusted for inflation in medical costs, the drop was 11.2 percent.

* Growth in rates for all types of commercial insurance has slowed "to a standstill."

* The slowdown in insurance rates has occurred despite the impact of Hurricane Katrina.

The AIR report points out that the insurance industry has been prone to "volcanic eruptions" in premiums, due to drops in insurers' investment income coupled with lower premiums. "Each time," the authors write, "insurers and the health care industry have tried to cover up their mismanaged underwriting by blaming lawyers and the legal system."

To accept the insurers' claim, they note, one would have to believe that juries engineered large verdicts in concert with the insurance cycle. "Of course, this is ludicrous and untrue," the authors write.

Instead, they say, "hard" insurance markets--those involving less competition among insurers and limited coverage--are responsible for higher rates, while "soft" markets see falls in premium rates.

Coauthor J. Robert Hunter, director of insurance for the Consumer Federation of America, said in a statement, "The hard phase of the insurance cycle clobbers American businesses and professions every 10 to 15 years. Although these hard markets last only about 2 to 3 years, they can no longer be tolerated. State regulators must enforce the rating laws in order to end the boom-and-bust swing from illegal overpricing, such as the rates some policyholders have been asked to pay today, to illegal and inadequate underpricing, which will be seen when the market softens too much later in the cycle. Fortunately, the hard-market price jump is behind us and we are now entering the softer market, so legislators have a decade or so to grapple with how best to do this."

The AIR report recommends that legislators and regulators look for new solutions to rate spikes linked to the insurance cycle: "As with its predecessors, the most recent insurance 'crisis' had absolutely nothing to do with the U.S. legal system, tort laws, patients, lawyers, or juries. It was driven by the insurance underwriting cycle, and remedies that do not specifically address this phenomenon will fail to stop these wild price gyrations in the future."

Doroshow said AIR has long advocated polices that would reflect the reality of a boom-and-bust market cycle. Only two states, she said, have passed laws regulating the insurance cycle: California (which did so by voter initiative) and Illinois, but the latter also passed a cap on damages at the same time.

The challenge, she said, is to change legislators' approach to the insurance industry. "Trying to solve the problem by taking away people's rights is never going to work," she said.

The full report is available online at http://insurance-reform.org/pr/ MMSOFFMARKET.pdf.