Med-mal insurers hiked rates while payouts dipped, study shows.

The nation's leading medical malpractice insurers "are now charging more for malpractice insurance than either their actual payments in malpractice cases or their estimated future payments in malpractice cases would justify," according to a new study, Falling Claims and Rising Premiums in the Medical Malpractice Insurance Industry. The study--conducted by Jay Angoff, a former Missouri insurance commissioner who is now in private law practice in Jefferson City, Missouri--was released in July by the Center for Justice & Democracy and a coalition comprising the Alliance for Justice, Consumer Federation of America, Public Citizen, USAction, and U.S. PIRG.

"This study--based entirely on data sworn to be accurate by the insurers--proves that medical malpractice insurers have been defrauding and price-gouging doctors, lying to policy-makers, and misleading patients," said ATLA President Ken Suggs. "It confirms what every single previous study has shown: Insurance CEOs are raising premiums and enjoying record surpluses and profits even while malpractice claims have remained constant or declined."

Angoff analyzed the amount collected in premiums, amount paid out in claims, estimated amount of future claims, and amount of surplus reported over five years by the 15 largest U.S. med-mal insurers, using annual statements they filed with state insurance departments.

This is the first study to examine these statements. Other studies based on so-called rate filings contain shaky data, because these filings--in which insurers make rate hike requests--contain mostly estimates of future payouts, which have proven to be overstated by as much as 40 percent, according to the Angoff study. Rate filings also don't present a comprehensive picture because some insurers aren't required to file the rates they set with the states, and others claim that the data in their filings should be confidential.

"These annual statements are not filed in rate proceedings; they're filed with state departments to determine solvency of the company," said Joanne Doroshow, executive director of the Center for Justice & Democracy. "In those situations, they're not going to overstate their potential losses, because they're trying to prove solvency to the state. They are being as accurate as they can possibly be."

Among the study's findings:

* The amount insurers collected in premiums has more than doubled, while claims payments have been relatively flat.

In 2004, the leading med-mal insurers took in about three times as much in premiums as they paid out in claims. The companies' gross written premiums (premiums collected in a given year) increased about 134 percent, while gross paid losses (what is paid out in claims) rose less than 10 percent. Some companies reaped even greater rewards. Lexington Insurance Co., for example, increased net written premiums from $21 million in 2000 to $483 million in 2004, while its net paid losses increased by only about $53 million. (Net amounts taken in and paid out were adjusted for the companies' purchase of reinsurance.)

* Insurers substantially increased premiums while claims payouts were decreasing and some insurers were reducing their projections for future payouts.

Together, the companies increased premiums by about 9 percent from 2003 to 2004, even though their incurred losses declined by about 21 percent. Individual companies had higher premium increases. For example, MAG Mutual increased its premiums by about 53 percent, while projecting that incurred losses would decline by about 33 percent. "Incurred losses" is a misnomer, the study notes, since this figure is really an estimate of claims the insurer projects it will pay in the future, which it may or may not actually pay.

* Insurers have accumulated record amounts of surplus during the last three years.

According to the study, surplus is the "extra cushion an insurance company accumulates over and above the amount it has set aside to pay its estimated future claims." As a result of rising premiums with no corresponding rise in claims, the leading med-mal insurers now "have a surplus of more than twice the amount the [National Association of Insurance Commissioners] deems adequate." The "monoline" insurers--12 companies that write primarily med-mal policies--increased their surplus by an average of more than 34 percent between 2002 and 2004.

"The annual statement data ... prove that doctors have been overcharged during the last several years. Those overcharges are obviously bad news for doctors, but they have resulted in good news for investors in the leading pure malpractice insurance stocks, which have doubled during the last three years while the stock market as a whole has remained flat," Angoff said in a statement.

"Overall, this study is a real questioning of the actuarial process used to justify rate hikes," said Doroshow. "It's essentially encouraging state regulators to look at these annual statements and see what the reality is."

--REBECCA PORTER and ALLISON TORRES BURTKA