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Report Finds Malpractice Premiums Rising Faster than Claims

JULY 7, 2005 -- A study released Thursday by several liberal groups shed doubt on claims by insurance companies that malpractice litigation claims are behind rising premiums. The report concludes that the major companies are charging higher premiums than justified by current or projected payouts.

The report, commissioned by the Center for Justice and Democracy, suggests that over the last five years, malpractice claims payouts have remained constant as premiums have doubled. Some insurers, according to the study, increased premiums while projections of future claims payments increased, accumulating "record amounts of surplus over the last three years."

The study was blasted by the insurance industry. Lawrence Smarr, president of the Physicians Insurers Association of America, said the study contained "several critical flaws."

"Falling Claims and Rising Premiums in the Medical Malpractice Insurance Industry" analyzed the 2000–04 performances of the 15 largest medical malpractice insurers in the United States based on data from the companies' 2004 annual statements to state insurance departments.

The study, written by Jay Angoff, an attorney and former insurance commissioner of Missouri, found that carriers increased their net premiums by 120.2 percent while net claims payments rose by 5.7 percent. In some cases, the study said, claims payments decreased as premiums shot up.

Smarr said it is "inappropriate" to compare premium and claims changes over a calendar year because claims are paid "many years" after a premium is collected. Further, Smarr said, the figures in the study only address the indemnity, or money paid to a patient, and not legal fees, which could double the figure.

"Not only is [Angoff] comparing apples and oranges, he's only got half an apple," Smarr said.

The study does address the "incurred loss" ratio, or projected payout on future premiums, and found that they declined by 25 percent between 2000 and 2004. The carriers increased premiums by 9.3 percent in 2004 even though incurred losses declined by 21.1 percent, according to the study.

Smarr said these numbers also leave out legal costs, and that paid claims are rising by 6 percent per year. He said he was looking into having an actuary replicate the study with figures the industry feels are more appropriate.

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