Several weeks ago, two jaw-droppingly bad reports on the state of medical malpractice insurance were released. In one report, a consumer advocate group claimed that med mal rate increases were being supported by overreserving, based on data obtained from industry-level Schedule P’s.
In the other report, the med mal crisis was declared over, because rates had stabilized.
I should have commented on them at the time, but the logic in both was bad enough that I would have been obliged to rebut them…something I didn’t really have the time to do.
Fortunately, others found the the time:
Newly released expert research reveals that consumer groups’ criticisms of the medical malpractice insurance industry contain systematic flaws and the intentional misuse of industry data.
“This new research points out the gross manipulation and blatant misrepresentation employed by these personal injury lawyer-oriented groups in order to pursue their self-serving political agenda,” said Lawrence Smarr, president of the Physician Insurers Association of America.
“Pricing and Reserving Practices in Medical Malpractice Insurance,” authored by university insurance department chairs Robert E. Hoyt, PhD, and Lawrence S. Powell, PhD, soundly rebuts a December report issued by the Foundation for Taxpayer and Consumer Rights entitled, “False Accounting: How Medical Malpractice Insurance Companies Inflate Losses to Justify Sudden Surges in Rates and Tort Reform.”
Harvey Rosenfield, consumer activist and author of “False Accounting,” analyzed selective data to conclude that medical malpractice insurers overstated their loss projections by $15 billion between 1995 and 2003. Hoyt and Powell demonstrate that losses for this period are actually understated by $4.3 billion, with actual payments in 1998 and 1999 already exceeding initial loss estimates.
“The consumer groups’ reports have been intentionally crafted in an attempt to fool Congress and the media into believing that the current medical liability system works,” said Smarr. “But the system best serves lawyers and leaves real victims waiting years for compensation.”
A second new research report, entitled “Observations on February 28, 2006 Report by Americans for Insurance Reform (AIR)” and authored by actuaries James Hurley and Gail Tverberg of Tillinghast Towers Perrin, finds that past rate increases reflect the claims experience of insurers and that recent tort reforms have had a material effect on rates.
In the AIR study, “Insurance ‘Crisis’ Officially Over – Medical Malpractice Rates Have Been Stable for a Year,” authors J. Robert Hunter and Joanne Doroshow rely on survey data published by the Council of Insurance Agents and Brokers (CIAB) to conclude that insurance rates are no longer rising, and that state tort reforms have had no effect.
The rebuttals are available online here and here, if you want to dig into the gory details.
Bottom line is that with a little skill and fancy phrasing, anyone can find and spin data to support whatever point they want.
In fairness, I should point out that, in my first skim-through of the rebuttal papers, there is an issue in that much of what they’re focusing on may be limited to admitted business, and that the excess & surplus markets are somewhat different stories….but while I do have some exposure to the E&S markets, I don’t have that good a feel for how large it is versus the admitted market.
And, if someone wants to point a finger back towards the insurance industry for its part in the market disruption of recent years, there are a couple of grounds for doing so. For example, med mal carriers’ actuaries arguably could have done a better job of recognizing some of the adverse trends earlier in the game. Some carriers could have done a better job of seeking stability in their rates, rather than putting their fingers in their ears to avoid hearing bad news while focusing on their top-line numbers.
However, such concerns tend not to drive headlines. It’s much easier to throw some numbers together and cry, “it’s a hoax!” in defiance of good statistical evidence to the contrary.
