NCPA - National Center for Policy Analysis

Price War Also Set Malpractice Insurers Up for Retrenchment

June 24, 2002

Huge jury awards in medical malpractice cases have reduced the ability of insurance companies to continue physicians' coverage. But experts say there is a second factor operating in decisions by some insurance companies to raise rates or get out of malpractice coverage. That centers on the price war between insurers that developed in the early 1990s.

  • In order to attract more business at that time, insurance companies sold malpractice coverage to obstetrician-gynecologists and other specialists who are frequently vulnerable to suits at rates that proved inadequate to cover claims.
  • Some of these carriers had rushed into malpractice coverage because an accounting practice widely used in the industry made the area seem more profitable than it really was.
  • A decade of short-sighted price slashing led to industry losses of nearly $3 billion last year.

Jury Verdict Research -- which collects data on juries' malpractice award -- says its research show that malpractice awards have climbed 175 percent in seven years. However, some doctors are beginning to acknowledge that the conventional focus on jury awards deflects attention from the insurance industry's behavior

Nevertheless, those increases, combined with carriers' business practices, have led some companies to cease writing new policies or initiate big rate increases for doctors in certain specialties.

Source: Rachel Zimmerman and Christopher Oster, "Insurers' Missteps Helped Provoke Malpractice 'Crisis,'" Wall Street Journal, June 24, 2002.

 

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