News

BMS Releases White Paper on the Medical Malpractice Liability Insurance (MPLI) Industry

Medical Monitor 138 Report concludes MPLI Leaders Responded Appropriately to Medical Malpractice Crisis of Early 2000s

Princeton, November 28 -- BMS Group's actuarial and medical malpractice team today released, "Medical Malpractice: Another Perspective on the Financial Results of the Top 15 Insurers," a new white paper analyzing medical malpractice liability insurance (MPLI) financial data in the early 2000s. The report concludes MPLI leaders responded appropriately to the so-called 'medical malpractice crisis' during that time period.

In May 2007, CEOs attending BMS Group's Healthcare CEO Summit expressed concern and skepticism about a report from the American Association for Justice. The report implies that the 'medical malpractice crisis' of the early 2000s was in reality a public relations ploy of the insurance industry to promote tort reform and rate increases.

Responding to industry leaders' concerns about this report, the BMS medical malpractice team enlisted BMS Group's Chief Actuary David Spiegler to conduct an analysis examining the same data used in the American Association for Justice report for the same 15 companies. The objective was to take an independent review of the financial results to determine whether MPLI executives acted responsibly on behalf of policyholders based on a reasonable assessment of the data available to them at the time.

MPLI Leaders Acted with Prudence

"The data available to the insurers at the time the 'medical malpractice crisis' began was indeed alarming. It was so alarming it caused St. Paul to exit this line of business, while many other companies simply went out of business," said Tony Hill, director and leader of the medical malpractice team.

"The companies that decided to remain in operation had two options if they were not to follow their peers and leave their clients without insurance protection: raise premiums and/or attempt to improve their current loss picture through tort reform efforts," Mr. Hill concluded.

"Caution" Must Remain the Watchword

"Though the prospects of improved financial results for the industry will likely lead to a leveling of premiums and heighten the likelihood of dividends to policyholders in 2007, we believe that 'caution' must remain the watchword," said Ray Pate, executive vice president in the medical malpractice team.

The report went on to explain that MPLI is a volatile business characterized by increasingly shorter and more abrupt cycles, which have led to a number of corporate failures. Since the true loss picture for the most recent years will not be known for several years, prudent insurers, while considering the question of dividends for the current year based on prior years' results, will still need to keep strong oversight of losses and pricing levels, in order to maintain the surplus levels that are so vital to the reliable payment of claims over the cycle.

"Responsible corporate executives must base their strategic decisions on a long-term view of marketplace dynamics, not on snapshots of performance that reflect only a few immature years," said Mr. Pate. "Companies that fail to understand this generally fail to reserve adequately in the good years, and these are the companies that are prone to failure when the cycle turns and claim values begin to exceed the amounts in reserves."

To access a copy of the white paper, please fill in your contact details below, select submit, and you will be re-routed to a webpage to download the white paper.

We maintain strict security standards and procedures with a view to preventing unauthorised access to your data by anyone, please see our Disclaimer and Privacy webpages for more information.