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Claims Severity Jumps In 1999-2000 |
Across the nation, medical malpractice insurers are facing an unprecedented financial situation, as jury verdicts keep rising in spite of a slight drop in claims filed. Drastically larger indemnity payments, along with increased defense costs, are seriously taxing many med mal insurers that have not collected adequate premium during the price wars of the past decade. Medical malpractice insurers across the country are being forced to dramatically raise rates or make major changes in their business practices.
This is the continuation of a disturbing trend: for the claims year 1997-1998, the median national jury award amount jumped 46% ($515,738 to $755,530), and in 1999 the median rose another 7%, to just over $800,000. Additionally, the median settlement amount in 1999 rose to $650,000 - up 30% in just one year (Source: Jury Verdict Research, Horsham, PA, 2000). Illinois is no exception to the rule of increased claims severity - ISMIE's own data indicates that indemnity payments are up 15% from 1999 to 2000, with an estimated severity increase of 14% for next year.
Naturally, the current claims situation is putting pressure on underwriters to raise medical malpractice premiums. According to a survey by Medical Liability Monitor, the average base premium increase is expected to be 14.6% nationwide, with more troubled states like West Virginia and Pennsylvania experiencing hikes of up to 40 percent - or worse.
The unique challenge of medical malpractice underwriting is to maintain sufficient financial reserves, given the long-term nature of most malpractice claims. The recent spike in verdict awards is making reserve stability very difficult for insurers who grabbed market share in the last decade by offering unrealistically discounted premiums.
The dramatic jump in large verdict awards also reflects a change in legal strategy and juror psychology. News accounts of multimillion dollar verdicts resonate with deliberating jurors. Also, some observers have noted that jurors are sympathizing with plaintiffs who can portray themselves as victims of managed care - especially if a physician defendant has any type of incentive agreement with HMOs for restricting certain procedures. For juries these days, it's finding out not if, but who, the "bad guys" are in medical malpractice lawsuits.
In the strategic arena, the "failure to diagnose" lawsuit is having a devastating effect on defense teams. While "birth injury" and emergency care claims have traditionally made up a majority of big payout verdicts and settlements, "failure to diagnose" cases frequently involve misread X-rays, misinterpreted test results, or allegedly poor communication between physicians and specialists. "Failure to diagnose" cases also can tap into juror suspicions of breach of fiduciary duty when HMOs or for-profit hospitals are involved.
Another less sensational, but increasingly costly component of malpractice insurance is the cost of the defense itself. Even a physician victory in the courtroom is a financial burden: a study by the Physician Insurers Association of America (PIAA) indicates that claims cost about 36% more to defend now than they did in 1994, averaging $28,100 per claim. And, while the insured does not have to worry about defense costs in the short term, a long-term effect on premium rates is inevitable.
The Illinois market is beginning to resemble the medical malpractice crisis that led to ISMIE's founding 25 years ago. In spite of the increasingly severe legal climate and the hardening market, ISMIE is committed to serving Illinois physicians. Our stability is based on solid underwriting, aggressive defense, and the long-term interest of our physician-policyholders. Other insurers may come and go, but ISMIE will always be there - when it matters most.