Repeat after me. Medical malpractice insurance rates arefalling. Medical malpractice insurance rates are falling. Medicalmalpractice insurance rates are falling.

After years of watching medical malpractice rates soar inFlorida, and the state hemorrhage of doctors due to high insurancecosts, all eyes are on the market where rates have fallen for thethird consecutive year in 2007. However, a funny thing happened onthe way to a stable market. Despite the legislature's move to enactmajor reforms and a number of constitutional amendments approved byvoters, doctors are still not buying into the fact the market hasimproved. Indeed, a wide divide remains between the downward trendsin rates and doctors' perceptions of the market.

Prior to the 2003 reforms, thousands of doctors decided to gobare and drop their coverage altogether despite the risk of facinga medical malpractice lawsuit. But even as the reforms have causedmany new insurers to enter the market, which has become highlycompetitive and offers lower rates, doctors still list medicalmalpractice costs as the number one issue they face in the state.It is also the main reason doctors refuse to treat emergency roompatients and those covered under Medicaid.

All of this despite a newly released report by the Office ofInsurance Regulation on the state of the medical malpracticemarket, which found that the average approved rates filed in 2006called for a 5.3 percent decrease. Insurance Commissioner KevinMcCarty praised the return of the market and the willingness ofpublic policyholders to hammer out the difficult issues the marketfaced. “The Florida legislature has been vigilant in its oversightefforts to control the costs in the medical malpractice insuranceindustry,” he said. “This report shows that the Floridalegislature's efforts to control the costs have beensuccessful.”

Reforms and Constitutional Amendments

In 2003, state lawmakers held three special sessions to addressthe medical malpractice crisis. At issue for health care providerswas the need to place the brakes on litigation costs, which theFlorida Medical Association and the Florida Hospital Associationargued was the main driver behind the upward pressure on rates.Going into the reform debate, doctors demanded a $250,000 cap onnon-economic or pain and suffering awards in jury trials. Lawmakersopted to set the cap at $500,000 with the exception of emergencyroom services. Lawmakers also responded to the Academy of FloridaTrial Lawyers call for bringing more accountability to doctors' andhospitals' services.

Unsatisfied with the results, the medical professionals and thetrial bar sought to take their case straight to Florida votersthrough the constitutional amendment process. Voters approved a“three strikes and you're out,” amendment whereby a doctor couldlose his or her license if found responsible for three medicalmalpractice cases. Another amendment would allow consumers toaccess doctors' and hospitals' records under certain circumstances,and another amendment would have restricted attorneys' contingencyfees. Specifically, patients would receive 70 percent of the first$250,000 in awards and 90 percent of any subsequent awards. Despitethe plain language of the amendments, however, the legislaturelargely gutted them when they approved the necessary enactingbills.

For example, even though the cap on attorneys' fees as approvedby voters, the legislature agreed to forgo any action on theamendment despite arguments that it could reduce the ability ofmedical malpractice victims to secure counsel. The amendment wasalso designed to reduce that portion of a victim's awards claimedby attorneys under a contingency agreement, which often fallsbetween 30 and 40 percent. Lawyers opposed the measure saying theyoften have to fund expenses without the promise of collecting anymoney. Then there was a constitutional argument of whether thelegislature could dictate an agreement between two privateparties.

Healthy Market Draws Carriers

The OIR study bluntly stated that “It would appear the 2003changes to the law have benefited policyholders, the industry, andassisted with the solvency of the medical malpracticecarriers.”

That should add up to good news for doctors who are finding theyhave more and more options when searching for coverage. MattGracey, of the Delray Beach-based Dana-Gracey firm that brokersmedical malpractice programs, said doctors should have no troublefinding companies that will write to them. “Every company I know ofis aggressively looking for new business because the frequency ofclaims has plummeted in the past three years and is at a historiclow in relationship to the number of doctors,” he said.

While rates have not fallen to levels prior to 2000, Gracey saidin some cases, rates have fallen by 15 to 20 percent and a similardrop is expected this year. As a result, the total number ofmedical malpractice insurance premiums written dropped to $847million last year from $850 million in 2005, the third consecutivedecline.

According to the OIR report, the average return on surplus forcarriers in the state leaped to nearly 20 percent in 2006, up from14 percent in 2005, and 10 percent in 2004. In 2003, the industryhad a negative return of 12 percent.

Of the 17 largest companies, all but three had a positive returnon surplus. The average return on surplus was a whopping 28 percentin 2006 as compared to 13 percent in 2005. “It does appear that thetrend causing significant industry concerns in the early 2000s haslargely evaporated,” the OIR report said.

Rates are one thing, but claims are another. Carriers arewitnessing a historic drop in the number of claims filed, which islowering loss ratios. Why? Some experts attribute it to the cap onattorneys' fees that has slowed the number of claims. Othersspeculate that doctors are also practicing more defensively byordering more tests and appointments to make sure no injuries orcomplications are overlooked. There is also the possibility thatthe public has lost some of its appetite to sue doctors, althoughthere isn't any real evidence to back that up.

Regardless of the answers, there is plenty of evidence to backup the changing trend in claims. FPIC Insurance Group, whichdominates the Florida insurance market, saw its number of claimsdrop by half to 1,631 claims in 2006, when compared to 2003. And itis not that fewer claims are being filed by patients, carriers arealso reporting fewer claims. In 2006, the carriers reported 900closed claims in Florida, down from 3,753 closed claims in 2005.Similar to prior years, most of the claims came from hospitals,doctor's offices, and emergency rooms. About a third of the claimsinvolved a death, and of the closed claims, only about 45 percentresulted in a payout.

New Carriers Come Forward

Another indicator of the health of the market is the number ofnew carriers willing to write medical malpractice insurance in thestate. In 2006, seven new companies entered the market. Theyinclude Centurion Medical Liability Protective Risk RetentionGroup, Cruden Bay Risk Retention Group, Guarantee Insurance Co,National Medical Professional Risk Retention Group, PhyshieldInsurance Exchange, Physicians Indemnity Risk Retention Group, andSamaritan Risk Retention Group.

Four companies are new to the list of biggest companies #7Continental Casualty, #12 Physicians Preferred InsuranceReciprocal, #14 Florida Health Care Providers Insurance Exchange,and #17 Healthcare Underwriters Group of Florida. 17 companies in2006 controlled 80 percent of the medical malpractice market,compared to 15 in 2005 and 11 in 2004. But that is a littlemisleading. Only two carriers write more than $100 million inpremiums, FPIC and Health Care Indemnity Inc.

To anyone who has followed the medical malpractice market itshould come as no surprise that the tide of the industry has turnedwith the stock market. When stocks were depressed in the early2000s, the industry suffered. Now, with the Dow Jones IndustrialAverage topping 14,000, medical malpractice insurers are flyinghigh again.

Nowhere else can this be better seen that at FPIC InsuranceGroup. “We are very pleased with our results for the quarter, whichreflect the strength of our company,” John R. Byers, president andchief executive officer, said after the quarter ended June 30. Thecompany's net income from continuing operations reached $10.1million, or $1.01 per common share, up from $7.1 million, or $0.66per share, from the second quarter 2006. In addition to fewerreported claims, the company now has just 3,900 open claims, downnearly a third from 2004.

While FPIC no doubt pats itself on the back for wiseunderwriting strategies during the crisis years, the newer medicalmalpractice carriers say their entry to the market is what has beenan even bigger factor in the industry-wide turnaround. HealthcareUnderwriters Group of Florida came into the market in 2003 duringthe heart of the crisis. Company officials say as a doctor-ownedinsurer it's helped bring some more competitiveness to rates.

“The competition has been the biggest thing,” said NicoleDenmon, marketing manager for Jacksonville-based HUG. While HUG isa fraction the size of FPIC, it provides coverage to 600 doctors;it's been able to hold its own. “We are in sound financial shape,”Denmon said. She also said, like FPIC, HUG has seen a drop inclaims as well. The big question for medical malpractice carriersin Florida is when, or if, they will be able to draw back thethousands of doctors who dropped coverage and went bare. “The baredoctor movement has leveled off and some bare doctors are startingto call to inquire about prices,” said Gracey. “Many more doctorsare waiting for prices to come down further.”