Plaintiffs' attorneys are stepping up their attack on medicalliability tort reforms in several states and having success withthe rollback of legislation in Illinois and Georgia, overturningcaps on noneconomic damages, or pain and suffering.

Caps allow medical professional liability insurers to set pricesfor coverage with a better degree of predictability. But withoutthe caps on noneconomic damages, insurers writing in this market"will have to prepare for a possible return to excessive verdictsand settlements," according to the Insurance Information Institute.Such factors drove medical malpractice reform in Illinois in thefirst place in 2005, proponents said.

"Medical professional liabilityinsurers are increasingly subjected to allegations of bad faith byopposing counsel, which has resulted in several large awards inexcess of the policy limits of the insurer," according to StephenM. Underdal, managing director and head of global health care forrisk and reinsurance specialist Guy Carpenter & Company.

The frequency of losses to insurers has fallen by more than 50percent in some jurisdictions, but severity continues to increase,noted Mr. Underdal.

"Birth trauma allegations and neurological procedures continueto be some of the major drivers of medical malpractice claimseverity," he pointed out.

Severity trends are up over the last decade "but are relativelystable and generally at rates in the low single-digits," accordingto John Mize, a consulting actuary with Towers Watson.

"These favorable trends, coming after years when trends appearedmuch higher, created some significant overestimation of requiredreserves in the early-to-mid-2000s," Mr. Mize added. "As theindustry adjusts these reserves downward, profitability has beenhigh. This has increased insurers' surplus levels andcapacity."

The fear of litigation scares off doctors, according to theAmerican Medical Association. One in 12 obstetricians has stoppeddelivering babies as a result of liability concerns, said the AMA,which observed that access to physicians is better in areas withcaps on noneconomic damages.

More than 60 percent of medical liability claims are dropped,withdrawn or dismissed without payment, but more than $100,000 onaverage is spent for defense costs, according to the AMA.

Figures from Highline Data–part of Summit Business Media, whichalso publishes National Underwriter–indicate that defenseand cost-containment expenses in medical malpractice cases accountfor nearly 60 percent of the total expense to an insurer to settlea claim.

An estimated $54.4 billion each year is spent on medicalliability costs, according to a recent issue of HealthAffairs, a journal of health policy thought and research,which noted that about 80 percent of these costs are the result ofwhat is known as "defensive medicine"–the overprescribing of testsand treatments by doctors in an effort to avoid liability.

"If national medical liability tort reform were implemented tolimit meritless lawsuits, it could produce a national health caresavings of tens of billions of dollars," said Lisa Maas, executivedirector of Californians Allied for Patient Protection–a group ofdoctors, hospitals, clinics and others in support of the CaliforniaMedical Injury Compensation Reform Act.

However, federal tort reform could be harmful in comparison tosome state laws, according to Mr. Mize. "Federal law could trumpstate law, which could be a losing situation if that state had moreteeth in its reform," he said.

Mr. Mize added that the use of defensive medicine is not goingto subside unless doctors are given incentives and assurances theywill not be held liable.

"If that faucet is shut off and doctors cut back, will it meanan increase in error rates?" Mr. Mize asked.

Also unclear is whether a list of "never events"–inexcusable,serious and large preventable outcomes–will be expanded.

"The fear is that this will create strict liability–no defense,"Mr. Mize said. "I think it's a rational fear."

Even with these concerns, the medical malpractice class is themost profitable segment of the commercial lines business at themoment, with a combined ratio in the low-80s in 2009, noted Mr.Underdal of Guy Carpenter.

"Excess market capacity and record profitability of the medicalmalpractice line have created a buyer's market, with premiumreductions being the norm," Mr. Underdal said.

"We predict that rates are going to continue to decline. Themarket will continue to soften," added Rob Francis, chief operatingofficer with The Doctors Company. He added that excess capacity andattractive results will generate more competitors, increasingavailability and affordability in some markets.

The AMA said medical malpractice premiums have skyrocketed morethan 1,000 percent since the mid-1970s–except in California, wherepremiums grew at a slower rate because of caps on noneconomicdamages.

The opportunities for profit in the market spawned more than 100new entrants since a capacity shortfall in the early 2000s, andseveral existing insurers chose to enter the segment, Mr. Underdaladded.

"The standard market has gotten back into things, but at theexpense of reciprocal insurers that were formed–many times by agroup of doctors–in response to the hard market [in themid-1980s]," according to Key Coleman, managing director of LECG, aglobal expert services and consulting firm.

Mr. Coleman said the small reciprocals are fighting to keeptheir share of the market without cutting rates too much andleaving themselves vulnerable.