Hunter's Counterpoint

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To The Editor:

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I returned home from a trip abroad to find two articles and aletter to the editor in NU's Nov. 11 edition, criticizingmy Oct. 7 NU cover story, “Consumer Advocate ChallengesInsurers on Crisis in Medical Malpractice Market.”

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It is satisfying to find that, after a month of effort, no onewas able to challenge the validity of the data I presented showingthat paid med mal claims have been flat-to-down since 1984, andthus there is no dispute of my conclusion that the data show noexplosion in med mal claims.

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For example, in the letter from Sarah White, property-casualtyproperty manager for the Alliance of American Insurers, the writeragrees that med mal paid claims have risen at the cost ofinflation. The writer goes on to say that Jury Verdict Researchdata proves that there is a “meteoric rise in medical malpracticeclaims costs.”

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But unlike the claims data that I analyze, which includeseverything from million-dollar verdicts to claims closed withoutpayment, the JVR data are very incomplete and unreliable. Hereswhat The Wall Street Journal said about Jury VerdictResearch in its June 24, 2002, edition:

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“Jury Verdict Research says its 2,951-case malpractice databasehas large gaps. It collects award information unsystematically, andit can't say how many cases it missesmore important, the databaseexcludes trial victories by doctors and hospitals–verdicts that areworth zero dollars. Thats a lot to ignore. Doctors and hospitalswin about 62 percent of the time, Jury Verdict Research says. Aseparate database on settlements is less comprehensive. A spokesmanfor Jury Verdict Research, Gary Bagin, confirms these and otherholes in its statistics.”

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As to the page 12 article, “Hunter Fires Blanks with SmokingGun,'” by Raymond R. Mazzotta, president and chief operatingofficer of OHIC Insurance Company–once you strip away the hotrhetoric, there is nothing of substance left. The writermisconstrues my research to say that rates are “right where theyshould be,” and that that is inconsistent with concerns about pricegouging.

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The truth is that rates have clearly become excessive in thetight phase of the market, just as they are inadequate in the softphase. The claim that “it doesnt seem to bother Mr. Hunter thatrates are at their current levelsHes just unhappy that they climbedso quickly,” is silly, as I would not have written the piece if Ithought rates were not going above proper levels in the currentnon-competitive phase of the cycle.

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The writer of the page 10 article, “Actuary Counters Hunter onMed Mal Insurance Crisis”–Robert F. Wolf, a principal andconsulting actuary for Mercer Consulting–is, unlike the others,thoughtful, and does not foam at the mouth. The writer does fallinto the Jury Verdict Research trap, though, ignoring the severeproblems with JVR data.

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Like the others, he does not dispute the validity of the data.Instead, he creates a new chart reflecting my conclusion thatclaims have risen about as fast as medical inflation, but indicatesthat certain types of malpractice claims increase faster than therate of inflation. To which I respond, “So what?”

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It is true that my analysis doesnt reflect “rate differentialsby specialty.” Such data are not available. However, the point isthat, in the aggregate, paid claims are down over the last decade,and therefore there is no overall explosion in claims causing thecurrent crisis. If claims for a particular specialty are different,rising faster than average, then other specialties would have to bedown more than average.

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Finally, as to the contention that it is competition (lowbarriers to entry), not bad underwriting practices, that drives thecycle, there is some truth to that. However, it is during the softmarket that mismanagement occurs when premiums swing far out ofline with costs.

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At that point, it is inevitable that a crisis will occur. Later,the pendulum swings the other way–to unconscionable overpricing.This is why Julian James, director of worldwide markets for Lloyd'sof London, has called upon the industry to end its poor operatingpractices (see “Lloyd's Calls For An End To Insurance CycleMentality,” NU, Nov. 4, page 5).

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Given that all three reviewers did not dispute the underlyingvalidity of the data and analysis I presented, it is clear that thedoctors of America should be focusing on insurance reform, ratherthan tort reform, to eliminate the periodic and severe insuranceprice spikes with which they must cope.

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Doctors surely must recognize that the price jumps are directlytied to the cycle (unless they think that those dastardly lawyersare so clever as to time their lawsuit explosions to coincideprecisely with the bottom of the insurance cycle). The fact thatpaid med mal insurance losses have been flat over the last threedecades proves that these periodic claim explosions do not exist.Only a blind–or biased–reviewer could conclude otherwise.

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J. Robert Hunter
Director Of Insurance
Consumer Federation of America
Washington, D.C.


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, December 8, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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