Plaintiffs' attorneys are stepping up their attack on medical liability tort reforms in several states and having success with the rollback of legislation in Illinois and Georgia, overturning caps on noneconomic damages, or pain and suffering.

Caps allow medical professional liability insurers to set prices for coverage with a better degree of predictability. But without the caps on noneconomic damages, insurers writing in this market "will have to prepare for a possible return to excessive verdicts and settlements," according to the Insurance Information Institute. Such factors drove medical malpractice reform in Illinois in the first place in 2005, proponents said.

"Medical professional liability insurers are increasingly subjected to allegations of bad faith by opposing counsel, which has resulted in several large awards in excess of the policy limits of the insurer," according to Stephen M. Underdal, managing director and head of global health care for risk and reinsurance specialist Guy Carpenter & Company.

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

"Birth trauma allegations and neurological procedures continue to be some of the major drivers of medical malpractice claim severity," he pointed out.

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

"These favorable trends, coming after years when trends appeared much higher, created some significant overestimation of required reserves in the early-to-mid-2000s," Mr. Mize added. "As the industry adjusts these reserves downward, profitability has been high. This has increased insurers' surplus levels and capacity."

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

More than 60 percent of medical liability claims are dropped, withdrawn or dismissed without payment, but more than $100,000 on average is spent for defense costs, according to the AMA.

Figures from Highline Data–part of Summit Business Media, which also publishes National Underwriter–indicate that defense and cost-containment expenses in medical malpractice cases account for nearly 60 percent of the total expense to an insurer to settle a claim.

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

"If national medical liability tort reform were implemented to limit meritless lawsuits, it could produce a national health care savings of tens of billions of dollars," said Lisa Maas, executive director of Californians Allied for Patient Protection–a group of doctors, hospitals, clinics and others in support of the California Medical Injury Compensation Reform Act.

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

Mr. Mize added that the use of defensive medicine is not going to subside unless doctors are given incentives and assurances they will not be held liable.

"If that faucet is shut off and doctors cut back, will it mean an 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 the most profitable segment of the commercial lines business at the moment, with a combined ratio in the low-80s in 2009, noted Mr. Underdal of Guy Carpenter.

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

"We predict that rates are going to continue to decline. The market will continue to soften," added Rob Francis, chief operating officer with The Doctors Company. He added that excess capacity and attractive results will generate more competitors, increasing availability and affordability in some markets.

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

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

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

Mr. Coleman said the small reciprocals are fighting to keep their share of the market without cutting rates too much and leaving themselves vulnerable.

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