MedMal Market Stages a Comeback

Consider the fact that prior to the 2003 reforms, only four carriers were willing to write medical malpractice in the state, as opposed to the some 30 carriers that provided coverage in the 1990s. Now, post-reform, many companies have again viewed Florida as a land of opportunity. From January 2004 to October 2005, 18 new companies have entered the medical malpractice market, some of whom only provide reinsurance or restrict their writings to certain specialties, like emergency medicine. The top companies by premium include Healthcare Underwriters Group, which wrote nearly $5 million in premiums. The new insurer was followed by Care Risk Retention Group and Campmed Casualty and Insurance Company, which wrote $3 million and $1.7 million in premium, respectively. The total new written premium for all 18 companies is slightly more than $12 million, a number that regulators and analysts expected to grow substantially this year.

Rate Changes Moderate

Beyond the number of new companies entering the market, the most telling piece of evidence that the market is making a comeback is the moderation in rate requests. As part of the 2003 reforms, lawmakers approved a rate formula that required affected insurers to lower their base rates by minus 7.8 percent. Six different companies that fell into this category had to lower rates for eight different classifications of coverage. Beyond the mandatory rate changes, insurers have substantially lowered their calls for rate increases. According to regulators, 41 rate filings have been submitted to the OIR, including the six companies making the mandatory reductions. The remaining 35 companies received rate approvals of between 7.8 and 21.8 percent.

Once again, FPIC stands out as an example of this moderation. In the first quarter of 2002, FPIC lost $26.7 million based on $53.5 million in revenue. Due to the financial trends, the insurer raised premiums by an average 30 percent in 2001 and an average 20 percent in 2002, even as the insurer stopped writing new business. According to the Medical Liability Monitor, FPIC has only raised rates by an average eight percent in 2005. Furthermore, the insurer's consolidated operating earnings are up 21 percent, marking 15 consecutive quarters of positive operating earnings, while seeing a 49 percent increase in net premiums as the result of reducing reinsurance costs and other pricing adjustments. The company also retained 95 percent of its covered physicians in the state last year.

Speaking to investors, FPIC's President Byers said he is also optimistic about the insurer's future in the near term. He also said the company, which controls 25 percent of the state's market, also remains unconcerned about new competitors in the state because of the administrative costs associated with writing new policies. However, he acknowledged that there are companies that are starting to write at cutthroat prices to gain market share. "We believe our ability to achieve attractive margins, together with our continued favorable outlook for our core Florida market, positions us well for the year," he said.

The state's other large carriers have also substantially reduced their rate request. MAG Mutual Insurance Company, the state's third largest insurer, received a seven percent rate increase for physicians and surgeons, while filing for no change in rates for health care facilities. Pronational Insurance Company, likewise, was approved to raise rates for physicians and surgeons by a modest 6.4 percent. Medical Protective Company requested the only large rate increases, where regulators approved rate increases for dentists by 19.3 percent, and physicians and surgeons by 14.6 percent.

Improved State Trends

Beyond the immediate state data, regulators are becoming more optimistic when Florida's financial results are compared to other states. Florida is the third largest market in the country with insurers writing slightly over $800 million in earned premium. Only New York and California have higher premium rates. Looking at direct losses incurred, Florida insurers paid out roughly $500 million, behind New York, Illinois, and Pennsylvania. Where the state has really improved is the all-important loss ratio, which compares the amount of premiums collected by the carriers to the actual losses the insurer pays out for agents' commissions, legal costs, administrative expenses, and settlements and jury awards.

According to the OIR report, all but one of the 12 largest companies writing insurance in the state made a profit in 2004. A prime reason for that fact is that Florida's loss ratio is steadily improving. Nationwide, the state ranked 21st with a loss ratio of 60.2 percent, which is slightly higher than the median figure for all states. That is a prime reason why the dozen largest companies in the market made a profit in 2004. And while doctors continue to complain about high premiums, the report showed companies were retaining more than nine out of 10 policyholders. "The report gave us a lot of signals that the market is doing OK," said Sharon Binnun, deputy insurance commissioner.

Looking at other financial data, Florida ranks 23rd when comparing agents' medical malpractice commissions and brokerage costs. However, Florida pays out the second highest amount of dollars to agents at roughly $55 million. The only state paying agents more is California. The one financial trend that remains of concern to insurers and regulators is the state's defense cost containment expenses. Florida leads the nation in the amount of money spent to defend cases and otherwise rein-in expenses associated with medmal suits. All told, the state spends over $250 million in defense expenses, which equals a 32.3 percent loss ratio when the expenses are compared to earned premium.

Jury Still Out on Reforms

While the OIR's report paints a positive picture of the state's market, the one area of concern remains the pending legal challenges to the 2003 reforms and the constitutional amendments approved by voters. The Florida Supreme Court has yet to hear any cases on those issues, although the expectation is that the court will render some decisions later this year.

Although lawmakers put in place a $500,000 cap on non-economic, or pain-and-suffering awards in jury trials and a $250,000 cap on emergency room treatment, doctors and insurers still stay the legislature didn't go far enough. More to the point, however, are the three constitutional amendments approved by voters. Leaving the ballot box, voters passed a "three strikes and you're out" amendment that promised to stop doctors from practicing medicine after three guilty verdicts in medical malpractice cases. They passed another amendment to open the records on doctors' and hospitals' mistakes so that patients could better assess where to seek treatment. And voters said yes to an amendment that would reduce how much attorneys could collect in fees in medical malpractice cases.

Then the legislature got involved.

The legislature more or less nullified the three strikes amendment by passing implementing language that called for all doctor-discipline actions to go before the state medical board. The legislature also watered down the amendment opening up records on doctors' medical mistakes by narrowing limits for obtaining hospital records on medical errors and making such records inadmissible in civil court cases. Several courts have said "peer-review" records are kept confidential per federal laws. And the federal government has said Florida cannot make public such documents protected under peer review.

The issue over limiting attorneys' fees has also remained unsettled. Under the amendment, legal fees are capped at 30 percent for the first $250,000 of damages in a medical malpractice suit, with a cap of 10 percent for damages over that amount. Trial lawyers thought they had an easy solution. They said patients could waive their rights under the law as part of negotiating a contract with the attorney. If the patient wants the attorney, he or she will agree to whatever fee they decide on, the attorneys said. But doctors and hospitals say "not so fast." They have appealed to the state Supreme Court to determine whether lawyers can have potential clients waive away their right to limited attorneys' fees.