Power and Influence Affecting Your Rights
FLORIDA'S INSURANCE MARKET
The real drivers of the rise in premiums over the past four years have been low interest rates, a sour national economy and the legacy of overly aggressive pricing policies in the years before the 'crisis' began in late 2000.
(Americans for Insurance Reform, October 2004)
Insurance rates are soaring for doctors, homeowners and consumers in Florida and across the nation. Often, these price hikes come coupled with decreased coverage. While this might be a regrettable but understandable situation if our nation's insurers were truly in crisis, it is both inexcusable and unethical given the massive profits that insurers have seen in the past several years. When insurers raise premium rates, they like to claim that they only do so reluctantly to protect themselves from lagging profits caused by large payouts and frivolous lawsuits. However, when you look at the evidence, it is clear that most major insurers are raking in record profits and they are doing so at our expense. In 2003, the aggregate salaries of CEO's at the top ten insurance companies in the U.S totaled $76.6 million.(1) Meanwhile, those same companies took in profits equaling $25.2 billion.(2)
In November 2004, Florida's largest medical malpractice insurer, First Professionals Insurance Company (FPIC), reported that their yearly profits through September 2004, increased 81% ($21 million vs. 11.6 million) over last year's profits in the same period.(3) Also in November, FPIC's stock climbed to the highest it had been since the summer of 1999.(4)
The property and casualty insurance industry's after-tax net income for the first half of 2004 was the highest ever: a record-breaking $23.5 billion.(5) In 2004, the property and casualty industry's surplus reached over $370 billion, its highest level ever.(6) Finally, U.S. property and casualty insurance companies increased profits by 1000% in 2003 over 2002 to $29.9 billion.(7)
As a result of these strong numbers, Weiss Ratings predicted in its December 2004 report on the insurance industry that, despite Florida's catastrophic hurricane season in which $21 billion dollars of hurricane related losses are expected to be posted, the nation's property and casualty insurers are well-capitalized and safely positioned to recover with little difficulty. The correctness of this speculation was affirmed by Atlantic Preferred Insurance Company's recent acquisition of 4,500 property and casualty policies from Florida's insurer of last resort, Citizens Property Insurance Corporation. Atlantic is a member company of Poe Financial group, one of the largest property insurers in Florida. According to Insurance Journal, Poe emerged from Florida's hurricane season in a position of strength. By the end of the year, Poe had paid more than 92% of its more than 40,000 claims and it still managed to end its fiscal year with a record $500 million in written premiums. Poe has placed additional capital in the organization to ensure that 2005 will result in yet another year of substantive growth.(8) For one of the largest property and casualty insurers in the nation to increase its capitalization in Florida following a year of unprecedented losses, affirms not only the company's commitment to the Florida property marketplace, it also constitutes a clear sign that insurers are doing very well in Florida indeed.
If Profits are High, Why Aren't Premiums Decreasing?
Given evidence of such strong growth, it is hard to understand why premiums have continued to rise. Studies have shown that medical malpractice insurance premiums rose much faster in 2002 and 2003 than was justified by insurance payouts. These price hikes were unconnected to actual payouts, jury verdicts or the legal system but instead reflect dropping interest rates and losses experienced by the insurance industry's market investments.(9)
Research shows significant ties between malpractice premiums and the performance of insurers' investments. Premiums for malpractice insurance companies with below average investment gains were 17% higher in 2002 than premiums offered by companies with above average investment gains. Additionally, insurers' income on investments has dropped by almost three-quarters over the last ten years. This is a difference of $2.1 billion and a third of all premiums collected.
What this means is that insurers' claims that high jury awards and litigation costs are hurting their profits are patently false. The National Bureau of Economic Research found in August 2004 that malpractice payments do not drive insurance premium increases and that premium growth is affected by many factors beyond increases in payments, such as industry competition and the insurance underwriting cycle. As a result, attempts to "help" insurers by instituting limits on civil litigation and caps on awards is unlikely to lower rates for doctors.
Further proof of this supposition can be found in the words and actions of the insurance industry's own representatives. Bob White, president of FPIC, stated, under oath before the Florida Senate in 2003, that his company makes more money in Florida than in any other state - even states that have capped jury awards for pain and suffering in lawsuits.(10) And the nation's largest medical malpractice insurer, GE Medical Protective, admitted that medical malpractice caps on damage awards and other limitations on recoveries for injured patients will not lower physicians' premiums as, "Non-economic damages are a small percentage of total losses paid."(11)
States with caps on damages have average insurance premiums that are 9.8% higher than insurance premiums in states without caps.(12) By 2003, caps on non-economic damages had been enacted in 19 states but most insurers continued to rapidly increase premiums.(13) A mere five months after insurance companies received caps on non-economic damages in Florida, GE Medical Protective raised rates 45%. For 2005, they are planning to raise rates an additional 14.6%.(14) Raising rates after caps are granted isn't simply a Florida trend. Six months after Texas lawmakers passed a $250,000 cap on non-economic damage compensation to victims of medical malpractice, GE Medical Protective planned to raise physicians' premiums 19%.(15) Perhaps the most famous example of this trend is California, which passed caps under MICRA in 1975 and subsequently experienced a 450% increase in medical malpractice premiums over the next thirteen years. Substantial rate reduction only began after the passage of Proposition 103, which enacted a comprehensive insurance reform package.
Lawsuits Not a Problem
What about the claims of insurers that a record number of lawsuits, many of them frivolous, have forced insurers to raise premiums for doctors, businesses and home and property owners? Not surprisingly, these claims appear to be just as untrue as the supposition that enacting caps will bring down premiums. Once again, the best place to look for proof of this is the mouths of industry leaders themselves, as the Florida Senate found out in 2003 when they put the president of FPIC, Bob White under oath and asked him about frivolous lawsuits. He stated, "I don't feel you can have a frivolous lawsuit in Florida. I think Florida fixed its frivolous lawsuit problem in 1988. I don't think I ever said that our problem is we have frivolous lawsuits."(16) More recently, Victor Schwartz, General Counsel of the American Tort reform Association told the Los Angeles Times that, "There is no question that it is very rare that frivolous suits are brought against doctors. They are too expensive to bring." (17)
The raw numbers only back up these surprisingly forthright statements. Between 1992 and 2001, when premiums were growing at unprecedented rates, the number of civil trials dropped by 47%. Decreases were seen across the board: medical malpractice cases decreased 14.2%, automobile cases saw a 15% drop off, premises liability fell by 52.1% and product liability plummeted 76%.(18) Payouts also decreased in the same period, with the median inflation-adjusted payout in all personal injury cases dropping to $28,000, down 56.3%. Where increased filings have been seen is in the business sector, with contract cases increasing 21% since 1993.(19) Business cases comprised 44% of all contract plaintiffs (20) and 47% of all punitive damage awards.(21) This would seem to imply that if there is a need for restrictions on litigation anywhere, it is in the business community, not personal injury law.
These statistics lead to suspicions about another "truism" advanced by insurers and would-be "tort reformers," the idea that Americans are always looking for an opportunity to sue and that their desire to win the "personal injury lottery" needs to be reigned in by legal restrictions on their rights to access the courts. The facts once again confirm these suspicions, revealing that of the many potential claims, few actually go to court. For instance, a study by the Harvard Medical Practice Study Group found that only one out of every seven patients who are seriously injured or killed by medical negligence ever files a lawsuit.(22) Meanwhile, a 1999 Annals of Internal Medicine study found that when a Veteran's Administration hospital promptly and fully disclosed all errors to patients and offered victims fair compensation, litigation costs decreased. The study's authors found that this was because patients were so grateful for their practitioner's honesty that they felt no need to go to court.(23)
Criminal Misbehavior
In October 2004, New York Attorney General Eliot Spitzer announced that he was suing Marsh and McLennan, the nation's leading brokerage firm. The firm was accused of steering its clients to insurers with whom it had lucrative payoff agreements and of soliciting rigged bids for insurance contracts. Marsh collected approximately $800 million dollars in steering related payoffs in 2003 alone. Major insurers ACE, AIG, The Hartford, and Munich American Risk Partners were named as participants in the complaint and several other insurance companies remain under investigation. Over the next two months, executives from AIG, ACE, and Zurich American Insurance companies pleaded guilty to connected criminal charges.
Spitzer's actions started a chain reaction of events across the nation. As of January 22, 2005, investigations had been launched in New York, Connecticut, Massachusetts, Ohio, California, Texas, and Florida. Florida Chief Financial Officer Tom Gallagher and Florida Attorney General Charlie Crist launched twin investigations in November 2004. Ten brokerage firms, including Brown & Brown and Arthur J Gallagher & Co., have been subpoenaed in an attempt to determine if they engaged in the same manner of conduct as Marsh.
The brokerages' steering and bid rigging practices are believed to have resulted in inflated premiums for everyone from large corporations, to state agencies, to local school boards, to individuals. All forms of insurance are believed to have been affected, from property and casualty and professional malpractice to health, life, and auto insurance. In December 2004, New York and Connecticut began investigating whether improper behavior by insurance companies may have been a factor in the readily rising cost of malpractice insurance for doctors and lawyers. Connecticut Attorney General Richard Blumenthal announced that evidence suggest that the entire field of professional insurance is suffering from "excessive rates resulting from anti-competitive or illegal behavior."(24)
These investigations and lawsuits, which have revealed criminal behavior and misconduct permeating all levels of the insurance industry, are just one more example of the lies and half-truths being given to justify inexplicably high rates being charged across the country. One prosecutor involved in the New York case against Marsh succinctly summed up the charges, "This [insurance] case is about betrayal, lying to separate people from their money."(25) Meanwhile, the claims of the insurance industry that outsiders simply do not understand how the business works ring hollow. David D. Brown IV, who runs the New York state attorney general's Investment Protection Bureau, came to realize that the "explanation" put forward for the practices by industry leaders: you have to understand the rich history of our business, was merely "a scoundrelly argument, code for 'We haven't been regulated."(26) As a result, everyone has paid the price except the insurers and the brokers, who have collected obscene profits at the expense of corporations, taxpayers, and individuals.
Spitzer's revelations have even led industry insiders to call for more accountability in how they do business. Lord Levene, Chairman of Lloyd's, called upon insurers to implement greater transparency in their dealings. "We need to take careful stock of our inter-relationships and workings. We need to be clear and unambiguous on who is doing what exactly, for whom, and at precisely what cost."(27)
Conclusion
An objective examination of the evidence proves that caps and additional protections for insurers are not necessary because insurers are making, not losing, money in Florida and there has been no explosion in personal injury lawsuits over the last decade. What losses insurers have experienced are due primarily to fiscal irresponsibility and bad investments, not lawsuits, as even prominent industry officials and advocates admit. Donald J. Zuk, chief executive of Scpie Holdings Inc., a leading malpractice insurer in California, stated bluntly to the Wall Street Journal, "I don't like to hear insurance executives say it's the tort system - it's self inflicted."(28) And Victor Schwartz, general council to the American Tort Reform Association was unambiguous when he said, "Insurance was cheaper in the 1990's because insurance companies knew that they could take a doctor's premium and invest it, and $50,000 would be worth $200,000 five years later when the claim came in. An insurance company today can't do that." (29) Meanwhile, we now know that for years the public has been subjected to bid rigging schemes that may have artificially raised rates across the board. Is it fair for patients, doctors and other professionals, home and property owners and even corporations to suffer for the negligence, fiscal mismanagement and criminal behavior of well-heeled CEO's?
Caps aren't just unnecessary; they simply do not work. Doctors in states with caps have seen average premium increases of 9.8% over those states without caps. Where are the savings won at the expense of innocent victims going? They are helping insurers to post record profits and offsetting the losses insurers experienced because of their own bad planning and mismanagement. Meanwhile, victims, especially women, children, seniors, and minorities, whose compensation is usually more heavily comprised of the oft-capped non-economic damages, suffer unfair discrimination.
Despite caps on medical malpractice awards, taxpayer funded hurricane emergency funds that insure the insurers and numerous other incentives and protections, insurers continue to raise premium rates and threaten to leave Florida if they are not granted even more concessions and privileges. But insurers' own records, words and deeds confirm that Florida is currently a great place for them to do business. In fact, a recent poll by Chief Executive magazine revealed that CEO's ranked Florida as the third best state in which to do business.(30)
Insurers need no additional special benefits or protections to stay profitable; industry profit reports clearly show that they are already profiting immensely from the ones they have already been granted. Meanwhile, insurers have failed dismally to live up to their end of the bargain; premiums have not only not gone down, they have increased at an alarming pace. The time has come for Florida lawmakers to call insurers to account. Without genuine insurance reforms, such as those passed in California's Proposition 103, the insurance industry will continue to gouge Florida doctors and consumers, abrogate their fiduciary duties and line their pockets at the expense of Florida taxpayers.
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(1) Executive Pay List, Forbes.com: April 23, 2004
(2) Forbes 2000 List, Forbes.com: March 25, 2004.
(3) "FPIC Posts Strong 3Q," Jacksonville Business Journal, November 2004.
(4) "Strong Earnings Help Propel FPIC Insurance's Stock Higher," The Florida Times Union, November 15, 2004.
(5) Insurance Services Office, Inc. & Property Casualty Insurers Assoc. of America, "Property/Casualty Industry's First-Half Income and Surplus Rose on Strong Underwriting Results and Investment Gains," October 18, 2004.
(6) Ibid.
(7) Insurance Services Office, Inc. (ISO), April 2004.
(8) "Poe Financial Group Takes Iver 4,500 Citizens Policies," Insurance Journal, January 18, 2005
(9) Americans for Insurance Reform Study, October 2004.
(10) "Surprise Follows Taking Of Oaths," Tampa Tribune, July 15, 2003.
(11) GE Medical Protective filing with the Texas Department of Insurance, October 30, 2003.
(12) Medical Liability Monitor, October 2004.
(13) Weiss Report, June 2003.
(14) Florida Department of Insurance.
(15) Texas Department of Insurance.
(16) Bob White, President of FPIC, Florida's largest medical malpractice insurer, Sworn Testimony before the Florida Senate Committee on Judiciary, July 14-15, 2003.
(17) Los Angeles Times, October 22, 2004.
(18) "Civil Trial Cases and Verdicts in Large Counties, 2001," Bureau of Justice Statistics, U.S. Department of Justice, 2004.
(19) "Examining the Work of State Courts, 2003," National Center for State Courts, 2004.
(20) "Civil Trial Cases and Verdicts in Large Counties, 2001," Bureau of Justice Statistics, U.S. Department of Justice, 2004.
(21) Rand Institute for Civil Justice, 1996.
(22) Kaiser/AHRQ/Harvard Study, November 2004.
(23) Steve S. Kraman, MD, and Ginny Hamm, JD, "Risk Management: Extreme Honesty May Be the Best Policy," Annals of Internal Medicine Vol. 131, Number 12, December 21, 1999.
(24) "Insurance Firms Subpoenaed in New Probe," Washington Post, December 8, 2004.
(25) "Inside Eliot's Army," New York Magazine, January 10, 2005.
(26) Ibid
(27) "Lloyd's Chairman Warns Insurers 2005 Will Be Critical For Rebuilding Industry's Reputation," Insurance Journal, January 13, 2005.
(28) Wall Street Journal, June 24, 2002.
(29) "Dose of Legality," Honolulu Star-Bulletin, April 20, 2003.
(30) "Chief executives rank Florida third-best state for business," Palm Beach Post, Linda Rawls, January, 3 2005
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