Malpractice insurers are in a "full-blown crisis" due to a legal system that allows payouts to escalate and hampers companies' ability to predict future losses, according to a new report by Conning Research & Consulting, based in Hartford, Conn.
The study, released Wednesday, says that only three of the nation's 25 largest malpractice insurers made money on premiums in 2001 after paying claims and defense costs.
The industry's losses, it says, increased by 50% from 1997 to 2001, and carriers in 2001 sustained a cumulative underwriting loss of 50 cents for every dollar of premium earned.
"A full-blown financial crisis has emerged in the medical malpractice insurance industry," the report says. "Soaring underwriting losses are shaking the financial stability of the system. The inability to forecast losses accurately and then apply the right price has savaged the industry's balance sheet."
While some studies have faulted the insurance industry for relying too much on investment income, the Conning study blames an open-ended legal system for insurers' problems.
"While we find a lower level of investment income, we cannot envision the conditions required for investment income to offset the staggering level of underwriting losses," the report says.
While physicians groups and carriers say a $250,000 cap on noneconomic damages is the No. 1 remedy, the report maintains that "there is no single, easy-to-implement solution to this complex, emotionally charged situation."
And even though Congress is considering a federal cap, the report says "any solution will likely need to be crafted at the individual state level in response to the local legal system."
"Some of the elements that may contribute to a solution include continuing to increase premiums and tort reforms focused on restoring predictability to future cost of losses," the report adds.