One of the few bright spots in our economy is that malpractice insurance premiums have fallen by roughly a third for most Florida doctors over the last three to four years. We are firmly into a “soft” insurance market when many insurers compete against each other to offer their best rates and more flexible underwriting guidelines. The real question now is how long this soft market will last, particularly in the face of the financial crisis that surrounds us. There are real budget concerns when malpractice insurance can be one of the largest expenditures in medical practices. Lets take a brief look at a few factors that influence the malpractice insurance marketplace that can help to predict the coming trends.
Since Florida tort reform legislation was enacted in September, 2003, many believe this led to our falling malpractice insurance rates to current levels. Although this can be a long term remedy, we also know that malpractice rates fell nationwide even where no tort reform was involved. The number of claims being made against insurers has simply fallen during this time. Tort reform offers more long term solutions by capping non-economic damage awards, bad faith reform and tightened expert witness qualifications are just a few examples of this important legislation. A number of experts are now worried there are serious challenges being presented to these reforms. The Florida Supreme Court will determine over the next few years whether these reforms will stand. Unfortunately there have been reversals to malpractice tort reform in Georgia and a few other states, but hopefully we will fare better.
Another loss trend that is making the industry nervous is in the regular property and casualty (P&C) industry. In past cycles such losses actually led to capital flowing into the malpractice insurance market, but we all know how scarce capital resources are for everyone today. The “reinsurance market” that insures the P&C industry are many of the same carriers for malpractice insurers. Therefore, high losses in the P&C industry can increase reinsurance rates to malpractice insurers and then be quickly passed onto physician policyholders.
There are new insurers coming into Florida that want to take advantage of this soft market. Many of these new companies are often very thinly capitalized and must offer artificially low rates to secure any new business. This will keep driving prices down temporarily until the normal claim cycle will cause many to fail after a few years. Some physicians will purchase from a new carrier based on price alone and not consider the many risks they are taking. Your insurance is only as good as its ability to perform when it is needed. The carriers claim experience in Florida and their track record for defense is very important. If a new carrier becomes insolvent you can face the unfortunate experience of having to purchase an expensive tail policy that would be akin to throwing good money after bad and then find another insurer going forward.
Today we can celebrate that the very best malpractice coverage is available at highly competitive insurance rates and that the malpractice insurance cycle is not colliding with our global economic crises. “It was the best of times (for malpractice insurance rates), it was the worst of times” (for the economy), as Charles Dickens would say. Certainly we can appreciate having a quality insurance product for the best available insurance rate in recent times.
