Thursday, April 11, 2002

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* Page-One Story Dispels Plaintiff Boogeyman Invoked By Texas Governor, Doctors

Austin, TX: Three days after doctors staged a physician walkout in the Rio Grande Valley to blame escalating medical malpractice premiums on frivolous lawsuits, the Wall Street Journal published a front-page story today that says that mismanagement of the insurance industry during the go-go 1990s is the main cause of skyrocketing premiums.

The article, “Insurance Costs Loom As A Cloud Over the Economy,” says businesses around the country are getting slammed with increases of more than 100 percent on premiums covering diverse lines of insurance.

But the Journal concludes that the chief cause of these shocking increases is not terrorists or trial lawyers—but the industry’s own mismanagement. The crisis stems from “the legacy of a decade of imprudence among insurers—a period that combined a reckless price war with aggressive risk-taking,” the article says. “From 1993 to 2000, underwriters slashed rates, sometimes as much as 40%, and fought for customers by loosening terms on all types of business policies—from directors-and-officers’ liability coverage to medical-malpractice packages to workers’ compensation insurance.”

These practices became unsustainable by 1999, the Journal concludes, when insurers were paying out an average of $1.07 for every $1 of premium received on business coverage.

Regarding medical malpractice insurance, the article suggests that medical malpractice verdicts and health-care inflation costs played a secondary role to mismanagement of the insurance industry:

“St. Paul, the nation's largest writer of medical-malpractice insurance, with a 10% market share, decided to shutter its medical business altogether, after losing $940 million on it last year. St. Paul's medical-malpractice problems were emblematic of the impact of the insurance price war of the 1990s. Medical- malpractice insurance was the industry's most profitable line 10 years ago, and so many companies piled into it that they began underpricing their coverage. Then came rising jury verdicts in malpractice suits and higher health-care inflation.”

“This is further evidence that Citizens for Lawsuit Abuse, the Rio Grande Physicians PAC and Governor Perry have misdiagnosed the principal cause of runaway medical malpractice premiums,” said Texans for Public Justice Research Director Andrew Wheat. “Denying consumers their day in court will not cure this disease. Texas needs to rein in a runaway and mismanaged insurance industry.”