Are rising malpractice premiums related to economic downturns and stock market losses?
“Trial lawyer advocates often repeat the silly assertion that medical malpractice premiums spiked in recent years because insurance companies had to recoup bad stock market investments. It’s an argument refuted often enough before . . .” (via PointofLaw.com)
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“Insurance was cheaper in the 1990s 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.”
~Victor Schwartz, general counsel to the American Tort Reform Association, “Dose of Legality,” Honolulu Star-Bulletin, April 20, 2003.
$50,000 turns into $200,000 in 5 years . . . that’s a 32% compound annual ROR on the initial investment.
Sounds like those guys investing funds for the carriers must be financial geniuses.
Did anyone do a urine test on Mr. Schwartz after giving his speech? Just wondered what he had been smoking . . .
Surely there were stocks in the 1990’s that gave that sort of return.
Thing is, the insurance companies are restricted from investing in those stocks……..as the risk also exists that $200K could go DOWN to $50K in the same period of time.
I believe Mr. Vineyard could elaborate.
Carriers do have limited choices for their investment portfolio. While they can invest a small portion of their general fund in equities, mostly they are restricted to investments in real estate, treasuries & bonds. None of those investments were returning anywhere close to 30% during the early 90’s or anytime before or after.
Yes–but bond yields have been terrible in the last five years.
And, BOND funds during the 90s did fantastically as interest rates fell.
“$50,000 would be worth $200,000 five years later when the claim came in.”
Hahahahahaha!!!!!
Idiot lawyers. Never cease to amaze.
You know that the “idiot lawyer” in question is one of your “tort reform” leaders, don’t you?
What do you call someone who follows an idiot?
a paralegal?
C’mon, I set that up there on a tee. Surely you can do better than that.
GAO report found that only 7% of premium increases could be attributed to loss in investments.
Thats 7% out of 30% premium rises.
So, that leaves 2 possibilities:
1) Insurance companies have been getting rich with fat profits and price-gouging doctors. AM Best reports directly contradict this. The combined P/C ratio for the med mal industry was 115 for the last 6 or 7 years (anything over 100 indicates the companies are losing money)
2) Insurers really have been losing more money on lawsuit-related issues.
There’s no doubt they’ve been losing money – lately. However, historically it’s a profitable business.
It’s very clear to everyone that they underpriced their product. They didn’t even account for medical inflation in many cases because they were in a rush to get investment dollars in a hot market.
You don’t have to believe me, the insurers themselves will tell you. And it will happen again the next time the market heats up. Just like it has every time prior.
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