My last two posts (here and here) have discussed financial and related information about Tennessee’s largest insurer of physicians that I hope is of interest to Tennessee medical malpractice lawyers and patients. Now I am taking out my crystal ball and looking in the future of SVMIC’s defense of medical malpractice cases.
Before I get there, let’s think about Business 101. Businesses exist to produce profit. Profit is the difference between revenue and expense. If revenues exceed expenses, there is profit. If expenses exceed revenues there is a loss. Losses are bad, profits are good. (OK, I told you it was Business 101.)
There are basically two ways that any going concern can increase profit. First, it can increase revenue. Second, it can decrease expenses.
SVMIC is very profitable. Last year (2012) its earned premiums (think of this as revenue) was $153.6 million and its after-tax, after dividend profit was $26 million. This means that the company has a net income of % of revenue. Compare this number with WalMart, Exxon, and Goldman Sachs
You get the point.
But, it is the nature of most businesses in this country to always seek out more profit. SVMIC will have trouble increasing revenues – the market for professional liability coverage for doctors is "soft," i.e. rates are getting downward pressure as other companies fight for market share.
The other source of revenue for insurers is investment income, and that comes from a few different sources. First, insurers earn interest and dividends on investments. Second, insurers receive capital gains from investments sold during the course of a year. These sources of income added $43.8 million to SVMIC’s revenue last year. So, SVMIC can continue to manage its portfolio to increase revenue from its investments.
But another way to increase profits is to cut expenses, and with a more than 50% increase in defense costs in the last five years (when the number of claims has decreased) one has to believe that sooner or later the insurance company will take a hard look at defense costs.
My prediction: within the next five years SVMIC will follow the lead of automobile insurers and begin to take a portion of their defense work and give it to a law firm that it owns. These lawyers will work for the company and handle "routine" claims – claims with a dollar value of $1,000,000 dollars or less that involve only one SVMIC insured as a defendant or only one insured and his or her practice.
I predict that that the new SVMIC law firm will be tested first in Middle Tennessee, where it can be closely monitored from SVMIC headquarters in Brentwood. The firm may be headquartered in the SVMIC building, as a decreased number of claims will reduce the need for claims personnel and office space will become available.
The new law firm will also be staffed with highly trained nurses that will function as paralegals, doing all medical research, contacting experts, etc.
SVMIC assumes little additional liability by making this move because damage caps permit it predict with certainty its maximum exposure many types of claims.
This new model would permit SVMIC to save hundreds of thousands per year in defense costs.
There will still be "outhouse" lawyers in cases with multiple SVMIC defendants, cases involving high economic losses, past or future, or unusual situations. I predict the company will eventually go to specialty teams of lawyers, call them "super lawyers," who handle birth trauma cases or other cases or other specialized cases.
I am sure that it goes without saying that I have no inside information from SVMIC that leads me to this conclusion.