Day on Torts
State Volunteer Mutual Insurance Company , the doctor-owned medical malpractice insurance carrier, continues to enjoy profitability, according to my review of its 2006 Annual Report that was recently filed with the Tennessee Department of Commerce and Insurance.
A few highlights:
* Surplus, the insurance industry equivalent of net worth, increased $33,000,000 to a total of $217,000,000. This represents an increase of almost 18% in one year. This follows a $16.4 million dollar increase in 2005.
* After tax profits were reported at $23,000,000, up over 50% from a year earlier, when profits were $14,730,000. Total profits for the last 5 years are approximately $49,000,000.
* The company paid out money to plaintiffs in only 158 cases across the state last year. The total amount paid was $56,660,652. The average payment per claim was $358,611.
* Most of the premium income was from Tennessee doctors, but the company also does substantial business in Arkansas ($40M in premium income) and Kentucky ($22M). Interestingly, neither of those states have damage caps on compensatory damages.
Last year SVMIC had no real increase in insurance rates for its doctors, and this data tells me that there will not be a rate increase in 2007. Now, let me hasten to add that I don’t pretend to be an actuary or an expert in the insurance business. I am applying my version of common sense rooted in part in my experience of looking at these financial statements for over 20 years.
Don’t look for a rate decrease either. My guess is that rates will stay the same and, if SMVIC has another good year, it will return to the practice of paying dividends to its insured doctors. Dividends have the net result of reducing rates. Reducing rates is unrealistic in an inflationary economy, especially when the health care inflation rate runs 7 – 8%. Insurance rates in this market suffer from what economists call "the downward stickiness of prices." That is, a market conditions change, rates tend to go up more quickly than they go down. (Think gasoline. Crude goes up $10 a barrel and gas jumps 30%. Crude goes down $10 a barrel and gas drops 20%. Or so.)
The good news is that SVMIC now seems to have rates in line after bowing to competitive pressures and a great investment market in the 1990s, which resulted in the company not raising rates when underwriting considerations probably required it. Let me hasten to add that I am not slamming SVMIC here – they were threatened with some new competition in the 1990s and my information is that they held down rates to save market share. That’s just business. But those decisions also gave rise to higher rate increases in the new millennium than would have been necessary in the absence of those decisions. Note to SVMIC: if I am wrong about this I would be happy to post the company’s position on this issue on this blog. I am always eager to learn more about the insurance industry.