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Mar 19, 2003
CONTACT: Carmen Balber - 310-392-0522 x324
Medical Malpractice Insurers Pay Higher Dividends to California Doctors After Proposition 103
Insurance Lobbyists Mislead Congress on Dividend IssueSanta Monica, CA -- California's major medical malpractice insurers paid dramatically higher dividends in the years immediately after the passage of Proposition 103 in 1988 than in the years prior to enactment of the state's insurance reform initiative, according to a new analysis by the Foundation for Taxpayer and Consumer Rights (FTCR). Insurance industry data compiled by the AM Best Company show that four of the largest medical malpractice insurers in California paid higher dividends to their physician-policyholders in the six years after Proposition 103 than in the six years prior. Graphs illustrating the change in dividend payments after Proposition 103 are available on FTCR's website: Graph 1 Graph 2
"Regulation requires insurance companies to be more honest with their policyholders' money," said Douglas Heller, a consumer advocate with FTCR. "Before regulation, insurers could keep excess premiums as profits or add to their surplus, but in a regulated environment excess premium gets returned to the policyholders. Under Proposition 103, not only did premiums drop for physicians, companies gave more money back to doctors in the form of dividends than had been returned prior to regulation."
Proposition 103, enacted by California voters in November of 1988, required insurance companies, including medical malpractice insurers, to rollback rates by 20%, imposed a temporary rate freeze and forced insurers to justify their rates to the state's insurance commissioner, among other provisions. The law remains in effect and continues to impose cost controls on insurance companies.
A recently updated study by FTCR shows that Proposition 103, not California's malpractice caps law, was responsible for stabilizing California doctors' malpractice premiums. The updated study is available on FTCR's website.
Insurance Company Lobbyists Mislead Congress
Testifying before Congress and state legislatures, representatives of the insurance industry have stated that Proposition 103 did not have an effect on physicians' premiums. Larry Smarr, head of a malpractice insurers' lobbying group, told Congress:
In fact, the data show, the companies dramatically increased their dividend payments to policyholders after the passage of Proposition 103. NORCAL, the company that has served as Smarr's primary example, more than doubled its average annual dividend to policyholders after Proposition 103, while The Doctors' Company, which paid no dividends between 1983 and 1985 and only 4.6% in 1988, returned as much as 25.2% of physicians' premiums after Proposition 103. The Medical Insurance Exchange of California (MIEC) dividends averaged 42.4% of premiums in the years after Prop. 103, far more than the 9.4% average prior to enactment of the reforms.
"Clearly, insurers returned more money to doctors after Prop 103, which is exactly what insurance regulation promises. Insurance company lobbyists want Congress to believe that California's malpractice caps saved doctors money and insurance reforms had no effect, but industry data prove just the opposite," said Heller.
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