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NEWS RELEASE
Jun 11, 2003


CONTACT: Doug Heller - 310-392-0522 x309

California's 2nd Largest Malpractice Insurer: Malpractice Caps Did Not Work

In Proposition 103 Hearing SCPIE Indemnity VP Claims MICRA Did Not Reduce Risk
Santa Monica, CA -- A major medical malpractice insurer has acknowledged that the medical liability caps and other restrictions in California's 1975 medical malpractice reform law known as MICRA fail to reduce medical malpractice premiums, according to documents released today by the Foundation for Taxpayer and Consumer Rights (FTCR). The acknowledgement came in the written testimony of SCPIE Indemnity Company's Assistant Vice President and Associate Actuary James Robertson, as part of a California Department of Insurance hearing in which SCPIE attempts to justify a 15.6% rate hike request. The rate increase was challenged by FTCR under the rules of California Proposition 103.

In his testimony, Mr. Robertson states:

"While MICRA was the legislature's attempt at remedying the medical malpractice crisis in California in 1975, it did not substantially reduce the relative risk of medical malpractice insurance in California."

A copy of Mr. Robertson's full testimony is available at http://www.consumerwatchdog.org/insurance/rp/rp003388.pdf (*See, in particular, page 4 of the testimony)

The statement directly responds to a question put to SCPIE by California Department of Insurance Administrative Law Judge Marjorie Rasmussen, who is overseeing the rate hike case. She asked SCPIE to address "any impact the statutory provisions of the Medical Injury Compensation Reform Act of 1975 (MICRA) have on the magnitude of risk covered by medical malpractice insurance in California."

"SCPIE admits that malpractice caps and other legal restrictions do not hold down doctors' rates," said FTCR consumer advocate Douglas Heller. "Twenty-eight years ago, insurance companies promised that malpractice caps and other legal restrictions would dramatically lower California doctors' premiums and stabilize the insurance market, but we know that did not happen. This testimony totally undermines the promises that insurers and doctors make around the country in their current effort to press for California style limits."

Depending on The Audience, SCPIE's Message Changes

Soon after the company filed its written testimony with the California Department of Insurance, SCPIE's CEO told Time Magazine that it had pulled out of states that lacked legal restrictions such as California-style caps. In the June 1, 2003 issue of the magazine, SCPIE CEO Donald Zuk said: "We knew that there was a risk when you go into a state without tort reform. We thought the rates were sufficient, so we went with it. Today I know what's going on around the country. I won't go into Texas, Florida or any of the states I pulled back from until there's some semblance of tort reform."

According to FTCR, Mr. Zuk is telling the public and, in effect, lawmakers in states like Florida and Texas (where malpractice caps debate have been hotly debated) that caps reduce risk, while his company tells regulators in California that caps do not reduce risk.

"When SCPIE is pushing for caps in other states, they argue that California is less risky. But when they want to raise physicians' premiums in California, they say that California is still very risky. They cannot have it both ways," said Heller.

SCPIE Argues for $18 Million Increase on California Physicians

The company, which has received rate increases in California in each of the last three years totaling 22.7%, requested a 15.6% increase for its 9,000 California doctors to be imposed in 2003. The total proposed change amounted to an approximately $18 million increase for the company's physician policyholders. The increase was put on hold after FTCR filed a challenge to the proposed hike. The group used California's insurance reform law known as Proposition 103 to contest SCPIE's rate increase request.

In California, insurance companies are subject to the rules of Proposition 103, a voter approved 1988 ballot initiative that governs the insurance industry in California. Under the law insurers were required to immediately roll back rates and justify future rate increases prior to increasing premiums. As a result, medical malpractice providers returned over $75 million directly to physicians. The law also ended the insurance industry's exemption from state anti-trust laws and allowed consumers and groups to challenge rate hike proposals, as is the case with the current hearing of SCPIE's rate increase proposal.

According to SCPIE's Assistant VP, Mr. Robertson, the company should receive its proposed rate hike despite the limitations of the malpractice restrictions. Although MICRA limited non-economic damages, Robertson argues, medical malpractice insurers still risk incurring high economic damage claims and "This riskiness translates into high premiums for insured physicians."

Concluded Heller, "The insurance companies tell lawmakers that caps on non-economic damages will solve the problem, and then tell regulators that they still have to raise rates because economic damages are actually the problem. The truth is that the insurance companies are the real problem, which is why insurance reform, not a limit on patients' rights, provides the real solution."

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A copy of Mr. Robertson's full testimony is available at http://www.consumerwatchdog.org/insurance/rp/rp003388.pdf (*See, in particular, page 4 of the testimony).

To learn more about FTCR's challenge to SCPIE's rate increase request please contact Doug Heller (310) 392-0522 ext. 309.


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