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The Daily News of Los Angeles
Sep 25, 2003
by Evan Pondel, Staff Writer
FARMERS DROPPING SECTOR;
MEDICAL MALPRACTICE INSURANCE TO BE CUTFarmers Insurance Group said Wednesday it will no longer offer medical malpractice insurance effective immediately because that business lost $100 million in 2002 and continues to burden the company's bottom line.
Los Angeles-based Farmers, which has offered the insurance for more than 50 years, wrote malpractice policies in 18 states including California.
Beginning Jan. 1, the company will start sending nonrenewal notices to approximately 1,300 policyholders nationwide. About 350 of those policies insure health care providers in California.
"Medical malpractice insurance has been a small volatile line for us, and we've decided to redeploy the resources elsewhere," said Jeff Reinig, vice president of Farmers' Healthcare Professional Liability business. "Certainly this line wasn't going to make or break the company."
Offered under Farmers' subsidiary Truck Insurance Exchange, the privately held company collected about $230 million in medical malpractice insurance premiums during 2002, while the company generated about $13.5 billion in total premiums for the same period. Farmers has 5.8 percent of the medical malpractice insurance market in California, which accounted for 33 percent of its premiums for this line.
San Francisco-based Norcal Mutual Insurance Co. is the biggest provider in California.
Approximately 16 employees who are based in Los Angeles will be affected by Farmers' decision. Reinig said the company is working with those employees to find new jobs.
Farmers is the nation's third-largest personal lines property and casualty insurance group, writing policies for more than 10 million households. The California Department of Insurance, which determines insurance rate increases in the state, said that Farmers' medical malpractice business covered mostly hospitals.
Industry watchdogs were surprised by Farmers' move as the malpractice business is generally manageable for most insurers in California due to stringent regulations.
Doug Heller, a senior consumer advocate at The Foundation For Taxpayer & Consumer Rights in Santa Monica, said rate regulation has been a tool in the state to maintain a stable environment.
California has long been an example in how medical malpractice insurance is regulated given the product's litigious nature. The state passed a bill that created a $250,000 cap on lawsuits involving "noneconomic" matters, or instances when people are purportedly injured as a result of malpractice. Russell Korobkin, a law professor at the University of California, Los Angeles, said the legislation theoretically made it less appealing for attorneys to sue for injury-related claims because there was less money in such cases. And attorneys were funding most of the malpractice cases, operating on a contingency basis, he said.
"The caps limited exposure for the insurance companies and also made it easier for them to predict how much they would lose," he said. "But their are two factors at play here: the number of individual verdicts and the number of claims."
Farmers said that the malpractice environment in California wasn't the only factor contributing to the company's decision. Other parts of the country were also responsible considering at least two-thirds of Farmers' malpractice business exists outside the state.
"Still, Farmers bucks the trend that medical malpractice caps will keep insurance companies in the state," Heller said.
Regardless of the fate of Farmers, medical malpractice insurance premiums continue to irk doctors. So great was the cost for Dr. Jerel Tilton, who runs an internal medicine practice in Woodland Hills, that he decided to work part-time.
"And therefore I pay part-time medical malpractice insurance," he said.
But California doctors are still paying far less than their counterparts in other parts of country, according to The Doctors Company. The San Francisco-based medical malpractice insurer controls about 12 percent to 14 percent of the market share in California.
Jack Meyer, head of business development for the company, said if a doctor in Florida is paying about $120,000 a year for insurance, the same doctor would be paying about $40,000 a year in California.
"So we think the state is good place to do business," Meyer said.
Contact Evan Pondel at (818) 713-3662 or evan.pondel(at)dailynews.com
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