Insurer Switching Tactics Going Unregulated To Raise Its Premiums
By DARRIN SCHLEGEL
Copyright 2004 Houston Chronicle
April 10, 2004, 1:05AM
One of the state's large medical malpractice insurers is bypassing state regulators in order to raise insurance rates for physicians this year.
GE Medical Protective will increase the cost of premiums by 10 percent on June 1 by switching from a rate-regulated line of insurance to one that doesn't require state approval.
The carrier, which insures roughly 7,000 physicians in Texas, said it factored the future cost of claims into its decision and would have had to drop coverage for some physicians had it not made the switch.
The move has frustrated Texas Department of Insurance Commissioner José Montemayor.
And it's a setback for supporters of Proposition 12, which sought to curb the soaring costs of malpractice insurance by capping noneconomic damages in medical liability cases.
That measure, backed by doctors and insurers, was narrowly approved by voters in September to amend the Texas Constitution.
Dr. Lou Goodman, chief executive officer of the Texas Medical Association, which supported the amendment, said he was disappointed that GE Medical Protective "wouldn't have a little bit more faith" in Proposition 12.
In a letter to Goodman dated April 1, Montemayor said he was disappointed by the insurer's decision and believes it is premature.
Had the carrier waited four to six months and relied on the reforms, he wrote, it would have reached a different conclusion.
He added that his department is "reviewing every legal option available" to make sure the carrier's policyholders pay a fair rate, but he did not elaborate.
The state insurance department estimated physicians could save between 8.5 percent and 11.5 percent on premiums if Proposition 12 passed.
Thus far, however, only one of five major insurers in Texas has agreed to lower rates.
The Texas Medical Liability Trust, the state's largest medical malpractice insurer, agreed to lower premiums by 12 percent this year.
By contrast, both GE Medical Protective and the Joint Underwriting Association filed for rate increases.
The state rejected the Joint Underwriting Association's attempt to raise rates by 35 percent for doctors one day after the Houston Chronicle published a report about the proposed increases in November.
An insurer of "last resort," the association was created by the Legislature in 1975 and is subject to regulation by the state.
GE Medical Protective filed for a 19 percent increase but also met with opposition from regulators as an insurer subject to rate regulation.
"They thought that tort reform would result in such great savings that we shouldn't increase our rates much, if any at all," said Jay Thompson, outside counsel for GE Medical Protective.
However, Thompson said, the company had already accounted for Proposition 12 in its rate increase and still saw a need for the increase.
Nevertheless, the company decided to lower its rate increase to an average of 10 percent in a show of "good faith" to regulators, he said.
Some doctors would have been dropped from the plan had it not made the switch to an unregulated product and raised premiums.
"We felt like we were at a point where we were either going to have to have an adequate rate to give the doctors a choice to stay with us or to send nonrenewal notices," he said.
The move to the unregulated product, called a risk purchasing group, gives the carrier more flexibility, Thompson said.
In addition, not all of its policyholders will face 10 percent premium increases, he said.
Doctors who have been free of claims, for example, may face lower rate increases.
Thompson also said the insurer will closely monitor claims and could lower premiums if warranted.
Notices are being sent to policyholders to inform them of the rate change. Thompson said the switch to a risk purchasing group will not affect coverage.
