Aren’t Insurance Companies Having To Pay More In Claims Than They Are Able To Earn In Premiums And Therefore In Financial Trouble?

NO and NO.  Another red herring thrown out by the insurance industry and particularly MAG and MAG Mutual is a supposed $1.54 nationwide combined loss ratio.  They state as a matter of fact that the figure means that insurers are paying out $1.54 for every $1.00 in premium they take in.  That is false and an outright intentional distortion.  A loss ratio is “insurance speak” for losses they predict they will have to pay in the future.  It is reassessed every year.  Historically, it has been extremely inaccurate.  Moreover, an insurer’s combined loss ratio can be well over a dollar in the medical malpractice industry with the insurer still making a healthy profit, in part because it does not take into account their ability to turn premium dollars into long-term investment income.  MAG Mutual historically has grossly overstated its loss ratios but nonetheless it has consistently made huge amounts of money.  The chart below shows how MAG Mutual’s premiums have exceeded its paid claims (because the typical medical malpractice claim takes a number of years to close, the amount of paid claims increases on an annual basis until all claims from any given year are closed):

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