The Insurance Cycle – Déjà Vu All Over Again

This is the third time in the past three decades the insurance and medical industries have sought to profit from an economic downturn that in part has caused a temporary increase in insurance premiums.  In the mid-1970’s and most recently in the mid-1980’s, during the country’s last liability insurance “crisis,” state legislatures across the country were asked to pass laws restricting the rights of innocent citizens to be compensated for their injuries.

Major national and Georgia publications appropriately concluded that the alleged “crisis” in the 1980’s was what it had been in the 1970’s – part of an insurance cycle which was self-inflicted by the insurance industry and which was not driven by out of control claims:

Business Week published an article entitled “The Explosion In Liability Lawsuits Is Nothing But A Myth.”[47] 

A Consumer Reports article entitled “The Manufactured Crisis – Liability insurance companies have created a crisis and dumped it on you” noted, “[a] more objective analysis suggests the “crisis” is of the insurance companies own making.”[48]  It quoted a Washington State Task Force as concluding that the premium escalations were the result “mostly of poor management practices by the [insurance] companies.”[49] 

In Georgia, the business and finance magazine Georgia Trend asked, b>“Would the insurance crisis go away if Georgia passed tort reform?” Its response: “Almost certainly the answer is no.”[50]

Similarly, in the late 1980’s, an Attorneys General Report “An Analysis of The Causes of the Current Crisis of Unavailability and Unaffordability of Liability Insurance,” pointed the finger back at the industry, not the civil justice system.  The report concluded that:

The facts do not bear out the allegations of an “explosion in litigation or in claim size, nor do they bear out the allegations of a financial disaster suffered by property/casualty insurers today.”  It went on to state, “… the available data indicate the causes of, and therefore the solutions to, the current crisis lie with the insurance industry itself.” [51]     

MAG and others attempted the same scare tactics in Georgia in the 1980’s

“According to a survey taken by the Medical Association of Georgia, 35% of Georgia’s obstetrics practitioners will stop delivering babies because malpractice insurance premiums have soared.  And, almost 80% of all doctors will cut out some services as a defensive measure against lawsuits.[52]

Interestingly, despite the passage of some tort reform measures in Georgia in 1987, including repeal of the collateral source rule, claims exposure did not dramatically decrease.  Instead, claims remained essentially stable or merely increased with inflation, population growth, advancing medical technology and an increase in the number of doctors practicing in Georgia.  Eventually, a few years after the mid-1980’s insurance crisis, the insurance cycle flattened out, rates stabilized and availability improved everywhere. 

Despite the ruling of the Georgia Supreme Court striking down the collateral source statute as unconstitutional in 1991[53] insurers in Georgia and MAG Mutual in particular went on to make unprecedented profits in the 1990’s – despite a purported increase in claim amounts. Most critically, not only did physicians not flee the state, stop delivering babies or cease reading mammograms, but throughout the 1990’s, malpractice premiums in Georgia were slashed to unprecedented lows. By 2000, Georgia’s obstetricians’ rates had plummeted nearly 30% from their 1992 levels.  Today, even amidst the current alleged crisis, OB rates are still below what insurers charged in Georgia over a decade ago. 

Again, where is the crisis?

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