Premiums dictated by economy
Charleston Gazette
October 11, 2002

Most people don’t realize that insurance companies really don’t make money on the premiums they charge.

A friend of mine who works for an insurance industry magazine in Chicago explained it to me awhile back. Insurance companies make money by investing the “float.” The “float” is the money that’s been collected in premiums, but not yet paid out in defense costs or payouts.

. . .

Long ago insurance companies figured out that they could turn temporary downturns to their advantage, especially in the medical malpractice insurance arena, by claiming that the premium increases were necessary because of increasing lawsuits.
That lie can finally be put to rest, thanks to a nationwide study by Americans for Insurance Reform, a coalition of consumer and public interest groups.

The AIR study, released Thursday, confirms on a national level what former Gazette reporter Lawrence Messina found in West Virginia: increases in malpractice insurance premiums are not related to increases in the number of lawsuits or the amount of settlements and verdicts against doctors.

In fact, the AIR study, “Stable Losses/Unstable Rates,” found that malpractice premiums correspond almost exactly to the strengths and weaknesses of the nation’s economy. When the economy is going well and market investments are high, malpractice premiums are low. When the economy is suffering and the market is down, malpractice premiums increase — dramatically.

For a copy of the complete article, contact AIR.