Proposition 103 Invoked to Slash Medical Protective Company’s Requested Increase by 60%

Santa Monica, CA — The California Insurance Commissioner has ordered California’s ninth largest medical malpractice insurer, Medical Protective Company, to slash its proposed 29.2% rate hike to 11.8%, pursuant to a settlement of a rate challenge brought by the non-profit Foundation for Taxpayer and Consumer Rights (FTCR). The cut will save doctors insured by Medical Protective $3.9 million. Consumer advocates called the ruling another successful application of California’s insurance reform initiative known as Proposition 103, which has held down medical malpractice and other insurers’ rates since the initiative was approved in 1988.

Using California’s Proposition 103, FTCR filed a formal challenge to Medical Protective’s proposed rate hike with the California Department of Insurance in April 2004. After extensive review and discussions of the company’s rate filing by actuarial experts of FTCR, the Department, and the company, the parties ultimately agreed that an 11.8% increase was reasonable – despite the company’s original assertion that it needed to hike rates by 29.2%.

“This settlement means that $3.9 million in excessive profits that would have lined the pockets of the Medical Protective Company will instead be passed on as savings to California doctors and their patients. The Insurance Commissioner should be commended for approving this settlement,” said Lawrence Markey, Jr., a staff attorney with FTCR.

In California, insurance policyholders are protected by Proposition 103, a 1988 voter-approved ballot initiative that governs the California insurance industry. Under Proposition 103, insurers were required to immediately roll back rates. As a result, medical malpractice providers returned over $75 million directly to physicians after the initiative was enacted. The law also requires insurers to justify rate changes prior to imposing increases on policyholders, a process known as “prior approval” regulation. Under the law, consumers and advocacy groups such as FTCR can request a hearing on a rate hike proposal.

In addition to the Medical Protective challenge, FTCR has also mounted successful Proposition 103 challenges to rate increases proposed by the state’s two largest medical malpractice insurers. Overall, FTCR saved doctors insured by SCPIE Indemnity approximately $27 million, and doctors insured by Norcal Mutual $11 million.

REGULATION, NOT LIABILITY CAPS, KEEPS RATES DOWN FOR DOCTORS

FTCR noted that in California, as around the country, medical malpractice insurers have been attempting to push rates dramatically higher in recent years despite California’s draconian liability caps. These caps, known as the Medical Injury Compensation Reform Act of 1975, or MICRA, are cited by the insurance industry as a model for addressing the national medical malpractice “crisis.”

That California, unlike so many other states, has been able to restrain physicians’ premiums, is due to Proposition 103, according to FTCR.

“In this instance, Medical Protective claimed a need for a 29.2% increase based, in part, on the use of countrywide loss data, even though California laws contain medical malpractice liability caps. After subjecting this insurer’s data to scrutiny as allowed under Proposition 103, it became clear that most of that increase represented excessive profits. Without Proposition 103, Medical Protective’s excessive rate increase would have already been a reality, and California doctors would be paying the price,” said Markey.

The Commissioner’s order approving the 11.8% rate increase takes effect on September 22, 2004.

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