The consumer disadvocates are taking it on the chin. Last week Ted Frank and I finished an AEI Liability Outlook critiquing studies put out by various consumer advocates. Also late last week Rob Hoyt and Lars Powell took on the Foundation for Taxpayer & Consumer Rights (FTCR). This is a group that advocates getting rid of zip code restrictions on insurance pricing in California. This would be a good thing for low risk drivers in California and is often fought by other consumer disadvocates. However, the FTCR has a split personality.
The FTCR issued a report last winter which claimed med mal insurers were intentionally over reserving to create a crisis so that they could raise med mal rates. In addition to the previous canards often repeated, yet easily discredited, such as the claim that the insurance industry lost money due to poor investments choices, the FTCR looked at a given set of years’ reserves and then extrapolated forward claiming that the med mal industry will have over charged doctors some $15 billion.
Hoyt and Powell look at more recent data which suggests something completely different. First, they tackle the issue of the "poor" investment choices of med mal insurers to show that, the investments are mostly in bonds, and the portfolios are more conservative, on average, than the insurance industry as a whole. Second, they show insurers have not over reserved as evidenced by relatively small downward reserve revisions. Further, Hoyt and Powell point to evidence consistent with an industry without profits: Insurer exit and state assistance plans for physicians seeking coverage. This is not the sign of a healthy market and truly inconsistent with the high profits alleged by the FTCR.
The consumer advocates really need to understand this market and insurance markets in particular. They do not comprehend insurance pricing, competition, market structure or the incentive structure of the industry. According to the PIAA, an industry association of physician owned insurance companies, some 60 percent of the US market is covered by these member-owned medical malpractice insurers. What possible incentive do these insurers have to over-charge their customers just so that they can turn around and give those same customers a dividend?