In terms of where that leaves us now, I guess if you look at how the current policy year loss ratios are being carried by the industry relative to the prior few policy years, if you look at that, especially in relation to what we see going on in terms of frequency and severity trends, in addition to the rate level changes of the last few years, I believe that as we sit here today, these items suggest that the industry reserve levels are actually quite prudently stated at the current time.
McDONALD: Whenever you talk about the state of med mal, inevitably it gets to a discussion of what happened with frequency. Obviously the companion to that is severity. So apparently it’s dropped since 2004 and 2005 noticeably. When we talked earlier you were saying that may not be the case today, or at least you might be seeing some things that cause you to look more closely. What are you seeing?
KARLS: I think that’s an excellent point. In my view the reduction in claims frequency that occurred, depending upon the state or the jurisdiction,maybe in the 2003-2004 time period, in my view that’s been the single most important reason for the industry’s favorable operating results of the past few years. Again, depending upon the state or market, it seems as though the claims frequency fell off somewhere in 2003 and 2004. It varied by company. It varied by market. The magnitude of that falloff also obviously varied by company and market. There are some situations in which the magnitude of the frequency reduction has been upwards of 40% to 50%, which is quite remarkable.
Of course a follow-on question that always comes up when we talk about what happened to frequency, and it is a very good one, and that is simply, Why?. Why did frequency do what it did? At least in my view, the short answer is nobody is really sure. There have been a number of commonly cited reasons, including in certain jurisdictions one could perhaps choose specific tort reforms that were enacted in a particular state. Certainly I think that has had an effect on claim frequency. I don’t think it can be the sole reason though because not every state had tort reform passed around that time period, in the 2003-2004 time period.
So that can’t be the only reason. I certainly think it’s contributory. I would expect that to some degree the falloff in claim frequency is also related to the whole, what I’ll call the patient safety movement. An awful lot of attention was paid to that and continues to be paid to that, and for good reason. I’ve got to believe that has had an effect as well on raising the awareness in terms of how health care is being delivered, maybe in a safer way. I’d like to believe that too has contributed to the falloff in claim frequency that we’re seeing.
A third reason I’ve heard discussed a fair amount is that simply the economics have changed from the plaintiff attorney’s perspective in terms of the economic feasibility of bringing a claim with perhaps more limited damages, given the increasing costs of bringing forward a claim coupled in some states anyway with perhaps a cap on noneconomic damages. So another reason that’s oftentimes cited is just that the simple economics have changed from a plaintiff attorney’s perspective.
Finally and perhaps this is the probably the softest or maybe most difficult one to prove anyway, is some have said that part of the reason for the falloff in frequency is that there have been changes in society’s attitudes and propensities towards bringing claims against health care providers, particularly in light of what happened in the early part of the decade with the rather well-publicized examples of the limitations in the access to health care that people were experiencing in certain parts of the country. It’s hard and frankly impossible to quantify, but I believe that on some level this too had an effect in terms of the falloff in claims frequency as of late.
McDONALD: Paul Turner, I’d like to bring you into the discussion. Why don’t we talk about the broad legal environment. Obvious there’s the whole issue of tort reform. Since you’re based in Chicago, you actually are the headline story of the past week with the reversal there. Could you talk about that for a minute?
TURNER: Sure. It may be headlines in other places but here in Cook County I think that the Supreme Court’s decision in Lebron was fully anticipated and discounted. None of the settlements that I’ve been involved in for the last couple of years paid the slightest attention to the caps anymore. There was almost a universal acceptance that it would be overturned by the Supreme Court. In fact it was overturned in Cook County two years ago. Lebron was a Cook County case going up, so the caps haven’t been law here for quite some time.
The decision itself though had a couple of interesting twists, I thought. It followed party lines. We elect our justices here by party and all the Democrats voted to strike down the damage caps and all the Republicans except for one who recused himself, voted to keep them. But what they said was kind of amusing because it starts with a couple of paragraphs saying how sorry President Obama is going to be because of this decision and how much it sets back his health care reform agenda. I’m not sure other people would agree with that but it was kind of a