Yesterday ISMIE, Illinois' largest provider of medical liability insurance, issued a release touting the $11.5 million policyholder dividend, based on the "positive financial experience in the 2005-06 and 2006-07 policy years. Well they should be giving something back after they made $50 million in profits in 2006 and $40 million in profits in 2007, according to papers filed with the state. (We blogged about it here.)
What kills me the most is that their release touts the "improving legal landscape" i.e. caps as the reason for these profits. Huh, that is funny since there has been no lawsuit limited by caps yet. The cruel caps law was declared unconstitutional by a Cook County court and is expected to be heard by Illinois Supreme Court in the next year. So I find it very suspect that these record profits have come about because of caps.
I want to offer you this alternative explanations for the dividends and the record profits:
- When the caps legislation was passed along with it, as part of the compromise, strong insurance reform was also passed. These reforms allowed the State and public to have a wealth of financial data from companies that provide medical liability insurance to physicians. Additionally, the law gives the state to regulate the industry more, and in march of 2006 the Illinois Department of Financial and Professional Regulation (IDFPR) issued an order to ISMIE to establish "a program to return dividends, or excess premiums, to the doctors it insures over several years." Wow - sounds like ISMIE is doing what they state told them to do.
- Insurance companies were making record profits around the country during the same period. It is because of "the insurance cycle." Basically insurance companies keep a certain amount of money in reserve to pay for insurance claims, such as jury awards. Well this reserve money is invested and the companies can make millions of dollars of revenue from these investments.The gain on their investments are where their windfall profits came from not from caps laws. (To read more about the insurance cycle check out the Americans for Insurance Reform's report Measured Cost.)
It is the insurance reforms that were enacted not cruel caps that has increased competition, saved doctors money and benefited Illinoisans.
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