Those who bemoaned a "medical malpractice crisis" in Maryland were surprised when a major mutual stopped raising rates.
Insurance Journal reports that the news comes "after an emergency session of the General Assembly and dire warnings from Gov. Robert Ehrlich that doctors would be driven out of the state because of high insurance costs."
A state subsidy is now in question. Why do politicians always seem surprised when the market works like it should, despite their best efforts? Med-Mal Rates in Maryland Dropping
Specialty Insurance Blog points us to a New York decision holding an excess lines broker liable for placing an insured with Legion Insurance Company, which failed and was liquidated in 2003, leaving claims unpaid. The court believed undisputed testimony indicating that the broker may have skipped and papered-over the statutorily required search for an admitted insurer before placing coverage with the doomed Legion. Specialty Insurance Blog: Insurance Broker Insolvency Liability
Most courts agree that an agent takes on a professional duty of care simply by taking on the role of an agent. That ordinary duty usually does not include a duty to give advice or explain coverages to insureds, who are expected to read the policy. But it often includes liability for failure to procure insurance as promised.
In the presence of special circumstances, such as express assumption of additional responsibilities or the agent representing that she has special skills, additional duties may be found. Some courts are even recognizing that some circumstances raise an especially high “fiduciary duty” standard, even though that standard has rarely been applied to agents in the past. See Daniel Gregory Sakall, Note, “Can the Public Really Count on Insurance Agents to Advise Them? A Critique of the ‘Special Circumstances’ Test,” 42 Ariz. L. Rev. 991 (2000).
Insureds have also sought to hold agents and brokers responsible if the company with which they were placed becomes insolvent and unable to fund a defense and pay claims. Though agents are not held to be guarantors of the solvency of an insurer, courts have found them liable if they fail to use reasonable care in choosing an insurer. See Michael F. Skinner, “Liability of Insurance Agent or Broker for Placing Insurance With Insolvent Carrier,” 42 A.L.R.5th 199 (1996).
When companies are licensed by the state, agents are generally protected if the insurer fails, because state licensure comes with oversight of solvency. See, e.g., Wilson v. All Service Ins. Corp., 153 Cal.Rptr. 121 (Cal. App. 1979). Some companies are “unauthorized” insurers, for which special procedures are called for in order to place business using “surplus lines” agents and brokers. For such insurers, there may be a higher standard to inquire into the financial status of the company and to observe all of the statutory formalities. This recent New York decision highlighted by Specialty Insurance Blog is one example of application of such a standard. East Coast Mgt. Ltd. v. Ganatt Assoc., Inc, 2005 NY Slip Op 25313 (Supreme Court 2005).
Risk Prof spurred a bit of a debate over the use of credit scores as a rating tool, as recently approved by the Louisiana Ins. Commission. Commentators repeat the usual objections, usually with a minimal background in the science, logic and economics of insurance pricing and risk selection. Risk Prof quotes and criticizes arguments from objectors that attempt to apply standards from civil rights cases to commercial insurance pricing.
One commentator, Joe Rotger, volunteers to "sacrifice and pay higher premiums" to avoid "blatant discrimination." All we need is a market filled with buyers who make decisions based on other than their economic best interest. Last I heard, those were hard to find. Hard enough to make it unprofitable to depend on it in a competitive world. And the various GEICO and Progressive ads offering lower rates would be a waste of money. My guess is they are more practical than Joe.
Another is willing to let "Joe" pay extra, but opposed to forcing that choice on everyone.
The key element is that credit scores do in fact correlate with claim ratios. Why? Hard to say, but its not important to the rating decision. If a positive correlation can be shown, making the discrimination not unfair, the law is satisfied. If the legislature wants to outlaw a scientifically demonstrated predictor of claim costs, let it be their call, not the insurance commissioner's.
I'm with Risk Prof and the Louisiana Ins. Commissioner on this one.
To join in the debate, visit: RiskProf : The Civil Rights-ing of Risk
From the abstract:
"This week, the Wharton Risk Management and Decision Processes Center publishes TRIA and Beyond, an analysis of the Terrorism Risk Insurance Act of 2002 (TRIA), which will expire December 31, 2005, if not renewed. The Risk Center's report offers policymakers, key industry representatives and other interested parties an analysis of what roles the public and private sectors should play with respect to terrorism risk coverage in the United States. The report was produced by a nine-person team, led by Howard Kunreuther, co-director of the Center, and Erwann Michel-Kerjan, a senior research fellow at the Center. The other authors include Neil Doherty, Wharton professor of insurance and risk management; Paul Kleindorfer, Wharton professor of operations and information management; Mark V. Pauly, Wharton professor of health care systems and business and public policy; Scott Harrington, Wharton professor of health care systems; Center research associate Esther Goldsmith, and senior fellows Irv Rosenthal and Peter Schmeidler."
RiskProf : More Simplistic Tort Reform Research examines recent writings by Bob Hunter about the medmal marketplace and tort reform, and rightly criticizes the lack of decent standards for statistical comparison and claims, saying: "The standards for analysis in this debate are too low. Every group has their favorite whipping boy and their statistics to back it up. However, just looking at point estimates and saying this estimate is bigger than another to make a conclusion ... is so 1930s. I don’t think these reports would even get an average grade as an undergraduate term paper. Shouldn't we expect more?"