OFFICE OF INSURANCE REGULATION PETITION FOR HEARING. The Office of the Insurance Consumer Advocate, pursuant to section , Florida Statutes,

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1 OFFICE OF INSURANCE REGULATION IN RE: MEDICAL MALPRACTICE RATES PETITION FOR HEARING The Office of the Insurance Consumer Advocate, pursuant to section , Florida Statutes, hereby petitions the Office of Insurance Regulation to conduct a hearing, pursuant to the authority granted in s , Florida Statutes, regarding the current rates being charged in this state for medical malpractice insurance coverage. This petitioner submits: (a) The agency affected is the Office of Insurance Regulation (hereinafter OIR ), 200 East Gaines Street, Tallahassee, Florida The petitioner is Steve Burgess, Insurance Consumer Advocate (hereinafter Consumer Advocate ), 200 East Gaines Street, Tallahassee, Florida , which address can be used for service purposes, (850) , facsimile: (850) Steve.Burgess@fldfs.com. (b) Petitioner s substantial interest affected and the statutory right to petition for the initiation of a hearing are as follows: 1. On August 14, 2003, the Governor approved a bill passed by the Legislature in special session that made sweeping reforms to medical malpractice, including elements related to medical malpractice liability insurance. It did so based on Legislative findings adopted in statute and found in s , Florida Statutes. 2. First on the list of the Legislative findings is the following: (1)(a) Medical malpractice liability insurance premiums have increased dramatically in recent years, resulting in increased medical care costs

2 for most patients and functional unavailability of malpractice insurance for some physicians. Patently, the foremost legislative concern was medical care costs for most patients and functional unavailability of malpractice insurance for some physicians. 1 Accordingly, the implementation of the reforms should be viewed within the context of solving the statutorily stated concerns. 3. Subsequent to the passage of the bill and pursuant to legislative directive, the OIR contracted with Deloitte and Touche for assistance in the calculation of a presumed factor. 4. On November 10, 2003, the OIR issued Informational Memorandum OIR M. Within this memorandum, OIR announced: The presumed factor, as referenced in Section 40 of CS/Senate Bill 2-D, is negative 7.8%. 5. Insurance carriers writing medical malpractice coverage were required no later than 60 days after the office issued its notice of presumed rate change factor to submit a rate filing reflecting an overall rate reduction at least as great as the presumed factor. (Section 40 of CS/Senate Bill 2-D; see also, s (8)(a)2., Florida Statutes) 1 Even the issue of availability was actually couched more as a question of affordability. The Staff Analysis and Economic Impact Statement for CS/SB 2-D by Health, Aging & Long-Term Care Committee and Senator Jones, August 12, 2003, page 8 states: Whatever the causes and solutions, the effects of the rising cost of medical malpractice insurance and the reduction in the availability of such coverage are being felt in Florida s health care system. There have been numerous reports of doctors discontinuing doing risky procedures, retiring prematurely, practicing without insurance, and leaving litigious areas of the state in an effort to deal with the price of liability coverage. In some cases, the decision of high risk specialists to reduce or eliminate their services has led to further reductions in services by hospitals. Some hospitals are discontinuing services such as maternity services and trauma services because of the high cost of malpractice coverage for the specialists needed to provide these services. [Emphasis added] Thus both of the explicit legislative concerns involve reducing the cost of insurance being charged to its end users and all of the reforms can be understood as seeking that goal.

3 6. The law further specified rate standards that are to be applicable only with respect to rates for medical malpractice insurance. That provision states: (7)(c) Upon reviewing a rate filing and determining whether the rate is excessive, inadequate, or unfairly discriminatory, the office shall consider, in accordance with generally accepted and reasonable actuarial techniques, past and present prospective loss experience, either using loss experience solely for this state or giving greater credibility to this state s loss data after applying actuarially sound methods of assigning credibility to such data. (s (7)(c), Florida Statutes) 7. Within the last year, the OIR has received rate filings from four of the eight largest medical malpractice insurance writers in this state. Three of the filings proposed rate reductions and one proposed a rate increase; however, upon examination of the rate filings, the actuary for the Consumer Advocate has opined that far greater rate reductions were indicated then were being sought by each carrier. 2 In each case the carriers placed excessive reliance upon their experience prior to the tort reforms that took effect September 15, Three of these carriers relied upon the Deloitte and Touche presumed factor to estimate the savings due to legislative changes, either discounting or ignoring their actual experience subsequent to the legislative changes, which has been far more favorable than predicted by the Deloitte and Touche study. 2 In 2005, MAG Mutual requested a 9.2% increase, while the Consumer Advocate sought a 28.6% decrease. In 2006: Doctors requested a 1.3% decrease, while the Consumer Advocate sought a 41.0% decrease; FPIC requested a 11.0% decrease, while the Consumer Advocate sought a 40.1% decrease; and Pro National is requesting an 8.6% decrease, while the Consumer Advocate is seeking a 50.8% decrease.

4 8. Florida medical malpractice insurance direct incurred losses, defense and cost containment expenses have declined by 43.6% from $989,021,000 in 2003 calendar year to $557,487,000 in the 2005 calendar year (source: NAIC, 9. The policymakers of this state did not impose these sweeping reforms merely for the purpose of providing serendipitous enrichment to insurance carriers. Rather, as the legislature itself stated, the reforms were imposed to achieve more favorable medical care costs for most patients and to ease the functional unavailability of malpractice insurance. Allowing the carriers to continue to reap the overwhelming majority of the savings from the 2003 reforms thwarts the clearly stated legislative intent. The legislative intent will be met only by passing the savings through to Florida s consuming public. 10. Section , Florida Statutes, reads in relevant part: The Chief Financial Officer must appoint a consumer advocate who must represent the general public of the state before the department [Department of Financial Services] and the Office [Office of Insurance Regulation]. The consumer advocate has such powers as are necessary to carry out the duties of the office of the consumer advocate, including but not limited to, the powers to: (1) Recommend to the department of office, by petition, the commencement of any proceeding or action; appear in any proceeding or action before the department or office; or appear

5 in any proceeding before the Division of Administrative Hearings relating to subject matter under the jurisdiction of the department or the office. [emphasis added] (2) Have access to and use of all files, records, and data of the department of office. (3) Examine rate and form filings submitted to the office, hire consultants as necessary to aid in the review process, and recommend to the department or office any position deemed by the consumer advocate to be in the public interest. 11. The Consumer Advocate is given the statutory entitlement to request this proceeding as a matter of statutory right pursuant to s , Florida Statutes (cited above). Further, the Consumer Advocate has substantial interest as the statutory representative of the general public of the state whose interests are substantially affected by the rates charged for medical malpractice insurance. (c) The disputed issues of material fact include, but are not limited to: 1. The current medical malpractice insurance rates that are being charged to Florida consumers place excessive reliance upon experience prior to the tort reforms effective September 15, There is a growing amount of credible data which shows that the actual post-reform experience is significantly more favorable than the pre-reform estimate of projected savings that was performed by Deloitte and Touche.

6 3. The current medical malpractice insurance rates are based on excessive trend factors. 4. Because of the shortcomings in the rate setting methodology described in the foregoing points, current medical malpractice insurance rates are excessive in violation of s , Florida Statutes. (d) The specific statute the Consumer Advocate contends is relevant to the requested proceeding is s , Florida Statutes. (e) The ultimate relief sought is the convening of a hearing by OIR to allow the Office of the Insurance Consumer Advocate to present supporting data, oral and written statements relevant to the issues presented herein, and to determine whether medical malpractice carriers should be required to adjust their rates if deemed necessary for compliance with OIR s findings. Wherefore, the Insurance Consumer Advocate hereby petitions the Office of Insurance Regulation for the convening of a hearing as described herein. Respectfully submitted, Stephen C. Burgess Insurance Consumer Advocate 200 East Gaines Street Tallahassee, Florida Telephone: (850) Facsimile: (850) Steve.Burgess@fldfs.com

7 CERTIFICATE OF SERVICE I HEREBY CERTIFY that an original copy of this Petition for Hearing has been hand delivered on this 7 th day of November, 2006 to: Steve Parton General Counsel Office of Insurance Regulation 200 East Gaines Street Tallahassee, Florida Stephen C. Burgess