If you look back at the newspaper headlines from the mid-1970s and the mid-1980s, you'll get a bad case of deja vu: "Doctors Threaten To Close," "Doctors March on Capitol," "Doctors Demand Caps on Damages." Three times in the past 30 years, we've had malpractice "crises" and guess what? They all coincided with a downturn in investment markets. (See "Been There, Done That")

Like the "crises" of the mid-1970s and mid-1980s, today's "crisis" has been caused by an economic phenomenon known as the "insurance cycle." In a nutshell, when the investment market drops, as it did in the late 1990s, insurance companies - which rely

on investment income to make money - are forced to raise rates. You've probably noticed that your own insurance premiums - homeowner's, health care, etc. - have been going up. (For a thorough discussion of insurance industry factors that contributed to the malpractice "crisis," see Michael J. Foley's essay)

In the 1990s, when the stock market was roaring along, malpractice insurers competed aggressively for market share in Pennsylvania by grossly underpricing premiums. When the bottom dropped out of the market, they were left without enough money to pay claims, causing a number of major malpractice insurers to become insolvent, some amid allegations of criminal wrongdoing. (For highlights, click here) 

• Larry Rogers, president and CEO of PIE Insurance, went to jail for defrauding his company into bankruptcy. 

• The Pennsylvania Insurance Department has accused Reliance Insurance and its president and board members of mismanaging the company into insolvency.

• The Pennsylvania Insurance Commissioner sued PHICO (Pennsylvania Hospital Insurance Company) for “fundamentally unsound” practices and accused several board members of self-dealing in handing out dividends in the face of falling reserves.

• Malpractice insurers in Pa. aren't losing money

• Rising claims are NOT the cause of rising premiums

• AND, over the past 30 years, premiums have risen and fallen in concert with the economy

In testimony to the U.S. House Committee on Energy and Commerce's Subcommittee on Health, Travis Plunkett, legislative director for the Consumer Federation of America, detailed the insurance industry trends that have given rise to the malpractice "crisis." Plunkett told Congress: "It is the 'hard' insurance market and the insurance industry's own business practices that are largely to blame for the rate shock that physicians have experienced ..." (See testimony)

In January 2002, the International Risk Management Institute, an insurance industry group, issued a statement supporting the contention of the Pa. Trial Lawyers Association that "the insurance industry's own business practices are responsible for its financial losses from medical malpractice coverage." (See statement)

Meanwhile, as doctors threaten to close offices and politicians consider limiting victims' access to justice, insurance companies are posting staggering profits (See story) and executives continue to rake in some of the most staggering salaries in corporate America. (See chart)  Here are just a few salary/benefit packages from 2002:

• Eli Broad, SunAmerica (of American International Group), $48,174,739

• Sanford I. Weill, Citigroup, $26,694,959

• Jacques E. Dubois Jr., Swiss Re, $19,739,137

Yet President Bush wants to limit the value of mothers who lose their reproductive capacity or children left brain-damaged by a birth injury to $250,000.

The only way to solve today's malpractice "crisis" and prevent future problems is for Pennsylvania to institute stringent regulation and oversight of the insurance industry. Among other things, the state should regulate the industry's investment strategies to avoid wild premium fluctuations resulting from market factors, and make insurers open their books to justify rate increases.