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Should Tort Reform Include Capping Insurance Company Profits?

By Byron Warnken, on November 18, 2013

I’m not sure exactly why businesses suggest we need tort reform.  I think a large part of the thinking revolves around insurance premiums being so high.  Premiums are so high.  The cost of lawsuits is so substantial.

I think that’s what they talk about.

I am a person who likes to make sense out of the world.  I try to put all of the pieces together to figure out how things really work.  In essence, that makes me a truth seeker.  Because if one puzzle piece is based on a lie, it generally won’t fit.  Only by understanding the truth can you understand how the pieces fit.

The truth is companies are designed with one thing in mind – increasing their own bottom line.  Executives seek to further this goal and/or to increase the size of their own paychecks.

This is capitalism.  There’s nothing wrong with it.

However, part of democracy, part of society, and part of capitalism, is access to justice.  In theory, companies and executives should stop short of imposing on the rights of others in search of profit.  In theory, we wouldn’t need courts and a justice system to compensate those whose rights have been impinged.  In practice, companies and executives do need to be checked by the justice system.  Without it, the quest for profits only furthers the impinging of rights.

The adversarial system is not wrong.  It works when the playing field is level.

However, when one side has the ability to buy influence of the powers that be, the playing field becomes uneven.  When the playing field becomes uneven, the system breaks.

“Tort reform” is, in essence, another way of denying or limiting access to justice.  The advocates of tort reform are those who, surprise, don’t like being sued.  Insurance companies, corporations, and the politicians who receive their contributions are the big tort reform backers.

In the past week I’ve read the financial results of Nationwide, Allstate, Prudential, AIG, Chubb and a few others.  The profits are massive:

  • Allstate had net income of $310 million in Q3 of fiscal 2013.  That means they made more than $100 million per month.
  • Chubb made more than 1/2 a billion dollars during that same period.
  • Nationwide’s profit was about $1 billion dollars through the first 9 months of 2013.

In the medical malpractice arena, a new report from Aon, PLC, “the leading global provider of risk management, insurance and reinsurance brokerage…” shows that “the cost of medical malpractice is growing at the slowest rate in the fourteen year history of [their benchmarking report].”  The report estimates that med mal will cost $0.60 for every $100 in hospital revenue, or .6%.  On their face, these numbers hardly make it sound like a crisis.  Aon’s healthcare practices leader says, “We project zero growth in medical malpractice claims for 2014.”

Sources for above figures: InsuranceNetworking, WSJ, Columbus Dispatch

If a big part of the goal of tort reform is lowering insurance premiums for doctors, companies, and individuals, couldn’t we just limit the profits of insurance companies and/or force everyone into mutual insurance companies and limit executive pay?  

Could we simply limit executive pay in insurance companies?

Because if the whole point is to reduce premiums, making it easier for doctors and companies to stay in business and render services for profit, there are plenty of ways to do it.  I’m not sure why the one insurance company cost we want to limit is the amount paid to the injured.  Might it have something to do with the cozy relationship between insurance companies, big business, and politics?  It might, sure.  But that’s a conversation for another day.

How does the business-politics link manifest itself?  Sometimes brazenly.  Sometimes subtly.  Either way, it’s happening all around us all the time.

I don’t have anything against capitalism, making money, or executive pay.  I have something against a system that allows justice to be purchased.

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