[October 22, 2014]

A.M. Best Briefing: Potential Turbulence Ahead in the Wake of California's Proposition 46

A.M. Best has released a Best's Briefing on the potential impact of California's Proposition 46 ballot measure on the state's medical professional liability (MPL) market. On Nov. 4, 2014, California residents will vote on Proposition 46, a referendum that if passed, would increase the limit on non-economic damages for pain and suffering related to medical malpractice claims from $250,000 to nearly $1.1 million and index the cap annually based on inflation. There remains no cap on economic damages related to medical and lost wages.

The state's financial cap on medical malpractice awards is part of the Medical Injury Compensation Reform Act of 1975 (MICRA). Since it became law, the state's Supreme Court has upheld its constitutionality. MICRA has also been a model for other states' MPL tort laws over the years. The briefing, titled, "Potential Turbulence Ahead in the Wake of California's Proposition 46," states that if enacted, this proposition is likely to have a broad effect on the citizens of California, the medical community and trial lawyers, as well as insurance companies providin MPL coverage in the state.

As a result, A.M. Best is monitoring this emerging issue and asked companies that it rates to respond to a survey about the implications if Proposition 46 passes. Below are some highlights of that survey of which approximately 65% of the California MPL market and 70% of rated entities writing MPL in that state responded in whole or in part.

• Premium (Base Rate) Implications: For this section survey results were incomplete; however, the vast majority (92.6%) agreed that if Proposition 46 is passed into law, MPL rates will increase by an overall base rate of more than 10%.
• Average % of New Claims: Survey results show that 46.5% of the companies surveyed believe new claims emergence will be up more than 10%.
• Increase in Average Number of Open Claims: Similarly, survey results show that 45.2% of respondents believe the yearly average number of open claims will increase by more than 10%.
• Anticipated Increases in Reinsurance Costs: A large percentage (45.1%) of respondents anticipates reinsurance costs to rise more than 10%.

For the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=229812.

A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

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