During the past year, life insurance companies have dramatically raised the fees they are charging their customers. The industry asserts that the premium spikes, which range from single-digit percentages to more than 200 percent, stem from a poor rate of return on their investments. They attribute the problem to the Federal Reserve’s decision to keep interest rates lower for longer, which has led to low rates of return on bonds in banks around the world. “These firms earn much of their profit by investing customers’ premiums in bonds until claims come due,” explains Mother Jones.
The author reports that when investments do poorly, insurance companies raise their fees to maintain the profit margin they need. While the premium hikes affect life insurance first, they eventually affect malpractice insurance as well. Therefore, based on similar occurrences in past decades, he predicts that a malpractice insurance crisis looms in the not-too-distant future.
Whenever malpractice insurance rates skyrocket, it triggers a surge of public concern. Outraged voices say nuisance lawsuits are ruining the insurance system, and they call upon lawyers to curtail them. However, an examination of the evidence shows neither the number of nuisance lawsuits or monetary damages paid out increased during the 2003 medical malpractice insurance crisis. Instead, the trouble stemmed from poor insurance company investments and the premium spikes that ensued to make up for the decreased income.
Whether malpractice stems from negligence, incompetence or human error, it happens more frequently than people assume. For more information, see Medical Errors: Third Leading Cause of Death.
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