On June 15, 2010 I reported that SVMIC, the bedpan mutual that insures the vast majority of Tennessee doctors, reduced its rates by 23.1% . I also reported that the company declared a $20,000,000 dividend. The net effect of the dividend means that policyholders with a history of no paid claims will receive another 8% reduction (or so) in rates effective May 15, 2010.
How can SVMIC cut rates so dramatically while paying the highest dividend it has paid in years? There are two reasons. First, as a result of the tort reform passed effective October 1, 2008 (revised effective July 1, 2009) claims have decreased substantially. Fewer claims means reduced claims handling costs, defense fees, court reporter and other litigation fees, and claims payments. Since the law permits insurers to "write off" reserves as they are established, fewer claims means that reserves are lower than these would have otherwise been had there been more claims. A decrease in the need to set aside money in reserves for these "absent" claims increases net income.
And how it has increased. In 2009, SVMIC had a net income (after taxes) of a whopping $71, 968,000, an increase of over 100% from a year earlier.