By James R. Lovell, Chairman of the Board
It is always a challenge to prepare this Annual Message to the Membership. The difficulty lies not in finding interesting things to report, but rather how to limit the Message to a single page. Last year I reported that we had noticed the beginnings of a change to a more difficult or "harder" insurance market. Further data has convinced us that a real shift has occurred.
You probably have already noticed that your cost for insurance, regardless of its purpose, is increasing at double or possibly even triple digit rates. Particularly hard hit are workers compensation, medical malpractice, directors and officers and non-standard auto coverages. Price increases have not been limited to only those coverages mentioned above, but virtually every line has experienced some upward movement in price.
We have noted from a number of applications submitted to TLIE that the applicant lawfirm's prior carrier has decided to either cease writing attorney's professional liability insurance or they have made a business decision to withdraw from Texas. No two market cycles are ever exactly the same but we have noted several similarities between recent events and those that occurred in the last "hard market" which began in 1985. The last difficult cycle was triggered by substantial rate increases by reinsurers as reinsurance capacity contracted. Carriers were either unwilling or unable to pay (if quoted at all) these higher rates and eventually withdrew from the market. Today reinsurance rates are increasing and reinsurers are willing to walk away from business that has had unacceptable results. Years of underpricing insurance and reinsurance products have finally caught up with the industry. The ability to hedge or cover underwriting losses through investment income has disappeared with the decline in the stock markets and the lowering of interest rates. While we believe that the insurance and reinsurance markets will tighten further, it is impossible to forecast the duration or the magnitude of future rate changes.
It is important to note that TLIE has not found it necessary to raise rates since 1992 despite the fact that reinsurance costs have been gradually increasing for the past several years. Thus far, TLIE has been able to absorb these additional costs without a general rate increase. Our ability to continue such practice will be governed by the Member's claim experience and further increases in the cost of reinsurance. Individual firms may have experienced an increase in premium but only because of a change in underwriting characteristics or claims.
The importance of professional liability insurance and TLIE's ability to fulfill its obligations is clearly demonstrated by a couple of statistics. During the period May 1, 1979 through June 30, 2001, TLIE has received notices of 6098 claims and has paid a total of $415,518,410 in indemnity and defense costs. Claims not yet resolved will, based on our individual case evaluations, generate another $14,000,000 in costs.
As always we greatly appreciate your loyalty and support and we look forward to continuing our service to the attorneys of Texas.
James R. Lovell
Chairman of the Board
August 27, 2001