The report maintains that insurers then used the overstated figures to justify increases in doctors' premiums and pressure legislators to enact lawsuit restrictions.

The group charges that malpractice insurers inflated their losses by an average 46 percent each year between 1986 and 1994. During that period, insurers reported $39 billion in losses to regulators, but actually paid out only $27 billion in claims, according to the report.

FTCR called for an investigation of industry accounting practices that it said enable insurance companies to misrepresent their financial condition and charge potentially billions of dollars in excessive premiums.

The study, first reported Friday in the Washington Post, is available at: http://www.consumerwatchdog.org/malpractice/rp/5714.pdf

The study suggests that the alleged inflation of insurers' losses, as reported in the annual statements they submit to regulators, is greater during periodic economic downturns when insurers' investment income falls.

"By inflating their estimated 'losses' as much as 66 percent, medical malpractice insurance companies have misled regulators, lawmakers and the public and overcharged physicians and other health care providers," said FTCR's Harvey Rosenfield. "Because all insurance companies use the same flawed accounting practices, it is likely that the insurance industry is responsible for several billion dollars in premium overcharges over the last few years, a period during which premiums have soared. The nation's economic stability and security demands that the insurance industry's accounting practices be investigated, and reforms put in place such as those that were made after widespread financial fraud was uncovered at Enron, WorldCom, Arthur Andersen and other corporations."

The FTCR compares the dollar amount medical malpractice insurers initially reported they would pay out on policies in effect between 1986 and 1994 with insurers' reports made ten years later of what they actually paid out in claims under policies in effect in each of those years.

FTCR said it examined incurred loss data reported by insurance companies to state insurance regulators and published in A.M. Best's Aggregates and Averages. Jay Angoff, a former insurance commissioner and nationally recognized insurance expert, advised FTCR on the study.

"The study shows that malpractice insurance companies consistently overstate how much they expect to pay in claims and in amounts far beyond the margin of reasonable error," said FTCR's Rosenfield. "By manipulating their books to misrepresent their 'losses,' the insurers have profited in two ways. First, they have used the inflated numbers to justify rate increases that were unnecessary and excessive. Second, they have invoked their exaggerated loss estimates to promote legislation allowing these insurers to limit how much compensation they have to pay out to victims of medical negligence."

FTCR also called for stronger disclosure and regulatory oversight of insurers.