Insuring Medical Malpractice

Insuring Medical Malpractice

Insuring Medical Malpractice

Insuring Medical Malpractice


The cost of malpractice insurance to physicians has been increasing in recent years, as has the threat to physicians of being sued. This book describes and analyzes the workings of the market for physicians' liability insurance. The authors use their own data and other sources to study questions such as: Is the market for medical malpractice insurance competitive? Has the profitability of medical malpractice insurance been excessive? Why do malpractice insurers demand reinsurance? What effect has insurance regulation had on premiums? And it explores what experience rating is and how it is done.


Why this book? the resurgence in the 1980s of an apparent crisis in medical malpractice insurance--indeed, in liability coverage generally--focused public attention anew on this important branch of the property-casualty insurance industry. in contrast to the mid-1970s, when the issue for physicians was availability, this crisis has been one mainly of affordability. But there is also the issue of its fairness in pricing and its effects on medical providers, especially physicians, the key decision makers in our health care system. in keeping with this status, physicians are held responsible for most of the damages in malpractice and hence pay more of the total premiums than hospitals or other individual practitioners.

Many policy participants see the behavior of the insurance industry as a major contributor to the crisis. Some physicians, consumer advocates, attorneys, and public officials have been known to harbor dark suspicions that the insurance market is insufficiently competitive, underregulated, and subject to considerable overpricing, at least in certain periods. At the same time, uncertainty exists as to how regulation affects premium setting and returns.

Thus, policymakers want to know whether malpractice insurers as a group price accurately, in accordance with cost, whether fair or excessive returns are earned, and to what extent insurance cycles exacerbate underlying loss trends, affecting availability and price. Insurance practices of underwriting, establishing rate categories, and pricing are of genuine public policy and research interest.

Insurance is also the mediating mechanism between the medical, social, and legal factors that create claims and the health care system that must contribute funds to pay claims and otherwise respond to the incentives created. Our tort regime must accomplish its goals of compensating wrongfully injured patients and deterring substandard medical practice through insurance mechanisms--or not at all.

In the wake of the crisis, renewed proposals have been heard for stricter regulation to control allegedly excessive profits and other aspects of the insurance business. Further "tort reforms" to rein in perceived excesses of the legal system also continue to receive major legislative attention.

However, policymakers weighing various calls for relief have found virtually no reliable objective information in the public domain (Sloan and Bovbjerg 1989). This situation persists not for lack of public attention or interest, but because no one has joined carefully analyzed data with institutional knowledge of the field. No single book has successfully addressed the policy issues. Lack of information is one reason that there is so little agreement on the causes or cures for the crisis. Much common knowledge is simply not written down. What descriptions of insurance practice do exist tend to be quite technical and inaccessible to policymakers and analysts outside the industry. Information about observed dynamics in the industry is even less accessi-

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