Dynamics of the Market for Medical Malpractice Insurance

Abstract

Public attention has been directed recently at the market for medical malpractice insurance, yet disagreement persists over whether this market has changed and, if so, what has caused this change. In this study, we examine factors that affect the market for this insurance, including the growth in premiums, losses, and investment earnings, and loss variability. Our analysis suggests that there was significant deterioration in the market for medical malpractice insurance beginning in 1998 and culminating in 2001. We conclude that insurers' losses are the primary driver of the market deterioration during the period 1998 through 2003. Copyright (c) The Journal of Risk and Insurance, 2009.

The Differential Effects of Noneconomic Damage Cap Levels on Medical Malpractice Insurers

“…Neale et al () find the medical malpractice market deteriorated significantly between 1993 and 2001 when the market began to improve. For further discussion of indications of these crises, see Thorpe ().…”

The Effect of Damage Cap Reforms on Medical Malpractice Insurance Market Conditions During Periods of Crises

“…Summary statistics are provided in Table . Our sample period is characterized by significant deterioration in the medical malpractice insurance market that occurred largely during the late 1990s and early 2000s that many termed a crisis (e.g., Neale, Eastman, and Drake, ). The occurrence of the substantially hardening marketplace during our sample period therefore provides an excellent setting to examine the extent to which damage cap reforms helped states to weather, or even avert, a medical malpractice insurance crisis.…”

“…Using the estimates from this model, we then generate predicted Losses for the period surrounding the deteriorating market conditions. While Neale, Eastman, and Drake () suggest that this period is roughly from 1998 to 2003, we expand the time frame to include 1996–2010 in an effort to place less restriction on the potential crisis period.…”

“…Guided by the findings of Neale, Eastman, and Drake () that suggest insurers’ losses were the primary driver of market deterioration that occurred during the late 1990s and early 2000s, we base our assessment strategy on the levels of losses experienced in a given market.…”

Malpractice Premiums and the Supply of Obstetricians

“…While premium levels can be endogenous to other factors that may influence labor force transitions, this is less likely to have been the case for the factors that contributed to the abrupt changes in premium rates over the 1998-2003 period. Premium rate changes over this period were attributed largely to investment income losses and underpricing in prior years that may have resulted from uncertainty in the frequency and size of claims (Neale, Eastman, and Drake 2009). The changes differed across markets because varying levels of competitiveness led to inconsistent use of underpricing to vie for market share (Danzon 2000).…”