Causes of the medical malpractice insurance crisis: risks and regulations

by Patricia Munch Danzon

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Analyzes the causes of the recent dramatic increase in malpractice insurance rates and contraction of the market in risk spreading, exemplified by the withdrawal of commercial carriers from some states, the growth of physician-owned mutuals, and the switch from an occurrence to a claims made policy form. Some of these institutional changes appear consistent with an efficient market response to the changed nature of the risk involved in writing malpractice insurance--in particular, increased frequency and severity of claims, instability of the sociolegal environment, depletion of insurers' net worth, and lower mean and higher variance of return on reserves. Total withdrawal of commercial carriers can only be explained by regulatory control of rates and reserve requirements, exacerbated by medical society resistance to selective underwriting, deductibles, and experience rating. 38 pp. Bibliog.

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