Experience Rating in Medical Malpractice Insurance

by Charles E. Phelps

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Argues that experience-rate pricing of medical malpractice insurance could be a useful quality-control device by forcing bad doctors to pay insurance rates reflecting the true costs of malpractice. Available data show that, for four years, 8,000 physicians in Los Angeles sustained 575 suits annually. There were 46 physicians sued four or more times. If all 8,000 doctors had identical probabilities of being sued, the number with four consecutive years of suits would be .21, not 46. If 2,000 of the 8,000 are in high-risk specialties, then of the 2,000 only four are expected to sustain four suits, not 46. The data demonstrate dramatically that the doctors with multiple suits were indeed drawn from a different distribution than their colleagues. The author concludes with some conjectures on why doctors continue to choose malpractice insurance that does not reflect actual claims histories.

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