An empirical analysis of malpractice premiums paid by physicians in 1976 shows that the huge range ($75 to over $50,000) reflects the multiplicative structure of rates. Rates are the product of state, specialty, and coverage differentials, which together account for roughly 60 percent of the total variation in premiums. This implies that the rating structure recommended by the Insurance Services Office is widely followed. In this sample, state differentials account for a smaller fraction of the total variance than specialty differentials. About half the total state effect can be attributed to differences in the frequency and severity of claims, presence of a discovery rule (an indicator of risk), and operation of medical society programs. Further research is necessary to determine how far this rigid structure of rates interferes with the efficient functioning of the tort system.
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