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Do recent events constitute a crisis or merely the workings of the insurance cycle?
ABSTRACT: By many accounts, the United States is in the midst of its third medical malpractice "crisis." Physicians in several states are facing high and rising premiums. The largest national medical malpractice carrier and some large multistate physician-backed liability firms have recently left the market. Rising premiums are traced largely to increases in claims severity. Capping malpractice payments has been advanced as one approach to slowing the growth in premiums. This analysis finds that premiums in states that cap awards are 17.1 percent lower than in states that don't cap. At issue, however, is whether these stopgap solutions promote the goals of the U.S. liability system.
BY MANY ACCOUNTS, the United States is in the midst of its third "crisis" in medical malpractice. The medical malpractice "crises" in the mid-1970s and 1980s occurred during times of rapid growth in insurance premiums. In the 1970s rising claims frequency and severity resulted in the exit of many malpractice carriers.1 Some for-profit liability carriers were replaced by a new wave of physician-owned malpractice companies. Medical liability premiums increased sharply again during the 1980s, leading several states to adopt reforms designed to limit malpractice insurers' costs. Indeed, the events of the 1980s led to proposals for broader, more fundamental reforms of the liability system.
Both rising premiums and a reduction in the number of firms offering coverage characterize the most recent medical malpractice crisis. Depending on the specialty and state, the median increase in malpractice premiums ranged from 15 to 30 percent. Rate increases in other states, such as Pennsylvania, ranged from 26 to 73 percent in 2003.2 The St. Paul Companies, the largest insurer throughout most of the 1990s, stopped writing policies during 2002. Other large, regional carriers have also exited the market. Overall, these insurers accounted for nearly 14 percent of the national market prior to the crisis.3 In several states facing the most acute crises, carriers exiting the market accounted for a substantial (up to 40 percent) share of premiums written.
While premiums have risen sharply over the past three years, there is much variation across states. The premium spikes have resulted in physician strikes in West Virginia, work slowdowns in...