Damages Caps, Insurability, and the Performance of Medical Malpractice Insurance

Abstract

This paper uses the complete property and casualty insurance files of the National Association of Insurance Commissioners from 1984-1991 to assess the effect of medical malpractice reforms pertaining to damages levels and the degree to which these damages are insurable. Limits on noneconomic damages were most influential in affecting insurance market outcomes. Several punitive damages variables specifically affected the medical malpractice insurance market, including limits on punitive damage levels, prohibitions of the insurability of punitive damages, and prohibition of punitive damages awards. Estimates for insurance losses, premiums, and loss ratios indicate effects of reform in the expected directions, where the greatest constraining effects were for losses.The quantile regression analysis of losses indicates that punitive damages reforms and limits were most consequential for firms at the high end of the loss spectrum. Tort reforms also enhanced insurer profitability during this time period.

Tort Reform and Accidental Deaths

“…Other studies find that tort reforms that reduce liability costs lower both medical malpractice premiums and general liability premiums (Viscusi, et. al., 1993;Born and Viscusi, 1994;Born and Viscusi, 1998;Thorpe, 2004;Viscusi and Born, 2005). When suppliers pay lower premiums, they can pass along some of the savings to consumers by lowering the prices of goods and services.…”

An Empirical Assessment of Early Offer Reform for Medical Malpractice

“…If, however, there is any such offsetting behavior, it is not a complete offset. noneconomic damages caps substantially reduce medical malpractice insurance losses, as shown by Viscusi and Born's (2005) analysis of a comprehensive data set consisting of all U.S. medical malpractice insurers by firm, by state, and by year. 2 This result does not exclude the possibility that there will be some partly offsetting behavior that emerges once noneconomic damages are excluded from payment for typical claims filed under the early offer reform, but it does indicate that insurers' losses will decline significantly.…”

Regulation of medical professions

“…As a general rule, the more recent research has tended to show that caps on damages, especially on non-economic damages, have tended to reduce increases in malpractice premiums. Viscusi and Born (2005) note that malpractice reforms tend to perform as theory would predict, with a reduction in liability found to reduce liability and insurance premiums. These researchers also tend to show an improvement in insurance company profitability Born, 2005 andBarker, 1992).…”

“…More recently, a number of studies have updated the literature on the impact that reforms have upon malpractice liability especially as measured by their impact upon the insurance market (e.g., Viscusi and Born, 2005;Danzon et al, 2004;Viscusi, 1998 andBarker, 1992). Using more recent data that often extends into the 1990s and in a few cases into the 2000s, these researchers have tended to confirm earlier findings that some malpractice reforms do affect liability and by extension insurance premiums.…”

“…However, some researchers also find evidence that some other types of malpractice reforms reduce liability and premiums. For example, Viscusi and Born (2005) find evidence that some reforms that cap punitive damages have an impact. Barker (1992) finds that reforms that codify the standard of care decreased liability and risk, decreased premiums and increased insurance company profitability.…”