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An increase in medical malpractice insurance premium rates over the past several years has raised concerns that physicians will no longer be able to afford medical malpractice insurance and will be forced to curtail or discontinue providing certain services. In addition, a lack of profitability has led some large insurers to stop selling medical malpractice insurance, furthering concerns that physicians will not be able to obtain coverage.
Medical malpractice insurance premium rates have increased dramatically for physicians in some specialties in a number of states. However, larger medical malpractice insurance companies show premium rates and the extent to which these rates have increased varied greatly.
There have been multiple factors to the rate increase in medical malpractice insurance, including falling investment income and rising reinsurance costs, with each contributing to recent increases in premium rates. However, losses on medical malpractice claims, which make up the largest part of insurers' costs, appear to be the primary driver of rate increases in the long run.
While losses for the entire industry have shown a persistent upward trend, medical malpractice insurance provider's loss experiences have varied dramatically, resulting in wide variations in premium rates. In addition, factors other than losses can affect medical malpractice insurance rates in the short run, intensifying cycles within the medical malpractice market. For example, high investment income or adjustments to account for lower than expected losses may legitimately permit insurers to price insurance below the expected cost of paying claims.
The long lag between collecting medical malpractice insurance premiums and paying claims creates underlying losses to increase while insurers are holding medical malpractice insurance rates down, requiring large premium rate hikes when the increasing trend in losses is recognized. While these factors may explain some events in the medical malpractice insurance market, analyzing the composition and causes of losses at the insurer level results from a lack of comprehensive data.
Analysis also showed that the medical malpractice insurance market has changed considerably since the previously hard markets. Physician-owned and operated insurers now cover around 60 percent of the market, self-insurance has become more widespread, and states have passed laws designed to reduce premium rates. As a result, it is not clear how medical malpractice insurance premium rates might behave during future soft or hard markets.
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