Equity and accuracy in medical malpractice insurance pricing

Area of Science:

• Health Economics
• Insurance Actuarial Science

Background:

• Medical malpractice insurance premiums are typically set using broad risk classification categories.
• Current methods often do not fully account for individual physician loss experience.

Purpose of the Study:

• To examine alternative classification approaches for medical malpractice insurance premiums.
• To evaluate the feasibility and impact of experience-rating individual physicians versus groups.

Main Methods:

• Analysis of existing classification approaches.
• Simulation modeling to assess premium-setting schemes based on individual physician losses and group (hospital medical staff) losses.

Main Results:

• Alternative classification approaches were identified, not necessarily increasing the number of categories.
• An actuarially-fair system based on individual physician losses would significantly penalize adverse outcomes.
• Simulations indicated that even small hospital medical staffs could be sufficiently large for experience-rating.

Conclusions:

• Grouping physicians by hospital medical staff may provide a viable alternative for experience-rating.
• This approach could lead to more equitable premium setting in medical malpractice insurance.