Effects of tort reforms and other factors on medical malpractice insurance premiums

We use state-level data on physician malpractice premiums, claims, and awards, provided by insurance companies for the years 1974 to 1986, to evaluate the effectiveness of the various tort reforms that have been legislated during the 1970s and 1980s. In addition to the tort reforms, our analysis of premiums considers insurers' anticipated losses, returns on investments, the type of insurer, and premium regulation. Our results suggest that the only reforms that significantly lower premiums are those that either impose a cap on the amount of physician liability or reduce the amount of time a plaintiff has to initiate a claim. We also find that premiums are lower when states regulate rates by requiring prior approval of premiums. In addition, it appears that the observed cyclicality in premiums is due, in part, to fluctuations in the real interest rates available to insurers as returns on investments. Unfortunately, we did not find as strong a link between the determinants of premiums, claims, and awards as might be expected.