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Medical Malpractice Insurance

Last Updated 6/26/2020

Issue: Medical professional liability insurance, sometimes known as medical malpractice insurance, is one type of professional liability insurance which protects physicians and other licensed health care professionals (e.g., dentists, nurses) from liability associated with wrongful practices resulting in bodily injury, medical expenses and property damage, as well as the cost of defending lawsuits related to such claims.

Overview: A medical professional liability insurance policy covers bodily injury or property damage as well as liability for personal injury such as mental anguish. The complexity involved in discovering negligence results in a higher percentage of premium dollars going toward defense and cost containment expenses. Medical liability insurers spend substantial funds investigating and defending claims where there is an adverse patient outcome not resulting from negligence.

There are two basic types of malpractice insurance—occurrence or claims-made. Many insurers write on a claims-made form basis where a policy in effect at the time a claim is reported responds for the loss, while the policy remains in force and during any applicable extended reporting period. The policy that was more popular in earlier times is occurrence-made which covers a loss that “occurs” during the policy period, regardless of when the claim was made, and even after the policy has been canceled.

The medical professional liability insurance market has occasionally experienced times of crisis, such as during the late 1990s, leading to high prices for policyholders. These times were marked by volatile changes in premium, declines in investments, rapidly increasing loss ratios as a result of increases in claims payments and defense and cost containment expenses, and the development of a large reserve deficiency. The NAIC published a report in 2004 that showed both the combined and loss ratios had steadily trended upwards since 1994 before declining in 2002. In 2018, the direct loss and DDC ratio was 68.4%, before increasing to 79.94% in 2019.  Direct losses and direct defense and cost containment expenses in 2019 both increased over the 2018 figures.  Direct premiums written and earned also increased in 2019 from 2018 figures.

Insurance regulators have evaluated the availability and affordability of medical professional liability insurance in the past, such as in the 2004 report, Medical Malpractice Insurance Report: A Study of Market Conditions and Potential Solutions to the Recent Crisis.

In order to better understand claims associated with medical professional liability insurance, some states require closed claims to be reported to the state insurance department. In 2010, a Guideline for Implementation of Medical Professional Liability Closed Claim Reporting was adopted by NAIC membership which made recommendations for implementing the NAIC's Medical Professional Liability Closed Claim Reporting Model Law.

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