Medical Malpractice Insurance

Last Updated: 5/9/2024

Issue: Medical professional liability insurance, sometimes known as medical malpractice insurance, is a type of professional liability insurance that protects physicians and other licensed health care professionals (such as dentists and nurses) from liability associated with wrongful practices resulting in:

• Bodily injury.
• Medical expenses.
• Property damage.

It also protects them from the cost of defending lawsuits related to such claims.

Overview: A medical professional liability insurance policy covers bodily injury or property damage. It also covers 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 (DCC) expenses. Medical liability insurers spend large sums of money investigating and defending claims where there is an adverse patient outcome not resulting from negligence.

There are two basic types of malpractice insurance:

• 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.
• Occurrence-made: This policy was more popular in earlier times. It 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 because of increases in claims payments and DCC expenses.
• 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 2020, the direct loss and DDC ratio was 78.26%, this decreased in 2021 to 74.23%. Direct losses incurred increased and direct defense and cost containment expenses decreased in 2021 when compared to the 2020 figures. Direct premiums written and earned also increased in 2021 from 2020 figures.

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

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, NAIC membership adopted a Guideline for Implementation of Medical Professional Liability Closed Claim Reporting (#1077), which made recommendations for implementing the NAIC's Medical Professional Liability Closed Claim Reporting Model Law (#77).