The Effect of Damage Cap Reforms on Medical Malpractice Insurance Market Conditions During Periods of Crises

Patricia H. Born, J. Bradley Karl and Hugo Montesinos‐Yufa

Journal of Risk & Insurance, 2019, vol. 86, issue 4, 1045-1071

Abstract: This article evaluates whether and how tort reform, specifically damage caps, stabilizes medical malpractice insurance markets. We examine state‐level medical malpractice insurance market performance in the United States for the period 1994–2010, a period characterized by a significant variation across states in their legal environments. First, we find that states with damage caps are less likely to have a crisis. Second, we find that the magnitude of crisis events is attenuated in states with damage caps, while the volatility of performance is not significantly different across states with and without damages caps. Finally, conditional on a state entering a crisis, we find that states with damage caps improve more quickly following the crisis than states without damage caps. Overall, our results suggest that damage caps stabilize medical malpractice insurance markets.

Date: 2019
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