Influences of Organizational Structure and Diversification on Medical malpractice Insurer Performance

Yu Lei and Joan T. Schmidt

Journal of Insurance Issues, 2010, vol. 33, issue 2, 152-177

Abstract: Prior literature has indicated some advantage to physician-directed insurers in the medical malpractice insurance market (Lei and Browne, 2008, and Lei and Schmit, 2008, 2010). We anticipate that these advantages lead to enhanced financial performance, and test that hypothesis. We note, however, that physician-directed insurers tend to be highly specialized both in product line and geography, generating the vast majority of their premium volume from medical malpractice liability insurance in one or just a few states. The advantages of physician-directed insurers could be due to such specialization and concentration, or perhaps be independent of those characteristics. We report our tests of the hypothesis that organizational form, product specialization, and geographic concentration of medical malpractice insurers affect their financial performance. Our results indicate that product diversification is positively related to financial performance. Furthermore, holding product diversification constant, we also find that physician directed insurers show enhanced performance over other organizational forms.

Date: 2010
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