A 2002 survey conducted by Medical Liability Monitor contained the following highlights: in 2002, malpractice premiums for internists and general surgeons increased by an average of 25%, and rates for obstetricians and gynecol-

Vol. 3, No. 4 ■ April 2003 Because of rising malpractice premiums, some physicians are moving to areas with lower rates, retiring early, not performing certain procedures, practicing without malpractice insurance, or going on strike to capture the attention of the public and policy makers. And some malpractice insurers have elected not to renew existing policies in certain locations or for practitioners in certain specialties. To address the issue of rising malpractice insurance premiums, it is important to understand the root causes. Two theories have emerged to explain the recent malpractice “crisis.” One theory proposes that high payments for “pain and suffering” are the cause of rising premiums; a second theory is that low and even negative returns in the stock market are responsible. According to the second theory, when insurance companies can earn a historical rate of return on their investments (perhaps 9%), the cost of insurance premiums will begin to stabilize. What does the evidence show?