The Case for Experience Rating in Medical Malpractice Insurance: an Empirical Evaluation

Experience rating is largely absent from medical malpractice insurance contracts. This article presents evidence that physician risk differences persist, and it develops an empirical model for experience rating with a semi-parametric estimator. Estimating the model using claims history data from Florida, the authors obtain improved prediction of individual claims over several years and provide a detailed picture of the incidence of surcharges under experience rating. This evidence suggests that an experience rating system would be feasible and would greatly reduce the subsidization across physician risk types that exists under most current medical malpractice insurance contracts.