	Introduction

Insurance is a critical piece of a modern economic system, but it often goes unnoticed until it becomes prohibitively expensive or its availability is curtailed. Such problems occurred in the medical malpractice insurance market in the first half of this decade. Many physicians experienced substantial increases in insurance premiums, and there were reports of problems with the availability of physician services because of doctors retiring or relocating from areas that have seen high premium increases. Crises have been proclaimed in the past as well; similar events occurred in the latter half of both the 1970s and 1980s. Since 2004 or so, overall losses experienced by medical malpractice insurers have dropped significantly and overall premiums have moderated as well, although not nearly to the same extent as losses. 5 ) Congresses, the House passed bills whose central thrust was to limit damages for medical malpractice tort claims. The Senate, however, did not act on any of these House bills and failed to invoke cloture on the Senate bills addressing medical malpractice ( S. 11 , S. 2061 , and S. 2207 in the 108 th Congress; S. 22 and S. 23 in the 109 th Congress). The medical liability insurance market is not currently exhibiting widespread crisis symptoms. Insurance Fundamentals

		Risk Transfer and Financial Intermediation

The most obvious function of insurance is to allow a person or corporation facing some risk, such as the risk that a physician will be sued for medical malpractice, to transfer this risk to another economic entity. This means estimating the future return on investments as well as estimating future losses from claims. A hard market typically occurs when the investment climate worsens and returns drop. Medical Malpractice's Long "Tail"

Medical malpractice liability insurance has what is known in the insurance industry as a long "tail." This unpredictability reduces the accuracy of the estimations of expected losses that are at the heart of insurance pricing. One of the particular aspects of the historical evolution of the medical malpractice insurance market, which is discussed in greater detail below, has been the proliferation of small insurers, particularly provider-owned companies. Historical Experience in Medical Malpractice Insurance

Particular problems in medical malpractice insurance have been observed for many years. It is beyond the scope of this report to discuss in detail issues surrounding tort changes, but it should be noted that a cap on noneconomic damages for medical malpractice claims is not the only change that has been implemented at the state level. Representative DeFazio also introduced this bill, H.R. Assessing the effectiveness of any of the various policy changes over the past three decades is empirically difficult and strong conclusions have often equally been strongly disputed.
Insurance is a critical piece of a modern economic system, but it often goes unnoticed until it becomes prohibitively expensive or its availability is curtailed. Such problems occurred in the medical malpractice liability insurance market most recently in the early part of the 2000s. Many physicians experienced substantial increases in insurance premiums, and there were reports of problems with availability of physician services due to doctors retiring or relocating from areas that had seen high premium increases. This was not the first time such a crisis has been proclaimed; similar events occurred in the latter half of both the 1970s and 1980s. In the latter half of this decade, overall losses for medical malpractice insurance have dropped and premiums have moderated. Public discussion of medical malpractice has lessened as well.
The fundamental purpose of insurance is to transfer an indefinite risk from one party to another for a definite premium. The pricing of this premium is critical, but determining this price is uncertain because it depends on estimates of the chance of a future loss, as well as the estimated value of that loss. The premium will also depend on estimates of future investment gains or losses because an insurer also acts as a financial intermediary and invests the capital that is held in reserve against future losses.
The market for medial malpractice liability insurance has been unstable during the past three decades for a variety of reasons. Recurring market problems have provoked various policy reactions in both state legislatures and in Congress. Assessing the effectiveness of particular policy changes is, however, complex and strong conclusions have typically been equally strongly disputed.
Congress has not directly addressed medical malpractice liability insurance since the 109th Congress, when the House passed a bill, H.R. 5, whose centerpiece was a limitation on tort claims for medical malpractice; similar bills passed the House in the previous two Congresses. The Senate, however, did not act on any of these House bills and failed to invoke cloture on the Senate bills addressing medical malpractice. Although the medical malpractice insurance market is not currently in the midst of a crisis, Congress has again focused on medical malpractice in the 111th Congress as a part of overall healthcare reform.
This report examines the economic issues and historical experience surrounding medical malpractice insurance. It includes an explanation of the fundamentals of insurance and how these fundamentals relate specifically to medical malpractice insurance. It also includes a discussion of the evolution of the medical malpractice insurance market since the 1970s and policy changes over this time. It will be updated as major legislative events occur.