Defense Costs!

The National Association of Insurance Commissioners and the States require each insurer to issue annual reports. Our Center for Risk Management and Insurance Research has access to this data and I calculated defense costs incurred for Medical Malpractice and All Lines of business on a per capita basis just to see where it was cheaper to defend insurance cases. These defense costs incurred are interesting because they include typical litigation costs, plus costs of negotiation and settlement (but not the settlements or judgments themselves). I compared the per capita defense costs for medical mal practice and then took the ratio to see which states had the highest spending on medmal defense relative to all lines of insurance. As the table below shows (click here for all 50 states) , the top 10 states in terms of their ratio of medmal defense costs to total defense costs are: OK, WY, TN, OH, MO, NY, IA, KY, FL, AZ. Each of these states are ranked as "Crisis States" or "States Showing Problem Signs" by the AMA.

Some other interesting tidbits Oklahoma is the most expensive state (on a per capita basis in 2003) to defend medical malpractice cases while Washington, DC is the most expensive place to defend insurance lawsuits in general.  Minnesota and South Carolina are the least expensive in terms of medical malpractice litigation, but each is higher for overall defense costs. Further, the R² of a simple regression between the total costs incurred to those for medical malpractice (on a per capita basis) is only about 30%. This seems low and provides some evidence that medical malpractice liability environment is different in some meaningful way from other insurance litigation.

Comments

[Jon Wiley]

Dr. Grace:

I am a Finance Ph.D. student at Alabama, and I am trying to find the link for the PDF file which ranks states according to their per capita cost of defense. This is in reference to the "Defense Costs!" posting on July 24, 2004.