Premium

The premium is the cost for a policyholder to buy insurance protection. The premium is determined by calculating the cost to pay for current and anticipated losses as well as paying for taxes and other expenses the company may have during the coverage period. Premiums must also be high enough for insurance companies to make a profit, allowing for growth and solvency.

The average cost to purchase malpractice insurance varies by state. Factors which may increase the costs are the number of litigious actions in the state and other general risk factors. Premiums may also vary by specialty. For instance, if the risk of litigation is high, such as in obstetrics, the cost to purchase insurance coverage will be higher. Insurance rates may also be higher for specialties which historically have had a higher rate of litigation.

There has been a recent downward trend in premium rates. Some experts argue this trend could be due to tort reform. For example, Texas and California have both passed a $250,000 cap on noneconomic or pain and suffering damages. These caps were instituted to discourage frivolous lawsuits and high jury awards. The laws have also led to fewer malpractice claims. Others argue that tort reform cannot be the only contributing factor to lower premium rates because Oregon, which does not cap noneconomic damages, has also seen a decrease in lawsuits.