HD22 - The Actuarial Basis for the Costs of Malpractice Insurance for Obstetricians, Certified Nurse-Midwives, and Other Licensed Physicians Who Offer Obstetric Services

  • Published: 1993
  • Author: State Corporation Commission and Bureau of Insurance
  • Enabling Authority: House Joint Resolution 235 (Regular Session, 1992)

Executive Summary:
A. Purpose

The State Corporation Commission's Bureau of Insurance (Bureau) was requested by the 1992 General Assembly, pursuant to House Joint Resolution No. 235, to study the actuarial basis for the costs of malpractice insurance for obstetricians, certified nurse-midwives, and other licensed physicians who offer obstetrical services. The Bureau retained the Actuarial Services Group of Ernst & Young to prepare the study.

This study was authorized because recent studies and surveys have found that high insurance premiums and fear of malpractice suits are the two major reasons physicians are leaving the practice of obstetrics.

B. Approach

This study is based on data collected from the major medical malpractice insurance writers licensed in the Commonwealth of Virginia. This included historical loss data specifically collected for this study as well as data from company rate filings submitted to the Bureau for review and approval. The companies surveyed write more than 75% of the physicians and surgeons medical malpractice insurance premiums in Virginia.

C. Findings

The findings of this study may be summarized as follows:

1. The premiums charged by malpractice insurers in Virginia have been derived by using sound actuarial methods and procedures. In particular, premiums charged obstetricians/gynecologists (OB/GYNs) in Virginia are reasonable and actuarially sound. This conclusion has been reached based on historical data and prevailing actuarial methods used in the most recent approved rate filings of surveyed companies. Companies must submit documentation and supporting data, in the form of a rate filing, to the Bureau whenever they wish to change their rates. Since the mid-1970's, all medical malpractice rate filings have been subject to review by the Bureau's consulting actuaries and economists. Only after detailed scrutiny by the consultants is approval for the change granted by the Bureau. For many rate filings the final approved rate change is often different from the original request. In addition, the Bureau has the authority to request that data be filed to support existing rates and has exercised that option when necessary.

2. Countrywide claim frequencies for OB/GYNs are four to five times higher than the claim frequencies for all classes of physicians combined. Countrywide claim severities for OB/GYNs are comparable to claim severities for OB/GYNs are erratic due to the relatively small number of OB/GYNs practicing in the state. Rates for OB/GYNs are higher than the rates for most other physicians largely because of higher claim frequencies.

3. Medical malpractice premiums in Virginia and throughout the United States have generally fallen during the past five years. This is in contrast to trends in the early part of the 1980's when premiums were increasing at annual rates far in excess of inflationary trends in medical care indices. The recent downward trend in premiums reflects the steady decline in the frequency of claims (number of reported claims per physician) during the latter part of the 1980's.

St. Paul and The Virginia Insurance Reciprocal (TVIR) reduced their OB/GYN rates significantly in 1989 and 1990, respectively. This reduction was due to the significant drop in countrywide claim frequencies between 1985 and 1989 for all classes of physicians combined. These companies relied heavily on countrywide frequency trends in setting their malpractice rates in Virginia due to the limited credibility of their Virginia trend data.

4. Medical malpractice premiums vary by territory, with the exception of PHICO. The difference in medical malpractice premiums by territory (practice location) within Virginia is actuarially justified based on the data available. PHICO's loss experience justifies the use of one set of rates for all territories in Virginia.

5. Medical malpractice premiums vary considerably by insurer. Premiums for OB/GYNs practicing in Virginia average approximately $29,000 for $1 million of coverage in 1992. This puts Virginia among the least expensive states for malpractice insurance. Premiums in the urban area around Washington, D.C. average about $32,500, while premiums in all other territories of the state average about $27,500. Premiums vary by insurer around the above averages. The lowest available premium in the state is approximately $22,500 and the highest is approximately $35,000. Table 3 on page 12 summarizes the current premiums by territory and company for three of the largest writers in Virginia.

6. High malpractice premium costs and exposure to liability are the major reasons physicians in Virginia are leaving the practice of obstetrics. About one-half of the private practice physicians who have provided obstetrical services in Virginia have been named in at least one suit alleging malpractice. This is supported by a study prepared by the Medical Society of Virginia entitled "Problems & Solutions to Access to Obstetrical Care: Virginia Physicians Respond."

7. Based on data from the American College of Nurse-Midwives (ACNM) there are only 72 certified nurse-midwives practicing in the Commonwealth of Virginia. Malpractice premiums for nurse-midwives are approximately one-fifth the amount charged OB/GYNs ($6,500 vs $30,000).

The low number of nurse-midwives makes a rate level analysis difficult. However, based on the extremely limited data we were able to gather, the premiums currently charged certified nurse-midwives are actuarially sound.

8. Most rating plans used by insurers have eight or nine separate rating classes with all physicians being assigned to a rate class based on their specialty. Historical claim experience for each specialty is used to assign specialties to a rate class.

Family physicians providing obstetrical services are charged different premiums depending on whether they perform minor or major surgery (class 3 or class 4). For rating purposes, family physicians providing obstetrical services are included with several other types of physicians rated in classes 3 and 4. The data collected from the major Virginia medical malpractice insurers was provided by rating class and not individual specialty class. We were, therefore, unable to analyze separately the experience of family physicians who perform obstetrical services.

D. Conclusion

The premiums paid by OB/GYNs and certified nurse-midwives in Virginia are actuarially justified. The Bureau maintains an aggressive posture regulating rates for medical malpractice insurance. The high rates of OB/GYNs are due to claim frequencies that are four to five times higher than the claim frequencies for all classes of physicians combined.