1. Premium Deceit or Judicial Delusion: Does Tort Reform Cut Insurance Premiums? Martin Grace Ty Leverty Georgia State University University of Iowa

2. Premium Deceit or Judicial Delusion: Does Tort Reform Cut Insurance Premiums? Martin Grace Ty Leverty Georgia State University University of Iowa

3. Outline of Presentation Motivation Motivation Related Literature Related Literature Methodology & Data Methodology & Data Results Results Conclusion Conclusion

4. Tort reform is an “insidious public relations scam” (Doroshow and Hunter, 1999, 2002) Motivation Related Literature Methodology & Data Results Conclusion

5. Insurers uncertain about the longevity of tort reform Insurers uncertain about the longevity of tort reform Prices should reflect this uncertainty Prices should reflect this uncertainty Main Idea Motivation Related Literature Methodology & Data Results Conclusion

6. Our Testing Philosophy: Two-step procedure: Two-step procedure: 1. Estimate a Peltzman (’76) style multiple interest group model to predict the likelihood & duration of tort reform 2. Use estimated duration to examine the effect of tort reform on state medical malpractice market Motivation Related Literature Methodology & Data Results Conclusion

7. Conclusions Tort Reform initially lowers losses Tort Reform initially lowers losses States with more certain tort reforms States with more certain tort reforms Lower per-unit price Lower per-unit price Increased supply Increased supply Insurers forecast the likelihood that a tort reform will be voided Insurers forecast the likelihood that a tort reform will be voided Motivation Related Literature Methodology & Data Results Conclusion

8. Literature Review No change in claiming behavior over time No change in claiming behavior over time Black et al. (2006) Black et al. (2006) Tort reform decreases insurers’ loss ratio Tort reform decreases insurers’ loss ratio Born & Viscusi (‘94 & ‘98); Viscusi & Born (‘95 & ‘05), and Viscusi, et al. (‘93) Born & Viscusi (‘94 & ‘98); Viscusi & Born (‘95 & ‘05), and Viscusi, et al. (‘93) Long-run effects of tort reforms are greater than insurers’ initial expectation Long-run effects of tort reforms are greater than insurers’ initial expectation Born, Viscusi, and Baker (‘06) Born, Viscusi, and Baker (‘06) Motivation Related Literature Methodology & Data Results Conclusion

9. Methodology - 1 st Step Peltzman (‘76) style multiple interest group model of political decision making to examine: Peltzman (‘76) style multiple interest group model of political decision making to examine: Likelihood of tort reform Likelihood of tort reform Likelihood tort reform is invalidated Likelihood tort reform is invalidated Duration of tort reform Duration of tort reform Relevant Interest Groups: Lawyers, Physicians, Insurance Industry, Corporate Sector, Citizens, & Judges Motivation Related Literature Methodology & Data Results Conclusion

10. Data Tort reforms (ATRA) - 1985 – 2005 Tort reforms (ATRA) - 1985 – 2005 State gross state product (GSP) State gross state product (GSP) Corporate & Insurance share of GSP Corporate & Insurance share of GSP Democratic Majority in Legislature Democratic Majority in Legislature Citizens’ ideology (Berry et al., 1998) Citizens’ ideology (Berry et al., 1998) Lawyers Per Capita (ABA) Lawyers Per Capita (ABA) Physician Per Capita (Statistical Abstract) Physician Per Capita (Statistical Abstract) Judicial Selection (Hansen, ‘04) Judicial Selection (Hansen, ‘04) Motivation Related Literature Methodology & Data Results Conclusion

14. Likelihood of Tort Reform More Likely Physicians Per Capita Physicians Per Capita Elected Judges Elected Judges Less Likely Democrat Majority Lawyers Per Capita GSP Per Capita

15. Motivation Related Literature Methodology & Data Results Conclusion

16. Likelihood Reform is Invalidated More Likely Physicians Per Capita Physicians Per Capita Insurance share of GSP Insurance share of GSP Elected Judges Elected Judges Less Likely Citizen Ideology Index Lawyers Per Capita GSP Per Capita Prior

17. Mean Predicted Probability that Reform is Determined Unconstitutional ALASKA – 0% OHIO – 33.16% WISCONSIN – 95.02% Motivation Related Literature Methodology & Data Results Conclusion

18. Predicted Median Log Survival Time (from date the reform is enacted) Motivation Related Literature Methodology & Data Results Conclusion

19. Methodology - 2 nd Step Medical Malpractice Loss Ratio Medical Malpractice Loss Ratio X i : X i : Log of DPE Medical Malpractice Log of DPE Medical Malpractice Medical Malpractice HHI Medical Malpractice HHI Crisis State Indicator (AMA Crises) Crisis State Indicator (AMA Crises) Rank of litigation environment ( Hunter, 2007) Rank of litigation environment ( Hunter, 2007) Motivation Related Literature Methodology & Data Results Conclusion

21. Impact of Tort Reform on Med Mal Loss Ratio Tort Reform Indicator is Negative Tort Reform Indicator is Negative Predicted Duration of Reform is Positive Predicted Duration of Reform is Positive Motivation Related Literature Methodology & Data Results Conclusion

23. Influence of Tort Reform on Med Mal Premiums & Losses Probability of Reform Factors are: Probability of Reform Factors are: Negatively Related to Premiums Negatively Related to Premiums Negatively Related to Losses Negatively Related to Losses Predicted Duration of Reform is: Predicted Duration of Reform is: Not Related to Premiums Not Related to Premiums Positively Related to Losses Positively Related to Losses

24. Conclusions Tort Reform initially lowers losses Tort Reform initially lowers losses States with more certain tort reforms States with more certain tort reforms Lower per-unit price Lower per-unit price Increased supply Increased supply Insurers forecast the likelihood that a tort reform will be voided Insurers forecast the likelihood that a tort reform will be voided Motivation Related Literature Methodology & Data Results Conclusion