Illinois tort reform and the cost of medical liability claims

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By Susan J. Forray, Chad C. Karls | 01 July 2010

The Illinois Supreme Court earlier this year struck down a state law capping noneconomic (i.e., pain and suffering) damage awards in medical professional liability cases. The ruling has significant implications, as claim severities in Illinois had been among the highest in the country. Without a cap, indemnity claim severities for physicians are likely to increase by approximately 23 percent, and the average cost that insurers expend defending claims (i.e., allocated loss adjustment expenses, or ALAE) will increase by 10 percent (relative to what those costs would have been had the cap held). In total, the average increase in claim severity (loss and ALAE combined) will be approximately 18 percent. The impact on rates is not as clear, since many insurers had been skeptical of the staying power of these reforms.

This article from Contingencies explains the approach used to model the cost impact of this ruling. Authors Susan Forray and Chad Karls used publicly available loss data from two states that require the filing of detailed MPL damage award amounts to create a distributional model for economic and noneconomic damages and ALAE. They then fit the model to Illinois claim severity to study effects on the MPL market.