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This chapter addresses three main questions. First, how well do markets for medical malpractice insurance function? Second, to the extent that there is a case for government intervention in these markets, how effective have such interventions been? Third, what types of policy changes, if any, are indicated? It argues that medical malpractice insurance market has been fixed so often that it is difficult to contemplate a market for medical malpractice insurance absent from government intervention. While regulation is necessary to address unique potential problems for insurance consumers, in practice the record of insurance regulation is mixed. While regulation probably has not caused more than minor harm, it is not clear that society has been well served by it either. The chapter concludes that in light of the evidence, additional regulation is not recommended.

This chapter examines the “insurance cycle” or “underwriting cycle” that arises in the property-casualty insurance industry, of which medical malpractice insurance is part. Cycles in medical malpractice insurance are important because they can be at least temporarily disruptive to health care delivery, and they elicit strong demands for change in the political arena. The chapter considers how deeply entangled medical malpractice is with the insurance cycle; provides insight into the functioning of the medical malpractice insurance business; and explores the dynamics of the cycle by looking at both internal and exogenous causes.

This chapter discusses private markets for reinsurance and the rationale for and experience with government provision of such insurance. Volatility in reinsurance markets is one cause of cycles in markets for primary medical malpractice insurance. One approach for reducing the amplitudes of cycles, which can be quite disruptive, especially in some geographic locations and physician specialties, is to substitute publicly provided for privately provided reinsurance.

This chapter examines the pros and cons of no-fault programs. No-fault programs have some important advantages. Injury victims are people who are compensated who would otherwise not be compensated, and compensation is made at a much lower administrative cost and much more quickly, on average, than by tort. However, the successes of no-fault in other countries have been impossible to replicate in the United States. The chapter recommends the expansion of voluntary, hospital-based, no-fault insurance as a substitute for tort liability/insurance and that this should be done by contract.

Rising medical costs for treatment of illnesses and increasing awareness of the right of action against doctors for the results of medical misadventure have contributed to the growth of schemes for health insurance. Doctors take out insurance to cover the risk of medical malpractice claims against them. States encourage people to cover risk both of medical expenses and medical negligence through insurance as a measure of healthcare policy. In the USA, the State undertakes a sizeable outlay of expenses for healthcare but it looks to a shared responsibility from its citizens through compulsory health insurance. Health insurance is a contract of uberrima fides (utmost good faith) and contentious issues centre on whether there was full disclosure of past clinical history before taking out health risk cover. Renewal of policies and reluctance to underwrite risk by the insurer are the other areas of widespread litigation. Courts have come out in support of the patient/ policy holder and read down clauses disowning liability.