02 Jan c. Which time period

Week 2 homework

Injury year Estimated # claims (a) Estimated $ per claim (b) % of injuries in the year that are closed in that year (c ) No of Malpractice claims (d=a*c) Value of Malpractice claims (e=b*c)

1994 1021 $4,15,326.26 0.69 704 $2,86,575

1995 1087 $4,48,871.57 0.74 804 $3,32,165

1996 1184 $4,77,333.66 0.76 900 $3,62,774

1997 1291 $4,90,215.19 1.39 1794 $6,81,399

1998 1191 $5,16,696.63 1.43 1703 $7,38,876

1999 1098 $5,87,233.93 0.55 604 $3,22,979

2000 1055 $5,36,983.82 0.66 696 $3,54,409

2001 1110 $4,03,504.39 0.72 799 $2,90,523

a. Calculate the mean or average number of claims per year for medical malpractice insurance in Texas over the four-year period 1994–1997.

Mean Number of claims for 4 Yr period =

b. Calculate the mean or average number of claims per year for medical malpractice insurance in Texas over the four-year period 1998–2001.

Mean Number of claims for 4 Yr period =

c. Calculate the mean or average dollar value per claim per year for medical malpractice insurance in Texas over the four-year period 1994–1997 (in 2009 dollars). Mean dollar value of claims for 4 Yr period =

d. Calculate the mean or average dollar value per claim per year for medical malpractice insurance in Texas over the four-year period 1998–2001 (in 2009 dollars).

Mean dollar value of claims for 4 Yr period =

e. Looking at your results from (a) to (e), do you think there is any evidence to support the conclusion that costs were rising for insurers, justifying the rise in premiums?

From above results, we note that Avge Number of claims per year between Two 4 Year time periods have actually reduced.

The Average increase in dollar value in Malpractice claims is

As Number of claims have reduced by almost 10%, but Average dollar value of claims has increased, so we can say that cost has been RISING for insurers.

Injury year Estimated # claims (a) Estimated $ per claim (b) % of injuries in the year that are closed in that year (c ) No of Malpractice claims (d=a*c) Value of Malpractice claims (e=b*c)

1994 1021 $4,15,326.26 0.69 704 $2,86,575

1995 1087 $4,48,871.57 0.74 804 $3,32,165

1996 1184 $4,77,333.66 0.76 900 $3,62,774

1997 1291 $4,90,215.19 1.39 1794 $6,81,399

1998 1191 $5,16,696.63 1.43 1703 $7,38,876

1999 1098 $5,87,233.93 0.55 604 $3,22,979

2000 1055 $5,36,983.82 0.66 696 $3,54,409

2001 1110 $4,03,504.39 0.72 799 $2,90,523

a. Calculate the standard deviation in the estimated payment per claim for medical malpractice insurance in Texas over the four-year period 1994–1997.

Standard deviation is

b. Calculate the standard deviation in the estimated payment per claim for medical malpractice insurance in Texas over the four-year period 1998–2001.

Standard deviation is

c. Which time period was more risky (in terms of the standard deviation in payments per claim)?

Time period of 1998-2001 was more risky as it has higher Std Deviation

d. Using the results of (c) above, do you think the medical malpractice insurers raising rates during the period 1998–2001 was justified on the basis of assuming additional risk?

A higher Std deviation indicates that there is vide variation in claims. This needs to be investigated along with Mean values of claims to arrive at any conclusion.

In Q2, we have already seen that the Mean dollar value of claims has increased inspite of fall in number of claims.

So Insurers are right in increasing the malproactice insurance rates.