Curb Your Insurance! The Impact of State Control on Medical Malpractice Premium

We study a policy aimed at reducing the insurance costs paid by local public healthcare providers. The policy is based on enhanced monitoring of medical malpractice claims by the regional government that rules local providers. In particular, we implement a Difference-in-Differences strategy using Italian data at the provider level from 2001 to 2008 to evaluate the impact of monitoring on medical liability expenditures, measured as insurance premiums and legal expenditures. Our results show that this information-enhancing policy reduces paid premiums. This reduced-form effect might arise by both the higher bargaining power of the demand side or by increased competition on the supply side of the insurance market. Empirical evidence on the post-treatment period supports the competition-channel hypothesis, as the policy reduces the Herfindahl-Hirschman index at the insurance company level by about 30%. Validity tests show that our findings are not driven by differential pre-policy trends between treated and control providers.