Loss adjustment expenses are a significant part of medical malpractice rates. Direct claim defense costs (attorneys, expert witness and court costs) are called Allocated Loss Adjustment Expenses (ALAE) and exclude insurance company home office claims administration expenses. Because ALAE is not usually subject to policy limits, they are not capped in this analysis. The following chart shows historical Missouri Physicians and Surgeons Medical Malpractice Insurance ALAE per exposure, or ALAE pure premium.

Claim severity is the average settlement value per claim, excluding claims that close without indemnity payment. Because many claims are still open, actuarial loss development methods are applied in order to estimate ultimate settlement values. One problem in measuring severity is that policyholders have varying limits of liability. For this reason losses are adjusted to [...]

The base rate is the building block of rate making and is directly tied to the definition of exposure. The base rate (exposure weight equals 1.0) is the premium charged to a general practitioner, mature claims made, at minimum limits of liability and with no other risk adjustments. Rates for other medical specialties, lesser maturities, [...]