Democratic Underground - My understanding is that there are two reasons:

As noted above, a relatively small number of doctors account for the majority of cases and awards, but they are rarely diciplined effectively.

The other part: pure and simple gouging:
http://www.citizen.org/documents/AngoffReport.pdf

This Report analyzes the 2000-2004 performance of each of the 15 largest medical malpractice
insurers in the United States rated by A.M. Best, the principal rating service for the insurance industry.
The Report is based primarily on data from the carriers’ 2004 Annual Statements filed with state
insurance departments.
The Report finds the following:
* Over the last five years the amount the major medical malpractice insurers have collected in
premiums has more than doubled, while their claims payouts have remained essentially flat.
* Some malpractice insurers substantially increased their premiums while both their claims
payments and their projected future claims payments were decreasing.
* Malpractice insurers accumulated record amounts of surplus over the last three years.
Taken together, the malpractice carriers analyzed increased their net premiums by 120.2% during
the period 2000-2004, although their net claims payments rose by only 5.7%. Thus, they increased their
premiums by 21 times (120.2/5.7 = 21.09) the increase in their claims payments.
As a result of these two dramatically different trends, the ratio between these insurers’ claims
payments and premiums fell by more than half between 2000 and 2004: it declined from 69.9% to
33.6% on a net basis, and from 68.8% to 32.1% on a gross basis. Put another way, in 2004 the leading
medical malpractice insurers took in approximately three times as much in premiums as they paid out in
claims.
Moreover, several insurers substantially increased their premiums even though their claims
payments actually fell--and fell substantially.
------------Full PDF doc at link.-----------------

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