A year after soaring malpractice insurance rates drove 11 Harvard teaching hospitals to form their own insurance company, the hospitals reported that the new arrangement has saved them $3.5 million in lowered premiums.

Thomas M. Botts, associate director of clinical services at Children's Hospital, said yesterday that the savings are primarily the result of the superior record of physicians at the hospitals, which allows the company to charge rates 30 per cent below those of the only other joint hospital underwriting firm in Massachusetts.

Controlled Risk Insurance Company, Ltd., the teaching hospitals' insurance firm, is based on Grand Cayman Island in the British West Indies in order to take advantage of the island's low tax rates, Daniel Creasey, risk management consultant to the company, said yesterday.

"We wanted a tax haven, we didn't want to pay any one's federal income tax," Creasey said.

Under the Harvard plan, a computer system records all incidents that might lead to malpractice suits and identifies accident trends that can be corrected, Thomas O. Pyle, chairman of the board of the company, said yesterday.

The teaching hospitals have recorded about 1000 such incidents a month for the past year, but so far no patient has filed a malpractice suit, Pyle added.

The plan also saves the hospitals money because they are the sole owners of the insurance firm and return all profits to the company's reserve fund, Botts said.

Once the reserve fund is high enough to pay for any potential malpractice suits, the money will be used to offset increases in medical costs, Botts added.

Before the plan was adopted last year the teaching hospitals were paying nationally set insurance rates. "We felt we were paying for malpractice in other parts of the country," David Dolins, associate director of Beth Israel Hospital, said yesterday.

"Harvard has some of the top physicians in the country" and is for that reason a better insurance risk, Dolins said.

Risk

When the firm was organized, hospitals affiliated with Yale, Dartmouth, Tufts and Boston University expressed interest in joining, but were not allowed to take part because the company had not decided whether they were good risks, Dolins said.

The company will not consider taking on new members before April 1979, Dolins added.

Three thousand physicians are covered by the insurance plan, including all of the doctors at Stillman Infirmary, Dr. Sholem Postel, associate director of University Health Services, said yesterday.