Types Of Medical Malpractice Insurance Companies

There are various types of insurance companies and other sources for purchasing medical liability insurance. The most standard are described below:

Physician-owned carriers

Owned by the physician-insureds of the company. Most states at one time had access to a physician-owned company. However, we have recently seen many of these companies change to publicly traded stock companies.

Commercial carriers:

Owned by stockholders.

Risk Retention Groups:

Formed as an insurance company under the Risk Retention Act of 1986, must follow the insurance laws of at least the state in which it is domiciled. A capital contribution is generally required when joining a  risk retention group.

Risk Purchasing Group:

An association of insurance buyers with a common  identity who join together to purchase insurance as a group.

Joint Underwriting Association:

A JUA is a state-sponsored insurer of last resort for physicians unable to obtain coverage from another insurer. Policies are generally assessable by the insured and/or all casualty insurers operating in the state.

When choosing an insurance carrier, physicians should examine whether or not the company is regulated by the state in which they practice and if they are eligible for coverage under the state guarantee fund in the event of insolvency of the company.

Different Types of Coverage

Although most physicians’ professional medical liability coverage is written on a claims-made basis, other forms of coverage are sometimes available. Physicians need to understand the crucial differences in these policy types.

Claims-Made Coverage:

This type of policy covers a physician for incidents that take place and are reported to the company after the initial date of claims-made coverage (retroactive date), as long as the policy is still in force.

Because claims-made insurance only provides coverage for incidents reported while the policy is in force, upon termination of a claims made policy, a physician needs to purchase extended reporting (tail) coverage. This ensures that insurance coverage will be provided for claims that arise after the termination of coverage for incidents that occurred while the claims made policy was in force.

An alternative to purchasing tail coverage is to purchase prior acts (retroactive) coverage when converting insurance coverage from one insurance company to another.

Many insurance companies have provisions for free tail coverage in the event of death, disability or retirement from the practice of medicine. In addition, the terms of tail coverage can vary greatly from one company to another, some offering a limited number of years for reporting claims and others an unlimited reporting period. If you do choose someone other then MyMedicalMalpracticeInsurance.com, make sure to inquire about this. We have seen too many physicians not get access to their free tail coverage.

Before purchasing a claims-made policy, physicians should make sure that the right to purchase tail coverage is guaranteed. In addition, because of the long-tail nature of medical malpractice, they should seek to obtain an unlimited tail reporting provision.

Because of the nature of claims made insurance, premiums in the first year of coverage are substantially lower than for subsequent years or the traditional occurrence type insurance. The premium gradually increases over a period of years (4 to 7 depending on the company) until a mature claims made premium is reached, exclusive of rate increases for other reasons, such as loss experience. At the mature level, premiums then change only if the company adjusts premiums overall due to claim experience. Your broker will be able to provide you an indication of how much the change in cost will be over that period.

Occurrence Coverage:

An occurrence insurance policy covers a physician for any incidents that occur while the policy is in force, regardless of when a claim is made or reported.

Because of the nature of occurrence coverage and the long-tail nature of medical malpractice, premiums for occurrence coverage can be substantially higher than for claims made. Since economic damages can increase dramatically between the time an incident takes place and the time a claim is made, it becomes difficult for companies to adequately assess the impact of inflation and other factors that affect claim settlements and judgments. This can cause companies to cautiously set premiums higher than need be or to jeopardize their financial stability if premiums are not adequate. Most insurance companies no longer offer occurrence type medical malpractice insurance, preferring the perceived more stable claims made form.

Important Factors to Consider When Looking at a Medical Malpractice Insurance Policy

Consent to settle clause

Ideally the final decision to settle a claim rests with the insured with no penalty assessed.

Defense Costs

Ideally defense costs are outside of the limits of liability and will not reduce the amount available for indemnity payments.

Claim Trigger

On a claims made policy a report of an incident should trigger coverage even if no claim or demand has been made.

Extended Reporting Endorsement (Tail) Provisions

A claims made policy should include the right to purchase tail, at a known cost, when certain conditions are met, as well as the provisions for a free reporting endorsement in the event of death, disability or retirement.

Criteria in Selecting a Professional Liability Insurer for Your Malpractice Insurance Needs

When choosing an insurance company to protect your assets and practice, the financial stability and long-term viability of the company should take priority over all other criteria.

With the growing list of insolvent medical malpractice insurance companies over the past few years and the more recent ratings downgrades of others, it is essential that physicians evaluate a company’s financial management, underwriting standards and ratings. Although premium is a major concern when purchasing malpractice insurance, it should not be the only concern, nor should it be the major determining factor. In fact, a low premium should, perhaps, raise a red flag regarding the company’s long-term financial stability. If something seems too good to be true, it usually is!

To determine if a company has the financial resources to meet its current and future obligations to its policyholders, several factors need to be examined:

Surplus:

Surplus is the amount by which a company’s assets exceed its liabilities. This is the net worth of the company and determines its ability to assume risk and pay for unanticipated deficiencies in loss reserves.

Net Written Premium:

This is the amount maintained by the company after it has paid for reinsurance.

Loss Reserves:

This is the amount set aside for indemnity payments and loss adjustment expenses for open claims.

Ratios:

The ratio of net written premiums to surplus indicates the company’s ability to assume risk. Regulators suggest a ratio between 1:1 and 3:1. The closer to 1:1, the stronger the insurance company.

The ratio of loss reserves (indemnity and expenses) to surplus indicates the company’s ability to cover unanticipated reserve deficiencies. The recommended ratio is 4:1.

The loss ratio is the total amount of incurred losses (indemnity and expenses) as a percentage of earned premium. The expense ratio is the total amount of operating expenses as a percentage of earned premium. A combined ratio (loss and expense) of more that 100% in any given year indicates an unprofitable year and a need for some type of adjustment to reduce the combined ratio and return to profitability.

Ratings:

A.M. Best Company is the leading independent analyst of the insurance industry. A.M. Best analyzes the financial and operating strength of insurance companies and awards ratings that range from “A++” (Superior) to “C-” (Weak).

Other rating organizations to consider are Duff & Phelps, Moody’s, Standard & Poors’ and Weiss Research.

 

Distribution

 There are three primary outlets that malpractice insurers employ to distribute their products:

Direct Writers:

These companies market and sell their products directly to the public using in-house agents/producers. Their employees also perform the day-to-day customer service functions. While this route is suitable, the independent physician loses the right to compare all insurers.

Captive Agents:

These agents are appointed by the company to market and sell their product exclusively. They are generally prohibited from representing any other companies. Customer service functions are performed by the agents and their employees. This, as above, is satisfactory, but the doctor will not be able to "shop" their coverage with multiple insurers.

Independent Agents:

These agents contract with the various insurance companies to market, sell and service their products. Some independent agents will represent only one insurance company while others will represent a number of or all of the companies writing coverage in their state(s).

Other Malpractice Insurance Definitions

Allocated loss adjustment expenses (ALAE):

Expenses paid for defense attorneys, expert witnesses, investigation, etc.

Annual aggregate limit (claims-made coverage):

The maximum amount the insurance company will pay for all claims that occurred during a given policy year.

Annual aggregate limit (occurrence coverage):

The maximum amount the insurance company will pay for all claims arising from claims that occurred during a given year of insurance.

Assumed premium:

The payment an insurance company receives for providing reinsurance for another company.

Claim:

A lawsuit in which a demand is made for money.

Claim severity:

The amount of financial liability resulting from settling a claim.

Direct written premium:

?An insurance company's gross premium written, before deducting any premiums paid to a reinsurer.

Earned premium:

The portion of premium that applies to an actual coverage period.

Economic damages:

Out-of-pocket damages, such as incurred medical expenses, lost wages, etc.

Limit:

The maximum amount an insurer will pay on as claim under the terms of a policy.

Non-economic damages:

What is paid for pain and suffering.

Premium credits:

A discount insurance premium for steps taken that diminish risk.

 

In Summary…

To summarize, some of the vital factors to consider when analyzing a malpractice insurance company include the insurer’s financial stability, performance record and long-term commitment to the marketplace Your broker will be able to provide you with this important data.

Financial Stability

An insurer should maintain ample capital and underwriting and pricing discipline to protect it from failure. The rating agencies and the company’s annual report are the best tools to use to evaluate this aspect.

Performance Record

A medical liability insurance company should be licensed and admitted in the state in which it is providing coverage. This will assure that they are being regulated by the state department of insurance, which can provide information regarding its compliance with state insurance laws and regulations, as well as about any complaints lodged against the company.

Long Term Commitment

An insurance company should be experienced in the underwriting and claim handling of medical professional liability insurance and committed to a continued presence in the marketplace.

We have Liability Insurance specialists ready to meet your every need, no matter which state your practice is located in. Click here to receive your free Physician Liability Insurance Quote, or click pull down menu below to start the quick and easy process.

These definitions are provided to help explain some basic insurance terms. Therefore, the definitions are not always technically complete or accurate. No definition shall affect the meaning of terms used in insurance policies issued by any company. The language of the policies, not this glossary of terms, controls the meaning of the policies.