Malpractice Insurance Costs Over Time

malpractice insurance costs comparison

Physicians often choose malpractice insurance coverage based on attractive up front pricing without understanding the implications of their malpractice insurance costs over time.  In this post, we illustrate and compare current and future costs over time between two competitive markets for the same physician.

 

Let’s look at malpractice insurance costs from Carrier 1:

Carrier 1 Example

Here we are providing malpractice insurance costs from two types of  coverage, Occurrence vs. Claims Made Coverage, for the current (Year 1) and seven consecutive years afterward with rates and physician claim experience remaining constant. Note that with Occurrence coverage, the premium remains consistent. With Claims Made, the premium increases due to the Claims Made Step Factor. Remember, since the Claims Made trigger date is the date claims are filed, there is a lower chance of a claim being filed for the first few years. This is the reason for the step-up factors. Risk exposure increases as time passes. Claims Made Step Factors differ between carriers, so it is important to carefully review each of them. As you can see, we have included Cumulative Costs in this coverage example, including the purchase of a Tail in the Claims Made example should one be needed. Note that the increase of purchasing Occurrence vs. Claims Made is minimal in this example.

 

Now, let’s look at malpractice insurance costs from Carrier 2:

Carrier 2 ExampleNotice that with this carrier, the Occurrence rate and Claims Made Mature rate are equal and the Claims Made Step Factors and Tail Factors differ. More importantly, look at the Cumulative Cost Difference. See how the Claims Made Coverage will cost approximately $24,000 more than if you had purchased Occurrence in Year 8, should you need to purchase a tail?

 

Extended Reporting Period Waivers

When comparing these coverages, it is also important to review the Extended Reporting Period (Tail) Waiver, which provides a Free Tail. For the carriers listed above, these waivers are as follows:

Carrier 1

The carrier will provide a waiver for the Extended Reporting Period upon the following:

1. Death

2. Disability

3. Retirement at the age of at least 60 and having been insured with the carrier for at least five consecutive years or retirement at any age and having been insured with the carrier for at least seven consecutive years.

Carrier 2

The carrier will provide a waiver for the Extended Reporting Period upon the following:

1. Death

2. Permanent and Total Disability

3. Permanent and total retirement from the practice of medicine after he/she attains the age of 65 or older and has been insured on a claims made basis by an authorized insurer for five or more consecutive years

4. Permanent and total retirement after an insured attains the age of 55 or older and has been insured on a claims made basis by an authorized insurer for ten or more consecutive years

5. Permanent or total retirement and has maintained claims made coverage with an authorized insurer for at least 10 consecutive years, provided the last five consecutive years were with the carrier.

 

Summary

We believe that physicians need a full understanding of their malpractice insurance costs before making their purchasing decision. There is healthy competition between carriers which makes some stronger in certain areas than others. Understanding long-term costs and contingencies goes a long way in mitigating or preventing heavy financial impacts when carriers provide unexpected premium quotes in future years.

A comprehensive assessment of malpractice insurance costs and coverage types can improve the financial health of your practice and should be part of your business strategy. Most of today’s focus in healthcare tends to be on the Income side of the balance sheet, when in reality, both Income and Expenses are equally important.

We continually research the market to find the best resources to help you. The Fox Group is an experienced management consulting firm that specializes in assisting physicians and other healthcare providers throughout the U.S. and abroad to achieve their strategic and operational goals. While they are clearly in the business of consulting to healthcare providers, they do provide some free valuable resources. As part of your malpractice insurance costs assessment, you may be interested in considering their Medical Practice Assessment, which may reveal insights into the real financial health of your practice. This is just one of many valuable sites we’ll link to our blog to continually keep you informed. Please visit here often for business tips and important updates in risk management.

 

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