Written by Sarah Lim Lic# 0M52397
Choosing the right malpractice coverage is crucial for all physicians, but especially so if you are starting a private practice. You want coverage that will be:
1. Affordable – First year claims-made policies are the lowest premiums you will pay since you likely would be starting a whole new policy. We at CAPIA do a search for you with multiple carriers so that you can see which carrier is lowest by comparison.
2. Customized to your coverage needs – coverage can usually be adjusted for practice locations, hours worked & patients seen per week, types of procedures/services provided, coverage for additional staff, etc. Simply gather the details for your CAPIA representative by completing 1 application and we will make sure that each carrier’s quote is specific to you and your practice.
3. Provided by a company you trust based on factors that include ratings as proof of financial stability, such as AM Best. We at CAPIA only work with carriers rated A- or better through AM Best. We understand that there are carriers out there, like risk retention groups, that have lower premiums but you would be gambling with your coverage. History has shown that risk retention groups (RRG’s) tend to become insolvent eventually and once they do, any open claims will have to be paid for out of the insured’s pocket since RRG’s do not qualify for California’s state guaranty fund. Carriers that are admitted in the state of California are backed financially by the state guaranty fund so if one of these carriers became insolvent, this fund would take over in paying for the remaining open claims.
For professional liability, there are two basic types of insurance policies:
1. An Occurrence policy covers a claim during the period the policy was in effect, no matter when the suit was filed, under the terms of the policy that was in effect when the incident occurred. A pro and con about this type of policy:
a. A financially helpful perk about these policies is that they also cover any claims even after the policy is no longer in effect, thus not requiring tail coverage (explained next). In essence, you are covered for your lifetime by an insurance carrier for any claims arising from any previously active policy periods you had with that insurance carrier.
b. Although tail coverage is not required, annual premiums for occurrence policies can be quite expensive and sometimes up to triple a first-year claims-made premium.
c. These policies are common for allied staff such as NP’s, PA’s, RN’s, etc.
2. A Claims-Made policy covers a claim that was reported only during the period the policy was in effect, under the terms of the policy in effect when the claim was made. Since coverage is limited to only when the policy was in effect, premiums for claims-made policies are usually considerably lower than premiums for occurrence policies. A couple things to note about these policies:
a. Premiums are based on a step-rate factor for 5 years, at which point your rate should be “mature.” The first year will be the least expensive but as you continue your coverage, you will accumulate exposures to loss, called Prior Acts that the carrier will have to cover. The first date your prior acts coverage will start from is called your Retroactive Date. Rate increases can also vary due to claims histories and market conditions but generally, the biggest increase in premium will be year 2, which can be double the first year’s premium. From Year 3, the premium may increase by 50% of the second year’s rate and from here, it should plateau out.
b. These policies will require you to purchase tail coverage, also called an Extended Reporting Period. Tail coverage would cover any claims that arise only from the active periods of the original policy. Tail coverage can be limited to a certain number of years, usually 1, 3, or 5 year, or it can be unlimited. This type of coverage is extremely costly, up to 300% the expiring premium, and payment is required in full upfront. One way you can avoid having to purchase tail coverage is to stay with one carrier for a specified amount of time and earn free tail, also known as Death, Disability, and Retirement (DDR). Many carriers offer their insureds free tail when they meet certain requirements such as having 5 consecutive years of coverage, being 55 years or older and permanently retiring from practicing medicine, etc.
c. Claims-Made policies are generally used to cover claims for physicians (MD’s, DO’s, ND’s, etc.)
Premiums for malpractice insurance can vary depending on many factors such as:
1. Type of policy (claims-made vs occurrence)
a. Occurrence policies have tail built into the coverage so the annual premiums are considerably higher than those for claims-made policies. Annual premiums are higher but generally shouldn’t increase by too much.
b. Premiums for claims-made policies are less expensive but will gradually increase until year 5. From here, as long as there no claims or other incidents, the premium should stay pretty consistent.
2. Your specialty - Premiums for doctors in low-risk fields like primary care or internal medicine will be lower than those who specialize in fields with higher risks, such as surgery or obstetrics.
3. Your Claims History
a. How many claims within a specified amount of time (10 years);
b. Currently open or closed;
c. Outcomes of those claims: Dismissed, Payouts, Judgments, etc;
d. Payout amounts from the claims;
e. How long ago the most recent claim was.
4. Length of time in practice – The longer you have been practicing, the more retroactive coverage you will need which will affect the premium. Many carriers offer considerable discounts for those who are new to practice or recent graduates.
5. Part-Time or Full-Time – Many carriers also offer discounted part-time rates for those who work less than 20 hours per week.
6. Types of procedures – Premiums can vary based on things like types of anesthesia used, if the procedure is outside your specialty and how invasive (risky) the procedure is, etc.
7. What county you are working in – Different counties in California have different rates with Los Angeles being one of the counties with premiums on the higher end.
There are several different ways you can go about purchasing a malpractice policy:
1. You can do your own research (ex: financial strength rating of the carrier on Ambest.com) and apply directly to each insurance carrier, but as most carriers want their own application completed, this would require much effort and time.
2. You can use a broker like those at CAPIA. Your broker is there to help make the process simpler and easier to understand. You provide the information and we do the search using a market that only includes carriers that have AM Best ratings of A- or better. If you would like to learn more, call your CAPIA specialist today.
