Selecting Malpractice Coverage and Evaluating Carriers
Medical malpractice insurance isn't just a requirement -- it's also a major practice expense. Selecting the terms of coverage is a complex, critical task, as is evaluating insurance carriers. In fact, the future of the practice and the reputation of physicians may rest in the balance.
How Much Coverage Do You Need?
Every practice must address its malpractice coverage by asking: How much protection does it want, for what period and events? Malpractice coverage is stated in terms of limits per claim (usually $1 million is the minimum coverage needed for a low-risk specialty in a low-risk geographic area) and the aggregate limit on payments over the life of the policy (frequently $3 million, again if risks are low).
There are several types of coverage to choose from.
Most practices will be concerned with claims-made, tail and nose policies. A "claims-made" policy covers incidents that may occur during the policy period and that are reported while the policy is still in force.
When a physician changes policies, it's possible that some claims will be uncovered before the new policy kicks in. The gap can be filled by either "tail" coverage, which takes care of claims that arise after leaving the previous carrier, or "nose" coverage, which extends coverage of the new policy to an earlier date.
Which Provisions Must You Scrutinize?
There are several policy provisions that physicians should review. Most doctors will want to include a "consent to settle" clause. It requires the carrier to obtain the physician's written permission before settling a claim against him or her. Without it, the insurer can settle a claim that the physician believes is defensible.
Another provision is related to the legal costs of defending a claim. Those costs, which can be upwards of $100,000, may be included "inside" or "outside" the policy limits. The latter is better. Otherwise, a $100,000 legal defense bill will be subtracted from a $1 million per occurrence limit, leaving $900,000 to cover court awards and damages.
It's also important to consider claim acknowledgment. An insurance carrier may acknowledge that a claim has been made in one of two ways:
1. It may require that the insured physician receive a "written demand for damages" from a prospective plaintiff, which means the physician must wait to actually be sued, or
2. The doctor is allowed to report an adverse outcome as a potential claim, known as "incident reporting."
The latter is the better choice because the physician can report the incident as soon as he or she becomes aware of it, thus precluding negative PR that comes with a written demand for damages. It also avoids delay in getting the issue out in the open and resolving it. The physician has more control over the process.
Finally, every malpractice insurance policy excludes certain activities from its protection. So, make sure you check the exclusions provision to ensure it fits the kinds of practice activities you have in mind.
Which Carrier Should You Use?
Malpractice insurance companies take many forms. Some are physician-owned. Others are traditional commercial entities. Work with a broker or an independent agent to find the insurer that best suits your practice.
What to look for:
- The carrier must have sufficient financial resources to satisfy all current and future damages claims against its policyholders. A close look at the carrier's annual report and other financial statements will reveal information about its surplus, net written premiums and loss reserves -- key metrics of financial strength.
- Also look at ratings issued by industry analysts such as A.M. Best Company and Fitch. A rating of "A-" or better is desirable.
- Equally important is the carrier's management philosophy, which is reflected in its underwriting standards, claims management and actuarial policies.
The cost will depend on the carrier as well as the coverage needed and the physician's history of adverse events. To get more bang for your buck, take advantage of valuable preventive services that carriers offer to physician practices to help reduce their legal risk and maintain patient safety. For example, they may provide risk management tools through bulletins, publications and educational programs and even offer premium discounts for practices participating in the programs.
As you know, physicians must carefully consider their malpractice insurance. If they don't, they may face serious legal and financial implications from not having proper coverage when they need it. To ensure the well-being of your physicians and your practice, work with an insurance broker, your attorney and your CPA.