Looking for a quick guide to help you understand Medical Malpractice Insurance? Whether you’re a physician, Nurse Practitioner, office manager, or hospital administrator, it’s helpful to have information available as you look to renew your current medical malpractice insurance or start a new practice. Below are 10 Essential Facts About Medical Malpractice Insurance you need to know!
1. Medical Malpractice Insurance is a Liability Only Policy
These policies aren’t as complicated as some people think. Much like a liability policy for auto insurance, or general liability insurance for a business, Med Mal Insurance is liability insurance. It protects physicians, allied healthcare professionals, and entities against a claim of negligence where damages occurred. Most policies include a liability limit of $1 million per claim and $3 million per policy period (1 year). Some states and hospitals have different requirements, but $ 1M/$ 3M is the most common.
2. The Medical Malpractice Insurance Market is Cyclical
Like most businesses, Med Mal Insurance prices fluctuate depending on the economy, number of claims, and profitability. The market has ups and downs that create cycles where prices are low, competition is high, and coverage is easy to find. This is referred to as a Soft Market. The opposite of a Soft Market is called, what else, a Hard Market. This cycle happens when insurance companies drop out of the market or won’t take new business, prices are high, there are few options, and underwriting guidelines are strict. From around 2008 to 2019, the U.S. Med Mal Insurance market was in a Soft Market cycle and has been changing through 2023.
3. Specialists Pay More than Generalists
Higher-risk medical specialties pay higher premiums than lower-risk medical specialties. Actuaries determine insurance rates based on exposure to risk, so it follows that a General Surgeon pays more than a Psychiatrist. An Internal Medicine physician pays less than an ENT specialist. OB/GYNs, Orthopedics, Neurologists, and other high-risk specialties pay the highest rates.
4. City Docs Pay More than Rural Docs
Physicians and other healthcare professionals who practice within the radius of a large city pay higher Med Mal Insurance premiums than others who practice in rural, lower populated areas. There are legitimate reasons for the difference in cost. First, doctors are seeing more patients per day in large metropolitan areas than in small towns. More patients mean a higher chance of getting sued for medical malpractice. Second, doctor-to-patient relationships are not as good, in general, for metro-based practices. In small towns and rural areas, there aren’t as many choices for health care, and patients tend to stay with their physician for many years or even a lifetime. In addition, cities are more litigious areas, and city courts/juries rule against doctors more than not. This means if a case goes to court, the doctor has a low chance of winning. All of this translates to tighter underwriting guidelines and higher premiums for those practicing in a city or large metropolitan area.
5. There are Hundreds of Medical Malpractice Insurance Carriers
Years ago, there were states that in Med Mal Insurance terms, were labeled, Single Carrier States. This meant that there was one dominant Med Mal Insurance company, and few if any choices beyond that one. States like Illinois, Colorado, and Tennessee were dominated by one single insurance company, physicians really had no choice. However, beginning in the mid to late 2000s, competition increased, new carriers emerged, and national companies expanded their reach to almost every state in the country. In most states, physicians have 5 or 6 choices for Med Mal Insurance, but in a lot of states, there are 20 or more if you include physician-owned and RRG companies. There are more choices now for Med Mal Insurance than ever before.
6. There are 4 Types of Medical Malpractice Insurance Companies
- Stock Insurance Company – Owned by shareholders, for-profit business, regulated, should have a financial rating.
- Mutual Insurance Company – Owned by insureds, for-profit business, sometimes pays dividends, regulated, should have a financial rating.
- Assessable Mutual Insurance Company – Owned by insured members, not-for-profit business, usually not rated, loose regulations, can assess members if capital is needed.
- Risk Retention Group (RRG) – Owned by a group engaged in a similar or related business for the purpose of insuring liability risk, sometimes formed by specialty or group affiliation, loosely regulated, usually not rated, and can require a capital or investment commitment from insured members.
7. There are 2 Types of Medical Malpractice Insurance Policies
- Claims-Made — coverage is provided by the insurance carrier that insures the healthcare provider at the time the claim is made. It doesn’t matter if the incident happened years ago because any claim after the Retroactive Date always goes to the current company. This type of policy is less expensive than Occurrence. Tail insurance may be necessary when leaving a practice or upon cancellation depending on if the coverage going forward will pick up the Retroactive Date.
- Occurrence — coverage is provided by the insurance carrier that insured the healthcare provider at the time the incident or alleged malpractice occurred. Retroactive Coverage is not necessary because a claim for a prior act always goes back to the Occurrence policy. Coverage is portable and no tail insurance is needed when leaving practice or upon cancellation. This type of policy is more expensive than Claims-Made.
8. Tail Coverage is Expensive
With a Claims-Made policy, when coverage is canceled due to employment changes, or the physician retires, Tail Coverage (Extended Reporting Endorsement) must be provided to cover any prior acts of the insured. In the case of death, disability, or retirement, most Med Mal Insurance carriers provide a free tail. In the case of changing from private practice to employment, the physician must purchase the Tail. The cost for a Tail can be very high. Most carriers charge 2.5 to 3 times the current premium, which for higher specialties can be in the hundreds of thousands. However, you can get a tail from another carrier, so shopping around can help you save thousands of dollars.
9. Medical Malpractice Rates are Going Up
Med Mal Insurance rates have been slowly creeping up since the second half of 2018. As predicted, this Hard Market is a correction needed to keep insurance carriers solvent and profitable. For a decade, insurance companies were charging low rates to gain market share. Claims were down and investment returns were up. Carriers continued lowering rates until their reserves and surpluses started to shrink. Claim severity is on the rise, investment returns are low, and surpluses are eroding. So, the obvious correction is for carriers to raise their rates. These increases started with modest 2 – 5% increases in certain states. Then the carriers started implementing 5 – 10%, and even 15% increases in territories where claims became a problem. 2023 will continue to show more increases, however, experts predict most carriers have taken the increases they need to keep loss ratios where they need to be going forward.
10. Agents Represent Insurance Companies, Brokers Represent Physicians
An Insurance Broker is an independent representative of the client. This means, a broker works with a client to determine their needs and then goes out to all or most of the Med Mal Insurance carriers to meet those needs. A broker always has a responsibility to put the client first. A broker is paid a percentage of the premium as a commission, and the client does not pay a fee to the broker. An Insurance Agent works for a specific insurance company to sell insurance policies to physicians and other healthcare professionals. The agent’s first priority is the employer. Agents are unable to provide choices for Med Mal Insurance because they usually only represent one company.
In addition to these 10 Essential Facts, eQuoteMD can provide resources to help you understand and navigate the Med Mal Insurance market. Use this quick guide to get started on your next renewal or new practice, and then talk to a consultant broker at eQuoteMD.