These are some of the common questions we encounter along with basic answers. For further information, please do not hesitate to contact us and one of our experienced representatives will address your question.
What is Professional Liability Insurance?
Professional Liability (also known as medical malpractice) insurance provides coverage to healthcare providers for liability arising from any acts or omissions while providing care. In the event of a lawsuit, the policy provides coverage for costs of defense and any awarded damages. Insurance companies charge premiums based primarily on the provider’s specialty and county of practice. Typically, policies are subject to limits and are renewed annually.
Am I required to buy Professional Liability Insurance?
Healthcare providers employed by a hospital or large medical groups are often covered by their employers. Providers in private practice, however, are required to demonstrate proof of insurance coverage to state licensing boards, hospitals providing privileges, and healthcare benefit payers. These entities set requirements on how much coverage is necessary. Private practice providers can obtain coverage through independent, specialized brokers such as Flagship Healthcare.
Why should I use an agent/broker?
Most carriers require that you work through an independent agent. Some carriers will work directly with policyholders and there are also a few carriers that work exclusively directly with policyholders and do not utilize an agency force at all. Here are the major reasons to use the services of a broker like Flagship Healthcare:
- An insurance policy is a legal contract between the policyholder and the insurance company. We advocate for our clients and represent their interests in the insurance agreement.
- Market Knowledge
- Representing hundreds of clients with multiple insurance companies gives us comprehensive information on how each carrier handles each scenario. When a client works directly with one carrier, they only see one way of doing things. If a particular company does not handle a coverage scenario well, the client would have no way of knowing there are superior options. We use our knowledge of the entire market to ensure our clients are getting the strongest coverage at the lowest price.
- Reduced Cost
- Insurance companies choose whether or not to use a broker distribution channel based on cost-effectiveness. They charge the same premium through both channels. It does not cost our clients more to use our broker services and due to our insights and aggressive representation, our clients pay consistently less than their colleagues.
Forming a relationship with a trusted, expert insurance advisor can ensure adequate protection for your practice and make a huge impact on your bottom line.
What is a financial rating?
Financial strength ratings are provided to insurance companies by independent analyst organizations. A.M. Best is one of the leading credit rating organizations serving the insurance industry. Other organizations include Standard and Poor’s, Fitch, Moody’s, and many others. A rating organization analyzes many financial indicators to determine the insurance company’s financial strength rating. These indicators include the company’s surplus (the amount the company’s assets exceed its liabilities), the total premium collected by the company, the amount reserved to pay losses, and the operating expense incurred by the company. We refer to insurers that have not been rated by A.M. Best as unrated companies and often include disclaimer statements in proposals from such companies.
What is the difference between Occurrence and Claims-Made policies?
Though the majority of the marketplace has migrated to claims-made policies, there are classically two types of medical professional liability policies – an occurrence policy and a claims-made policy. The major difference between the two policies is the coverage trigger. In an occurrence policy, coverage is triggered if the incident occurred within the policy period, regardless of when the claim was reported. On the other hand, a claims-made policy only provides coverage if the claim is reported (made) within the active policy period and the incident occurred after the policy “retroactive date.”
This nuance creates some practical implications – claims-made policies typically start out at a lower premium and “step up” over five to seven years to a “mature” premium. Since occurrence policies provide coverage in perpetuity, from the outset, the premium is typically slightly more expensive than a mature claims-made premium. Also, upon expiration of a claims-made policy, by definition, future claims cannot be reported. Thus, to handle the ongoing liability from incidents that occurred when the policy was in place, an extended reporting period (or “tail coverage”) can be purchased. Alternatively, the ongoing liability can be transferred to a new carrier by matching the retroactive date of the previous policy (known as “nose coverage”).
What is Tail and Nose coverage?
Tail Coverage (or Extended Reporting Period) is an endorsement that is applicable to claims-made policies. The provisions of this endorsement allow the policyholder to report claims that arise from incidents that occurred during the period beginning with the retroactive date of the policy and ending with the policy expiration date. Tail coverage is purchased upon cancellation or non-renewal of a claims-made policy in the event the insured is not purchasing another claims-made policy that is covering prior acts. Many carriers offer free tail coverage in the event of death, disability and retirement.
Nose Coverage (or Prior Acts Coverage) is similar to tail coverage, but is offered by the provider’s new insurance carrier. This is accomplished by assuming the same retroactive date on the new claims-made policy as the prior policy. Thus, in effect, any unknown liability arising from prior acts is now covered by the new policy. In this situation, the new claims-made policy premium is typically already mature, since step-factors do not apply if the retroactive date is greater than 5-7 years in the past. Nose coverage is only offered if the insured provider stipulates that all known incidents that could reasonably result in a claim have been reported to the prior carrier.
What are some important policy provisions to know?
Medical professional liability policies come in many different flavors. Here are some insurance provisions that all policyholders should know. By working with Flagship, you can ensure that your policy always includes the most favorable provisions:
1. Policy Limits – Each insurance policy has limits of liability based on each occurrence and annual aggregate. State regulatory bodies, hospitals and payors establish minimum requirements on these limits. For example, in Illinois, the required limits are $1,000,000 per occurrence and $3,000,000 annual aggregate. On a single claim, the insurance company will limit their liability to $1,000,000 and in a single year, the limit will be $3,000,000.
2. Consent to Settle – This policy provision states that the insured provider must provide written consent before the insurance company can settle a claim. One should very carefully consider purchasing a policy that lacks this provision. An additional point to note is that certain policies include a Consent to Settle provision, but introduce an additional clause that states that in the event the insured declines to settle, the insured is responsible for any ultimate difference between the final settlement or verdict and the original settlement. This clause, known as a Hammer Clause, should also be carefully considered.
3. Defense Costs within Limits – Professional liability insurance policies provide coverage for the defense of a lawsuit as well as for any associated indemnity. Often, these defense costs can exceed $100,000. This provision states that the limits of liability (described above) include defense costs. That is, if a claim costs $100,000 to defend and the limit of liability is $1,000,000, then the limit is reduced to $900,000 for any indemnity.
4. Incident vs Demand Trigger – A policy with an Incident Trigger states that coverage can be triggered based on the report of an incident, such as an adverse outcome, a request for records, or a disgruntled patient. In contrast, a Demand Trigger states that coverage is only triggered when a written demand is received. This provision is important because often, prior acts are not offered if the prior policy included a Demand Trigger.
5. Exclusions/Limitations – Every policy has stated exclusions and limitations. These should be carefully reviewed to ensure that none of the exclusions apply to the insured provider’s practice.
What factors affect policy premium?
Insurers determine the initial rates in their underwriting manual based on medical specialty, county of practice, and desired policy limits. These base rates are filed with state regulatory bodies and are publicly available. Analyzing these base rates is the first step in evaluating the right carrier for a particular practice. However, many additional factors apply before a final premium can be calculated.
1. Step Factors – As previously discussed, claims-made policies are subject to step factors based on the retroactive date until a “mature” premium is reached. For example, if the manual rate is $20,000, then the first year base premium based on typical claims-made step factors is $5,000.
2. Number of Hours – Many carriers offer a discounted premium for providers that can demonstrate that they are working part-time. This is typically defined as less than 20 hours per week. Certain carriers also provide additional discounts for providers practicing less than 10 hours per week.
3. Premium Credits (also known as Discounts) – Every insurance carrier provides discounts for favorable underwriting criteria such as being new to practice, number of years without any loss payments, and completion of educational risk management courses.
4. Premium Debits (also known as Surcharges) – Similarly, carriers apply surcharges based on negative factors, such as significant history of loss payouts and procedures or practice profile that is atypical of the provider’s stated specialty.
How can I reduce my insurance policy premium?
We have worked with hundreds of physician providers and have consistently found that the number one way to reduce your insurance premium is to choose to work with a competent, trusted insurance agency. The insurance marketplace has undergone an enormous amount of change in the past few years. Flagship will analyze the market thoroughly to provide the best option for your practice.
In addition, we provide information on how to maximize the discount available on your current policy by making sure all available credits have been applied including those for completing risk management education courses and seminars.
For group practices and members of certain clinical integration programs, carriers often provide additional credits. Group credits are based on factors such as group size and overall claims history.