Paying your medical malpractice insurance bill is not pleasant. For some physicians that bill is just providing a piece of paper stating a guarantee that they will never use it. For others it provides peace of mind knowing if a medical malpractice suit is filed against them, they’re covered. In either case, it is tough to write a check that large. Primary Care physicians should look at the medical malpractice premium in a different way. By understanding why and how the premium is calculated, and what benefits you receive, you can feel better, maybe not great, about writing that check.
For the Primary Care Physician, understanding the medical malpractice insurance costs and benefits can go a long way in feeling better knowing their practice and their patients are protected. The costs for malpractice insurance depend on several factors: Actuarial Science, competition and market pressure, and investment revenue. The benefits are not always as obvious.
At a basic level, insurance is just a contract where a company agrees to guarantee an individual or group against a potential loss or injury. This works for life insurance, disability insurance, property insurance, and professional insurance. The contracts can be very complex, but in the case of a medical professional liability insurance policy, it can be very simple. An insurance company agrees to defend and indemnify a physician or other healthcare provider in case of a malpractice lawsuit for a specified fee or premium. The way that premium is calculated at a base rate is through actuarial science.
An actuary assesses the risk of a claim based on mathematical data. The probability of a future medical malpractice incident or claim can be determined through data analysis and historical claim information. Through this process, medical malpractice insurance companies file base rates with the state or states they are in, which usually must be approved by the state department of insurance. Insurance companies can also apply discounts for various situations to help bring the base rates down.
The data is based on risk, probability, and actual claims history for physicians in each specialty, geographic location, number of patients treated, and procedures and treatments performed.
While this way of creating base rates is data-driven and very scientific, other, non-scientific factors affect the rate a primary care doctor pays.
Competition and market pressure often affect the rates that a primary care physician will pay for malpractice insurance. Insurance companies are in business to make money, and there is a ton of competition in the malpractice insurance market. When claim frequency and severity are low, companies fight for market share and maximize profits. This drives rates down, which will eventually catch up with the companies. When losses are high and frequent, companies tighten up the underwriting guidelines and raise rates to adjust for economic losses. This fluctuation is a natural part of the business cycle in the insurance industry. In our current market situation, malpractice insurance companies are merging and acquiring other companies. In addition, some smaller companies have gone out of business or left the market, leaving fewer choices for physicians’ insurance. The law of supply and demand creates higher rates when demand goes up. While this doesn’t always sit well with physicians, this market pressure is a reality that affects rates. There is another factor that is not often thought about that affects the rates a physician will pay for insurance: Investment income.
Insurance companies collect millions and sometimes billions of dollars in premium payments each year. They don’t stick that money in a savings account and wait for claims. Very wisely, they invest that money to make it grow. Medical malpractice insurance companies, like all insurance companies, rely on the return on their investments for profits. When the revenue from investments is good because the market is good, they can keep premiums low to grow market share. When it’s not so good, premiums go up to adjust for lower returns or even losses from investments. This is another important factor in determining rates.
So, the rate a primary care physician pays for medical malpractice insurance depends on the investment income of the insurance company, competition and market pressure, and actuarial science. Understanding how insurance costs are determined helps you understand why you pay what you pay. But more importantly, there are benefits to having a malpractice insurance policy. You may not have thought beyond, “If I have a claim, the company has to defend me and pay for any damages.” But medical malpractice insurance companies also provide other benefits including Cyber Liability Insurance, Risk Management Services, and Continuing Education Credits, often at little or no cost to the physician. If you haven’t seen these benefits, maybe you need to shop around for a better medical malpractice insurance company.
eQuoteMD works with hundreds of medical malpractice insurance companies all over the country. We can provide insurance solutions for physicians in any specialty in any state.
