The modern medical malpractice insurance marketplace can be filled with questions, confusion and sometimes apprehension. For many doctors, it is very difficult to navigate alone. Understandably, physicians would rather spend their time learning more about their specialty and growing their practice than becoming experts in the expansive and ever-changing world medical malpractice insurance. It is this continuous fluidity that requires constant re-examination of rates, rules (on both the state and federal levels), and the financial viability of individual insurance companies, after all, if there is a claim, it’s important that the medical liability insurance company can actually deliver on its promises to doctors.
For a physician or surgeon, there are three main topics to focus on when purchasing medical malpractice insurance; Company Financials, Contract Details, and Type of Insurance Company. While no doctor needs to be an expert on these three subjects, it will ultimately serve to protect and assist a doctor who has a basic understanding regarding each of them.
The Malpractice Insurance Company Financials
Despite common presuppositions, you do not need to be a CPA to get a feel for the financial health of an insurance company. There are two important areas of an insurance company’s balance sheet, of which, potential buyers should be aware. The first is the company’s “reserves” or in other words, how much money do they have set aside to pay future medical malpractice claims. For example, if there is a company which has only $200,000 in reserves to pay claims versus a company with $17,000,000 in reserves, one can quite easily start to see which company is better positioned to handle claims.
Additionally, the “Premium to Surplus Ratio” is one of the most commonly used indicators of a medical liability insurance company’s financial health. While it requires a bit of math, the Premium to Surplus ratio is very telling. The ratio is calculated by dividing the insurance company’s current year’s premium by the current year’s surplus. Put in another way, how many dollars of premium does the company collect for every dollar it has in surplus? Incase you are wondering, surplus is calculated by subtracting liabilities from assets or what a company owes from what it owns.
Annual Premium Dollars = Premium to Surplus Ratio
(Assets – Liabilities)
A healthy company will have a ratio of no higher than 3:1, meaning for every $3 in premium intake, they have $1 in surplus, allowing them to safely cover unforeseen expenses or payouts. A company with a ratio of say, 4:1 should be closely examined and approached with a great deal of caution. Likewise, a company with a ratio approaching 1:1 should be examined more closely. A ratio this low is indicative of an insurance company charging excessively high premiums for the amount of risk it is taking on, which translates to you, the doctor, paying too much for the medical liability insurance.
While no ratio or specific number pulled from a balance sheet can tell the entire story of a company’s financial health, they can be quite helpful in determining whether or not you want to place your trust in them.
What are the Contract Details?
All medical malpractice insurance policies are not created equal. While medical malpractice insurance can claim more homogeneity than other insurance products like life, health and property insurances, there are still some important options to be aware of. Company A and Company B may both be quoting you the same premium. On the surface this may seem like a toss up, however their policies may offer different benefits.
The most common option in a medical liability insurance policy is the “Consent to Settle.” This option, if selected requires the insurance company to get permission from a doctor before settling a case and paying the plaintiff. The converse option is “No Consent” where the insurance company has full control over the decision to take the case to trial or settle. Generally, if the option is available to a doctor, he or she can receive a discount for choosing the “No Consent Option.” Keep in mind, there are a few different versions of the “Consent Option” with slightly different aspects.
When considering this option in your next policy, understand you can save as much as 5% of your premium for selecting “No Consent.” While we all like control, and it is sometimes hard to relinquish it, the insurance company, and more accurately, its legal counsel is going to have a pretty good idea of the probable outcome of a case, simply due to the fact they spend their careers working on medical malpractice trials and settlements. Therefore, if they are recommending for settlement, any resistance may simply be delaying an inevitable decision for the plaintiff. However, if giving up that control is going to bother you for the duration of the policy, maybe the 5% extra for the Consent Option is worth it.
While there are a few other variations between insurance companies’ contracts, this option will be most prevalent and pertinent to physicians and surgeons looking for a new policy.
Types of Medical LiabilityInsurance Companies
Medical malpractice insurance companies can be structured in several different ways. Each model has its own benefits and risks. The following is a brief explanation of the main types.
- Stock Company – This type of company is owned by stockholders. It may be publicly traded or privately held, meaning you may be able to go out and purchase stock yourself and become a part owner (though not necessarily a policy holder) or the all the stock is held by a select few. Generally, stock companies are comparatively large compared to other types of companies in the market.
- Mutual Company – Mutual Companies are owned by the policy holders, in other words, if you buy a policy with a mutual company, you become a part-owner. This comes with certain privileges generally including the right to vote for directors and other significant company decisions. Being a part-owner of a mutual company may also allow you to reap the benefits of a dividend that comes in the form of cash or a premium reduction.
- Risk Retention Group – Also known as an RRG, Risk Retention Groups can offer significant savings for a doctor. Born out of the “Federal Risk Retention Act of 1986” RRG’s are based one home state, but can then operate in any other state without filling. This allows them to cut through the red tape a state may have and deliver a needed product to a hungry market. Similar to a mutual company, most RRG’s require membership that can allow for voting and potentially dividends. Individual RRG’s also tend to work certain markets within the medmal industry. Some may be looking for docs with a clean history and some may cater to docs with a few claims and will be priced accordingly, tailored to its desired market. Additionally, RRG’s can offer significant savings compared with more traditional carriers.
While there are some additional classifications of medical malpractice insurance companies, these are the most commonly encountered on a national scale. Keep in mind that most companies will have specialties with which they are competitive and specialties with which they are not.
While the medical malpractice insurance market is vast, having a basic knowledge of it will allow you to “speak the language” and understand what you are purchasing. However, at the end of the day, the most valuable piece in this entire puzzle is the piece of mind that comes with a relationship with a trusted independent broker who can walk beside you as you navigate the medical malpractice insurance market, answering any questions you have, giving you access to their expertise and guiding you through the application, underwriting and renewal processes. It is the broker’s job to stay current on the market, related legislation and financial health of any company being considered. Look for a broker or a brokerage house with a good reputation and a large share of the market as this is indicative of a long track record of good service.