One of the most crucial measures and considerations of selecting a new medical malpractice insurance carrier is financial strength and long term viability. One of the things that the financial crises of 2008 reminded us of is that even the biggest companies are vulnerable to financial catastrophe. There are many outside entities and measures, such as A.M. Best, Weiss, state departments of insurance, etc. that can assist in making these judgments. However, I would encourage you to research a little further, as there can be other questions that should be asked to make sure that the medical liability insurance carriers is the best carrier for you and your medical practice.
Premiums, Assets & Reserves
The main measures of a medical malpractice insurance carrier are measured in total annual premium written, cash and assets, reserves for claims, surplus and loss ratio. These measures provide a financial snapshot of a carrier’s financial portrait at a given time under standardized considerations. Cash and assets speak to the cash and other assets that a carrier has accumulated in the course of doing business. Premium written gives an indication of the actual amount of written premium by the carrier on an annual basis. Physician malpractice insurance companies, when receiving a claim, will reserve a dollar amount that they believe a “claim” could be “worth” by that time it is adjudicated (legal expense and potential settlement). Surplus is the amount of leftover premium once all operational cost and claims reserves have been allotted. This can be one of the most key measures, as the surplus can potentially be that which can assist the carrier through its financial peaks and valley’s and potentially guard against significant premium increases or assessments for additional premium during the policy period in the case of mutual-assessable carriers.
More About Medical Malpractice Insurance Companies Financials
How much surplus a malpractice insurance company has is also a good indication of whether the company is charging the appropriate amount of premium to doctors. If the malpractice insurance company is charging too little then the company’s surplus will be too low. If the malpractice insurance company is charging too much often times the surplus will be very high. However a surplus being high is not a problem but a sign the carrier is strong financially. The medical malpractice insurance market goes through soft and hard markets. The amount of claims in the market place determines whether we are in a soft or hard market. In a soft market there is a much smaller amount of claims in the market. This is typically due to recent tort reforms put in place by the legislature in that particular state. During soft markets the carriers build their surplus and have a lot of cash on hand. The hard market is when the system is flooded with a lot of medical malpractice claims. During hard markets medical liability insurance companies have to pay out a lot of their surplus to defense costs and indemnity payments. During soft markets the premiums tend to come down as competition enters the market in an effort to take market share. Insurance premiums cannot come down to much though because this is the period where the medical malpractice insurance companies are rebuilding their surplus.
A.M. Best and other insurance rating companies use metrics to determine what rating a company should have. In regards to surplus, in order for a carrier to have an “A “ rating with A.M. Best the medical malpractice insurance carrier must have a 1:1 ratio. This means that a carrier must have a least 1 dollar in surplus for every dollar of premium that they write.
Loss ratio is the ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums. There are two metrics that carriers use for loss ratio. They use the loss ratio, and the combined loss ratio. The combined loss ratio is the loss ratio plus the expense ratio. This is another important too for doctors to determine a carriers profitability.
It is important for doctors and medical providers to look at the financials of a company to determine that the carrier is financially healthy. A financially healthy medical liability carrier is important to have should you receive a claim. This blog is a brief synopsis of a complex consideration. I would recommend that you contact your experienced insurance professional or utilize eQuoteMD to find an experienced liability insurance professional. They may assist you in obtaining answers for these questions and other coverage considerations.