Medical Professional Liability Insurance
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premiums charged for physician’s greater claims experience. Premiums are calculated using complex
formulations that consider how much the insurer believes they will have to pay in losses, so necessary
dollars can be set aside in reserves (for future loses), costs of business, desired financial margins, and any
returns on invested premium dollars. By preference, insurers would sooner seek out those physicians with
less likelihood of incurring costs through claims. Insurers believe a predictor of future claims is a history
of past claims. Once collected, premium dollars are invested in order to generate additional reserve
dollars and maximize investment income.
Interestingly, insurers also buy insurance, called reinsurance. Reinsurance is essentially a sharing of loss
between insurers in which a primary insurer assigns part of its total loss exposure to the reinsurer. The
greater the risk to the primary insurer, the lower the secondary insurers premium. In a world filled with
risks and unpredictable jury awards secondary insurers are harder to find in the medical professional
liability market, and if available, rates are high, requiring primary insurers to collect more in premium
dollars to bolster reserves.
Historically the insurance business has been highly competitive with large numbers of providers offering
fairly uniform policies. A competitive market often drives premiums downward in the primary insurance
arena as companies try to enhance their market share. As the insurance market “hardens,” fewer dollars
are available for secondary insurance and companies must compete to get those dollars. As the costs of
doing business increase primarily through increasing numbers of claims (frequency) or high dollar
indemnity payments for claims (severity) insurers must adjust premiums to account for rising costs. The
combination of rising costs from frequent and large liability judgments and settlements, and a hardened
secondary market that does not allow insurers to pass risk and costs on, requires insurers to raise
premiums to make up for risk costs, find workable solutions to dramatically reduce risk of claims, or
leave a specific insurance market or risk financial insolvency. Insurance companies, like all commercial
business must either make a profit or terminate their business. In a post 9/11 unpredictable world with
frequent medical liability claims and unprecedented jury awards, medical professional liability insurers
have increasingly left the insurance market for more predictable business lines. This leaves fewer options
to physicians for insurance, and those companies remaining offer insurance products that are often very
different from what the Emergency Physician understands and has traditionally expected.
Prior to the 1970s, medical malpractice insurance was entirely provided through occurrence policies.
Occurrence policies cover all claims that arise from incidents that take place during a given policy period,
regardless of when the claims are reported to the insurer during that period. An incident or occurrence
was typically defined as an event that causes unanticipated harm to a patient from an omission or
affirmative act. Such policies were typically more expensive since they covered large periods of time
from an event to over 20 years after an event, when the statute of limitations in filing a claim “tolled” thus
preventing a claim from being filed. This long “tail” of responsibility for liability exposure required
insurers to carefully predict future indemnity payments and thus accurately predict current premium rates
so as to have enough reserve dollars for future payouts in claims.
The unpredictability of medical malpractice claims and awards, with costs spiraling upward triggered the
development of a new insurance product referred to as “claims made.” Claims made policies in many
ways run counter to the common understanding of what insurance is supposed to cover, future claims.
Yet, claims made policies allow insurers to more accurately adjust premium and reserve dollars based on
trends and projections in various markets and business lines. Under claims made policies, claims have to
be asserted against a physician before the end of the insurer-insured relationship and the incident being
reported must have occurred after the physician first purchased a policy so the policy typically does not
cover “prior acts.” If a physician stops practicing medicine, changes insurers ie, switching jobs, or has the
insurance terminated, events occurring after the insurance policy terminates are not covered unless “tail or
prior acts insurance” is purchased. Purchase of tail insurance provides coverage of claims for incidents