Medical malpractice insurance is often one of the largest costs for independent providers and small physician groups. They often question how to purchase insurance the way large groups and hospitals do. The answer comes by digging in with a financial mindset and understanding negotiation.
Large buyers base their risk transfer decision on their financial position, they decide how much risk to transfer and at what price. By looking at your own financial position and determining your risk tolerance and time horizon you can address malpractice costs the same way you would any other investment.
In recent years time horizons have become increasingly volatile with healthcare reform encouraging consolidation. Many physicians are finding employment to be a better option and are purchasing tail coverage. Because most physicians purchase insurance on a claims made basis they must buy special tail insurance to cover claims for events that have happened but they do not know about yet.
Claims made insurance works by covering a claim when it is brought, not by when the event happened. The insurance contains a retroactive date, which earliest event date your policy will cover. A physician buys a policy each year he practices, upon retirement he has to purchase a tail policy to cover any potential events that have happened but have not yet been reported. This tail policy is generally twice the cost of the yearly premium.
Carrier solvency is also important and often overlooked. The recent financial crisis showed just how easily financial institutions can go under. Insurance carriers are often loosely regulated, especially risk retention groups. If you are going to buy insurance make sure it is around to pay out. Most brokers recommend an AM Best rating of A- or better. Diving in deeper is often recommended as rating agencies have a rocky track record of predicting defaults. In the event your insurance carrier goes bankrupt you are only entitled to a fraction of your policy limit in most states.
Purchasing the correct amount of limit is also important. Generally, physicians purchase $1M in coverage. In some states it is much less. The idea is to buy the most insurance possible without making yourself the deep pocket. In a worst case scenario most plaintiff attorneys will accept the physicians limit and go after the hospital or corporation for the difference they are seeking.
Because of the claims made nature of insurance any prospective partner will be concerned about whether your past liabilities are properly covered. Buying the cheapest option could sink a sale, merger or potential employment agreement. Once the coverage is purchased there is no cost effective way to retroactively change it.
Finding a trusted advisor is crucial. While you would expect education and experience in a financial planner, many physicians drop their expectations in finding an insurance broker. Look for a partner who has a strong legal and financial background.
There is also a vast difference between agents and brokers. Agents, by law, are aligned to the insurance company while brokers are required to have your best interests at heart. Find a broker who can give you unadulterated advice that is in your best financial interest.
Buying medical malpractice insurance is an important task that should not be taken lightly. Your future financial position and employability is at stake.
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