Doctors have many possible choices when choosing a professional liability insurance company.
- Physician owned insurance carriers and….
- commercial carriers owned by stockholders.
- Large industrial medical groups (some affiliated with universities, others connected to medical foundations) are self-insured.
- There are syndicates and trusts and risk retention groups formed to provide solutions for physicians not eligible for the standard market, or simply looking to pay the least possible amount.
A carrier that has sufficient financial strength can apply for regulatory approval in the state of domicile to remove policyholders contingent liability for debts and liabilities. Once the Carrier receive regulatory approval it can then issue policies that are non-assessable. Non accessibility is the goal, client protection is the mission of all insurance carriers. Insurance Companies should protect assets (which non assessable carriers do) not expose them, which some trusts and Risk Retention Groups do.
A non assessable policy, developed and supported by the insurance company , bolstered by reserves provides excellent protection for the policyholders. These policies insulate clients . Even if reserves diminish and losses mount, policyholders willl not be assessed. An advantage of mutual and reciprocal insurance companies is that the insureds are the owners of the companies. Mutual and reciprocal companies do not have stockholders who command their attention and demand profits and dividends. They are not pressured to pay dividends, to turn profits. Mutual or reciprocal companies disburse their profits to strengthen the financial position or payback policyholders
There are alternative solutions for insurance coverage. Some state laws allow for trusts to operate as insurance solutions with somewhat riskier contracts. These contracts are assessable.
The laws in these states allow for startup funds with minimum capital requirements. If these solutions cannot meet their financial obligations or liabilities, they can require the insured physicians to make up the difference. There are trusts, risk retention groups and risk purchasing groups that all fall into this category.
TRUST COVERAGE
Trusts are very popular solutions in California (and throughout the country).
The structure of a trust is different from an insurance company. The liability coverage offered by a trust is not insurance and cannot be represented as such.
Trusts are not regulated by the California Department of Insurance, The ‘DOI’ is a very active governmental entity tasked with continuously monitoring the financial strength and claims paying ability of insurers. Insurance companies are subject to scheduled and random audits of their business and insurance practices.
Individual trust members share unlimited liability. This means that if the trust fails, each physician would not only be legally liable for his or her own losses but also for the losses of all other doctors belonging to the trust. Many former members of failed Trusts discover that their personal and professional assets are subject to liquidation in order to satisfy the trust's unpaid claims - not just their own claims but also the claims of all other former members. Since the trust is not insurance coverage, the California Insurance Guarantee Association (CIGA) would not be available to meet trust obligations in the event of a failure.
Trusts specifically do not reserve for future liabilities:
Because trusts carry substantial unfunded liabilities for claims and expenses that become the responsibility of each member, joining a trust may impact a physician's personal finances. It is likely that a physician would need to report a contingent liability on his or her personal financial statements under generally accepted accounting principles. These principles state that "loss contingencies" that may occur as the result of a guarantee must be disclosed in the financial statements even if they have a remote possibility of materializing. In addition, the physician may be required to disclose the nature of his or her trust membership on credit applications since he or she would be pledging personal assets to meet the obligations of the trust.
Some companies dissolve into their strategic partners (as announced recently)
HPIX began operations in 2002, when the marketplace for physician professional liability insurance was in shambles. They began as a physician focused company, with a commitment to serving the best interest of physician members. HPIX grew to over 3,000 medical providers in four states. As they approached their tenth year of operations, they began to seek a strategic partner with the same physician-centric philosophy to provide the capital needed to augment the balance sheet.
In June 2015, HPIX announced that the company reached a definitive agreement with Medical Mutual Insurance Company of North Carolina, whereby Medical Mutual would acquire the rights, title, and interests in the policies of HPIX.
Medical Mutual is a physician-owned company that has been insuring medical professional liability risks since 1975. Medical Mutual was carefully selected by the Directors and senior management of HPIX because of its commitment to physician success, member-value approach, and strong capitalization. Medical Mutual has been continuously rated “A” (Excellent) by A.M. Best since 2004.
HPIX and Medical Mutual completed this transaction on January 1, 2016.
On December 18, 2017, HPIX agreed to a voluntary liquidation, to be supervised by the Pennsylvania Insurance Department (PID).
The Doctors Insurance Agency works with companies that are rated A- or greater.
It is important to look at the Reserves and Surplus of the Professional Liability Insurance Carrier.
- RESERVES: Claims reserves are funds set aside to satisfy those claims that have been reported to the company but have not yet been resolved or paid. A company that underestimates its claims reserves may face future financial difficulties. A company that overestimates its reserves could be charging unnecessarily high premiums. We look for companies that have years of experience in accurately measuring the amount of funds to budget for pending and in process claims.
- SURPLUS is another important financial statistic and source of funds within an insurance company to watch. A company’s surplus allows it to take on risk and serves as a cushion in the event that the losses from that risk exceed the premiums intended to cover the risk. Stated another way, surplus can be used to make up for deficiencies in loss reserves that were set aside from earned premiums.
- Tail coverage. A provision found within a claims-made policy that permits an insured to report claims that are made against the insured after a policy has expired or been canceled, if the wrongful act that gave rise to the claim took place during the expired/canceled policy. This is one of the primary reasons to make sure your medical malpractice carrier is financially sound. The work that they do for you could be years from today!