Should you Choose a Claims-Made or Occurrence Policy?

July 17, 2019

The Doctors Insurance Agency works with over 5,000 physicians in 500 facilities in 33 states, providing healthcare professional liability insurance. It is important to consider the differences between claims-made and occurrence policies, according to the American College of Physicians, when considering what type of Medical Malpractice Professional Liability Insurance to purchase.

Occurrence policies differ from claims-made insurance in that they cover any claim for an event that took place during the period of coverage, even if the claim itself is filed after the policy lapses.

Occurrence policies are less common, especially in private practice with groups of 50 or fewer physicians. This is because occurrence premiums include a load calculated to compensate the carrier for coverage for liability insurance, protecting the doctor against claims that are presented in the future. This actuarial commitment requires more premium in the policy year.

A claims-made policy will only provide coverage if the policy is in effect both when the incident took place and when a lawsuit is filed. This requires coverage to extend for a significant period of time to provide adequate protection, since a considerable amount of time often elapses between when an incident may have occurred and when a claim is made.

Most clinical specialties, as defined by the American Board of Medical Specialties, are rated by the doctor. Each physician normally carries their own limit of insurance. As referenced above, these policies are claims-made, stripped-down to charge for the real-time risk of a claim. Omitted from this calculus is the cost of future coverage that is deferred to the end of the policy. In the case of cancellation, a tail premium is triggered.

Claims-made policies are written to provide a period of coverage referred to as a “tail” that extends coverage for a set amount of time (such as five years) after a policy ends. If not offered as part of the original policy, tail coverage may also be purchased; the cost of tail insurance is typically a one-time assessment that can be as much as 1.5 to 2 times a typical annual malpractice insurance premium. Tail Coverage is extremely important in situations where you have been covered with a claims-made policy but are changing insurance carriers, moving to a new position, or are retiring, to ensure continued malpractice coverage during these transition times for incidents that may have occurred in past years.

Whether you are an anesthesiologist practicing in a specialty that is known for short tail (meaning that you are quickly aware if there is a medical injury resulting from services provided), or one of the longer tail specialties such as radiology, pediatrics, obstetrics-gynecology, where there can be a latent development of injury that reactivates the statute of limitations, this enables patients to present lawsuits years after the medical services provided. Many insurance companies only offer tail lasting up to five years. These long tail specialties inherently carry risk, and are one of the reasons why physicians covered by admitted malpractice companies appreciate the indefinite tail periods that are inherent in the preferred medical malpractice market forms.

Tail can be avoided in some instances. One method of avoiding tail is switching to a group or practice, individual or otherwise, that is insured by a carrier willing to write your coverage with prior acts. When the new insurance company writes the policy with prior acts coverage, negotiation is easy because the cost is so much less. However, the new medical group may require that you come in with a clean slate, insisting that your malpractice insurance policy begin from your first day of service with the group. In this case, tail coverage can be negotiated.

The costs of tail coverage may be covered by your previous practice to ensure adequate protection of their group assets, or by your new practice, either as a benefit or an inducement to join the group. Tail coverage may be an appropriate item of negotiation with a prospective new practice.

Again, the clinical specialties are the practices that must consider how to cover the cost of future claims. This leads us to the next very viable solution: a hybrid of claims-made and occurrence is a policy that has a departed or former insured endorsement.

The departed or former insured endorsement is a part of the policy that allows you to transition doctors no longer working for the practice on to this endorsement. The basic assumption here is that the policy is ongoing and the premium continues to be paid for the active practitioners, medical doctors, and mid-levels alike. Along with the entity fee, there is also a separate line item of premium that is developed and pays for the cost of all future claims presented against the physicians included in the former insured endorsement. This malpractice insurance tool is very common in groups of 10 or more and can reduce the cost of tail up to 50%. It allows for better cash management when being a part of the group, and it gives the group the power to recruit and leverage to offer tail to all physicians agreeing to work as an employee or contractor for the medical practice.

The Doctors Insurance Agency is expert at working with all of the leading medical malpractice insurance carriers in 33 states. We support Telemedicine Practices, Hospitalist Groups, Emergency Medical Groups, and others. Malpractice insurance can be one of the most important budgetary expenses that you must consider. Allow us to partner with you and we'll be able to help you find the best way to handle these insurance costs for your group.