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liability insurance rates
Medical Liability Insurance – Factors That Can Affect What You Pay
By Carol Power – CoverMD Senior Contributing Writer
What determines a doctor's liability insurance cost?
When it comes to medical liability insurance rates in the U.S. there is no “one
size fits all”. There are a number of factors that come into play when determining
the cost of malpractice insurance for a doctor.
Below are some of the main points that need to be taken into consideration when
coming up with the rate a physican will pay.
where physician practices
Medical malpractice insurance rates are determined by a number of different factors
Medical liability insurance rates are set at the state level, not the federal
level, so rates vary widely by state. The premiums a doctor pays can depend on the
"malpractice climate" (level of litigation) and specific tort reform laws within
a specific state.
From a physician’s standpoint Illinois and New York are among the "worst" for malpractice
insurance (i.e. high rates) while states like California and Texas (with tort reform
laws) are more reasonable.
Medical malpractice insurance companies also adjust rates according to the county
within a state where a doctor practices. In general, counties that encompass urban
areas will have higher rates than rural counties.
Malpractice rates also depend on the medical specialty. The level of risk associated
with a particular discipline determines the amount of malpractice insurance paid
by the physician. Not surprisingly, the higher the risk the higher the cost. Risk
is determined by the frequency and severity of claims. The severity of
a claim refers to the amount of indemnity payment made (either via a court judgement
or an out-of-court settlement). For example, surgeons have higher frequency of claims
and higher severity of claims than say, primary care physicians. The average primary
care indemnity payment will be significantly lower than a surgeon's average
In most cases, doctors who practice in high-risk specialties such as neurology and
obstetrics will pay significantly more than doctors practicing in areas such as
family practice or psychiatry. Neurosurgeons have the highest frequency and severity
of claims followed closely by ob/gyns. Another risk factor for ob/gyns lies in the
statute of limitations. While statute of limitations vary by state, in general a
patient has two years from time of discovery of alleged malpractice to file a claim.
However for ob/gyns the statute of limitations does not begin for a minor until
he/she reaches 18 years of age.
To address the very real concern that doctors in high-risk areas will abandon a
state because of ever rising malpractice costs, some states give financial assistance
to help these physicians so they are able to continue practicing in the state.
Type of policy selected
There are two main types of malpractice policies available to doctors, namely Claims
Made and Occurrence.
A claims made policy is an annually renewing policy that only covers you while the
policy is in force. A claims made policy is generally less expensive at the start
because the premiums paid in the first three years are a percentage of the mature
(full) rate for the policy. For example, assume you are a surgeon who purchased
a Claims Made policy whose annual mature rate is $100,000. However for the first
three years of the policy you would not pay the full amount. Instead your payments
would be structured as follows:
While the lower payments during the initial years make Claims Made policies an attractive
option for many doctors there are also other factors to take into consideration
with a Claims Made policy. One of the main ones is the fact that because a Claims
Made policy only covers you while the policy is in force you have no liability coverage
for prior acts once you cancel or non-renew the policy. For example, assume
you purchased a Claims Made policy from January 1st 2005 through December 31st 2008
and decided not to renew for 2009. Therefore, from January 1st 2009 onwards if a patient
you treated during that four year period decided to sue you for an alleged malpractice event
then you are not covered.
- Year 1: 25% of mature rate (so you pay $25,000)
- Year 2: 50% of mature rate (so you pay $50,000)
- Year 3: 75% of mature rate (so you pay $75,000)
- Year 4: 100% of mature rate (so you pay $100,000)
To account for this type of situation, your Claims Made carrier allows you to purchase
tail insurance. Tail coverage is insurance that covers you for prior acts
when your Claims Made policy was in force. In almost all cases tail coverage can
only be purchased from your existing Claims Made carrier and it must be
purchased within 30 days of the policy's termination date. The cost of tail insurance
is generally 250% of your last year's premium (expiring premium). So using our example
above of the surgeon with a $100,000 annual premium - the cost for tail coverage
would be $250,000.
There are three cases in which the insurance company will give you a free tail -
in the event of death, disability or if you are over 55 and retire permanently (must
be with the same company for five consecutive years).
With an Occurrence policy you pay the full (mature) rate from year one. There are no sliding
discounts during the first three years. However in the event you cancel or non-renew
the Occurrence policy there is no need to purchase tail insurance. The insurance
company that held your Occurrence policy covers you forever for the time period in
Depending on your practice situation it is important to know which type of policy
is best for your particular needs. Get top-rated, no-hassle assistance from an experienced
liability consultant who can advise you on the most cost-effective options for your
malpractice insurance –
click here to get started.
Many medical malpractice insurance companies also offer a number of discounts that
have the effect of lowering the premiums paid. The level of discounts offered
vary by carrier so it's important to know which carrier can offer you the best discounts
for your particular situation.
Submit a free no-obligation malpractice insurance quote request to get top-rated
advice on the best options and discounts available to you.
- "New to Practice" Discount
There are discounts available to "new to practice" doctors – those who are
just completing residency or fellowships. The level of new-to-practice discount
offered and eligibility criteria varies by insurance company so it's important to
shop around and compare companies. Most carriers give a 50% discount to new-to-practice
doctors in the first year and a 25% discount off the second year's rate. New-to-practice
discounts are generally only applicable for the first two years.
- Claims Free Discount
As a rule of thumb the longer you are in practice without a claim the greater the
Claims Free discount. Claims Free discounts are usually factored in at the 5, 10,
15 and 20 year milestones. The percentage discount mirrors the years without a claim
i.e. 5% discount at 5 years, 10% discount at 10 years etc.
The level of Claims Free discount offered by a company needs to be approved by the
Department of Insurance in the state of practice. Some companies offer bigger claim
free discounts than others so it's important to
compare malpractice companies to get the best discounts on offer.
It's also important to know how malpractice insurance companies determine what is
a claim for the purpose of determining eligibility for a claim free discount. Some
companies will consider a claim having been made if a summons is received in the
mail while others will consider it a claim only if an indemnity payment is made.
Some medical malpractice companies can be inflexible when it comes to claims free
discounts and a doctor may lose his/her hard earned claims free discount due to
a mail summons. This can be particularly frustrating to doctors who feel they are
the victims of frivolous claims. If you have lost your Claims Free discount for
any reason submit a free, no-obligation
quote request and see what options are available to you.
- Electronic Medical Records (EMR) Discount
Malpractice insurance carriers are increasingly offering discounts to doctors for
using an Electronic Medical
Records (EMR) system in their practice. The theory is that the EMR system
will reduce risk by helping to eliminate some of the most common reasons for claims
within a practice. These often have to do with oversights on patient record reviews
(e.g. reading x-rays) or notifying patients of prescription refills. The EMR discounts
generally run in the region of 2½ – 5% of the premium.
- Risk Management Course Discount
The percentage discount offered varies by company but is generally in the region
of 5%. The Risk Management Course is usually in the form of an approved Continuing
Medical Education (CME) course that can be taken online. The course is good for
Current state of the malpractice insurance
The medical malpractice insurance market moves through "hard" and "soft" cycles. Soft markets
are characterized by more stable premium rates, broader coverage, and stronger competition
among insurers. Hard markets, on the other hand, are characterized by rapidly
rising premium rates, narrower coverage options for doctors, and a departure of
insurers from a state. Hard markets are driven by the number of claims submitted.
The most recent hard market for medical malpractice insurance peaked around 2004.
In general, the medical liability insurance market has been in a soft cycle for
the past 6 – 7 years. This situation is still in effect as we near the end of 2009.
However there are some industry analysts who predict that, given the current difficult
economic climate, the number of claims is likely to rise significantly. This may
cause the market to turn into a hard market nationally in the not too distant future.
This could have a profound effect on the cost of malpractice insurance for doctors
no matter how exemplary their records.
Limits of Liability Selected
The most common limit of liability option chosen by doctors is $1 million / $3 million.
This is the limit of liability required by most hospitals in order to grant a physician
The $1 million refers to the amount that the insurance company will pay per Occurrence
(per claim) for indemnity purposes and the $3 million is the aggregrate (total)
amount the insurance company will pay out for a year.
Some states have different limits of liability e.g. in New York it is $1.3 million
/ $3.9 million, Florida allows $250,000 / $ $750,000 while Texas has a $200,000
/ $600,000 limit of liability. Also hospitals in some states require $2 million
/ $6 million limits of liability in order to grant hospital privileges.
No surprise - past claims may increase the rate and for some physicians the only
option may be excess and surplus markets. However many malpractice insurance companies
are willing to be more flexible and accommodating when it comes to doctors with past
While each situation is different the more progressive malpractice carriers are increasingly cognizant
of the fact that we live in a litigious society and there are often frivilous or
meritless lawsuits into which physicians can be dragged without any meaningful basis.
There is a recognition that these types of cases should not have a significant impact
on the rate paid by the doctor.
For doctors whose past claims will affect their rate significantly there is the
option of the excess and surplus market. While often extemely expensive the excess and
surplus market is available to physicians who can't get coverage in the standard
market. This may be due to the doctor's past claims history or other issues such as if the doctor has
had a history of substance abuse.
Part-Time vs. Full-Time
Part-time is generally classified as 20 hours or less a week while full-time is
over 20 hours of employment a week. The typical premium discount for part-time doctors
Choosing the right liability consultant
to assist you
There are many malpractice insurance agencies to choose from but selecting the right
agent to handle your medical liability insurance requirements can literally mean thousands of
dollars in savings for you. You always want to ensure you have the correct amount
of quality coverage. The right agent will have access to multiple markets to enable
you to choose the best plan for your needs.
In addition, an experienced agent who is well versed in the malpractice insurance
climate for the state in question will be able to advise and guide you on what the
best options are for your practice needs.
Click here for your free malpractice quote
I just wanted to take a moment to express appreciation for the great service and
financial savings that I have accrued on my medical malpractice when I used the
service provided at CoverMD.com
Laurence Hicks, DO
Twin Falls, Idaho more testimonials
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