Medical malpractice claims often take a long time to surface
A claim for misdiagnosis, failure to exercise the standard of care, or delay in
diagnosis could take months or even years to surface. Because of this, physicians
need to have coverage in place for not only claims reported during the current policy
period, but also for claims that arise and/or are reported long after the policy
When you purchase a medical malpractice insurance policy, there are two different
types of coverage from which to choose. This type of policy will determine your
need for extended reporting coverage (a.k.a. tail) coverage.
- Occurrence Coverage: Coverage will respond to
incidents arising from the coverage period - regardless of when those claims are
reported. No tail coverage is needed because incidents that occurred during the
policy period are covered no matter how much later they are reported. Occurrence
coverage tends to be very expensive because you are prepaying for tail costs whether
the tail gets used or not.
- Claims-made Coverage: Coverage will respond to
incidents arising on or after the policy retroactive date and which are reported
during the term of the policy. Tail coverage is needed to respond to cover incidents
that have not been reported to the company during the policy term. Claims Made coverage
is usually less expensive than purchasing occurrence coverage. The pricing of Claims-made
coverage involves a step process with premium increases usually over the first five
years of coverage in increments set by a carrier’s rate filings with the state in
which you are practicing. The initial premium and subsequent years' premium are
substantially lower than an occurrence policy. By the fourth or fifth year the claims
made premium reaches a mature level and premium adjustments are based on annual
rate changes only. Additionally the premium is lower as you are not prepaying for
your tail coverage, and there are several ways you may not need to pay for it at
When you choose to purchase the Claims-made coverage, you need to know your options
at the time of purchase to cover those claims that are reported after the termination
of your policy. The main options are as follows:
Know your tail options when it come to purchasing Claims Made coverage
If you keep your claims made policy until retirement, your insurance carrier may
offer you free extended reporting coverage (aka tail). Often times there is a vesting
period and an age requirement you have to meet so make sure to review your quotes
carefully. Upon meeting those criteria and retiring from the practice of medicine,
you may receive free tail coverage at no cost to you. Many carriers use the 55/5/retire
rule which is free retirement at age 55 with 5 years of coverage with the insurer.
Free extended reporting period can also apply under your policy if you are totally
disabled or if you expire.
• Purchasing Prior Acts coverage
Often times, physicians are concerned that they may not be insured by the same insurance
company their entire career. Others want the flexibility to move from one job to
another or one state to another and don’t want to pay for extended reporting coverage.
The simple way to accomplish this is to purchase prior acts coverage. On a claims-made
policy, there is a retroactive date. A retroactive date is the date from which a
policy will respond to claims that are reported during the policy period. Often
times, the retroactive date is the first date that you purchased claims made coverage.
As a physician moves from job to job, carrier to carrier or state to state, the
new carrier honors the retroactive date of the prior policy thereby eliminating
the need to purchase tail or extended reporting coverage. This retroactive date
advancement is commonly used and allows the physician to move carriers freely thereby
avoiding the expensive tail purchase requirement.
• If you must purchase tail, shop around for the best terms and pricing
It may be cheaper to purchase a separate stand-alone tail policy from a carrier
other than the one who wrote your claims-made policy. Review your employment agreement,
if any, to determine if you are required to buy tail insurance from the carrier
who wrote your claims made policy. Depending on the state you practice in, your
specialty, and your claims history, there could be malpractice insurance carriers
eager to write your tail coverage for substantially less than what your current
carrier is offering.
You also should consider purchasing different amounts of extended reporting time.
Most standard carriers will automatically quote you indefinite tail. Indefinite
tail means that you have an unlimited time to report claims to the carrier after
the policy ends. Many carriers offer shorter duration tail, such as 1 year, 3 years
or 5 years. Depending on your specialty and practice and the type of risk you wish
to take, you could purchase a shorter duration tail thereby saving you additional
money. Be aware, however, that if claims are reported after the time frame has expired,
there will be no coverage.
You can also consider purchasing lower limits for your tail coverage than the limits
you had while your insurance is in force. Unless your employment agreement states
that you must buy equal limits to those while the policy is in force, the carriers
may offer you lower limits at a lower premium.
Physicians are looking for ways to cut their
In these times, every penny counts. Physicians are looking for ways to cut their
annual expenses. Switching from Occurrence to Claims Made Coverage is easy and likely
will provide you an immediate savings to your bottom line. A physician can change
from an occurrence policy to a claims-made policy easily. The physician does not
have to purchase tail at the time of the change because the occurrence policy will
cover claims reported after the policy ends. As such this is one easy way to improve
your bottom line and cut malpractice expenses.
Regardless of which policy you choose to purchase, claims made or occurrence, make
sure to inquire about the need and cost of extended reporting coverage up front.
A good broker should be able to discuss both cost and options at the time of purchase
so that you can evaluate your bottom line cost of malpractice.
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