Physicians today are required to be sophisticated buyers of liability insurance. Risk lies more as a function of what you do as a specialty and less for how well you perform. Your specialty is the main factor in determining your annual premium. A physician can be the best OB/GYN in the world, but the fact that OB/GYN as a risky specialty class and the annual premium is rated to reflect the risk.

Your practice is also a business. The cornerstone of a solid asset protection plan for physicians is a medical liability insurance policy with limits of liability in place to at least cover the average settlement amount. Be sure all your business and personal assets are working for you. This type of strategy dissuades, not encourages, litigation and better insure that the wealth you are accumulating is not stripped away as a result of catastrophic loss. This is the purpose of insurance.

Business assets are currently exposed to the claim of future judgments from creditors. Personal "non-exempt" assets are exposed if the claim judgments or settlement exceeds the medical malpractice policy "limits of liability." Why not look to protect your business (practice) assets, and at the same time, position the business in such a manner that does not invite litigation?

When one purchases a medical malpractice or medical liability policy, there are two elements: an attorney who is experienced in your jurisdiction for defending physicians in medical liability claims and to pay any subsequent settlement or adjudicated damages up to the limit of liability.

According to a recent study by the New England Journal of Medicine of 40,916 physicians between 1991 and 2005:

1 out of 14 Physicians face a malpractice suit every year

85% of physicians will face at least one malpractice suit

Average indemnity payment was $274,887 (in 2008)

Highest risk specialties: Neurosurgeons, thoracic-cardio, general surgeons, OB/GYN's

BUT:

80% of the claims/suits filed result in favor of the physician (i.e. many suits are filed, but few successful).

Claims and premiums vary by specialty: Obstetricians pay the highest average annual malpractice premiums at $64,000, compared to an Internist, who pay on average $6,000 - $11,000.

Twenty-seven states currently limit the amount that can be awarded for non-economic damages, "tort reform," typically around $250,000.

The bottom line is this: if there is permanent physical damage and can be connected logically to a healthcare practitioners negligence, then the patient will receive an award.

Most physicians are mandated by the state where they are licensed to carry some kind of medical liability insurance. So what are the key elements when considering medical liability insurance?

Financial Stability of the Carrier
Nothing else really matters if your insurance company runs out of money to pay your claim. There are choices in terms of the type of insurance carrier. Physician-owned mutual insurance companies provide about 50% of the coverage for physicians, while stock carriers, risk retentions groups and hospital insurance trusts provide the balance. Examples of physician-mutuals are MICA in Arizona, ISMIE in Illinois and MLMIC in New York. Examples of stock companies are the Medical Protective Company and The Doctors Company. Physicians mutual insurance companies exist to provide quality insurance at the lowest cost to their members, while stock companies are in business to make a return for their shareholders.

Choose a carrier, rated by an independent rating agency, with a solid financial asset base for paying claims, referred to as a "surplus." This is important because the natural volatility associated with medical malpractice profitability makes it difficult for carriers to consistently underwrite at a profit without undertaking periodic rate adjustments. Focus on such elements as policyholder's surplus, net written premium and loss reserves.

Coverage Form
There are two forms available on the market, one more prevalent than the other: Claims Made and Occurrence. The main distinction between the two is when a claim is reported.

Claims Made covers claims and incidents that occur and are reported within the policy period and provides the policyholder with continuous coverage going back to the retroactive date. The claim has to reported to the insurance carrier while the coverage is still in force. So it's not when the incident occurred, it's when one reports the claim. When switching between insurance companies, the new carrier must match the retroactive date, otherwise, one has the option of purchasing an extended reporting period, know as a "tail," from their former insurance carrier to be able to report claims that occurred during the policy period. The tail gives one the ability to report a claim for a certain period beyond the expiration date.

Occurrence form covers claims made when the policy was in effect, regardless of when the claim is reported. This form could potentially carry ultimate liability levels well into the future, but within ultimate degrees of probability. Because of this, insurance carriers only offer occurrence forms to the lower risk specialties, hospitals or groups, and thus are difficult to obtain on the marketplace. One does not need to purchase "tail" coverage when switching from Occurrence to Claims Made, only when switching from Claims Made to Occurrence. Carriers prefer the Claims Made form because policy years can be "closed out" quickly to more accurately determine the ultimate loss development.

Two important elements of coverage that are important are limits of liability and payment of defense costs or claims expenses, ie attorney's fees. Your limit of liability should be adequate to cover at least the average settlement amount in your state. A $1,000,000 per claim, $3,000,000 policy aggregate is standard. A policy which offers "defense costs in addition to or outside the limit of liability affords the insurance buyer more insurance in that the attorney's fees and expenses associated with defending your suit are added to the $1,000,000 limit, leaving the full $1,000,000 to pay damages. Otherwise, the attorneys fees get deducted from the $1,000,000

Underwriting Guidelines
As previously mentioned, specialty is the main factor when determining medical liability rates. Insurers employ educated and experienced underwriters that develop an understanding of their risk base. Rating factors for medical malpractice include: specialty, operating history, level of experience, practice profile relative to the application, location, patient volume and type of procedures. The application is basically your risk profile. The statements and representations you make in the application become part of the policy, or legal contract, between you and the insurance carrier. For example, if you as a physician check the box "No" when it asks you if you perform surgery, then you submit a claim that involves you partaking in surgery, then the claim will most likely be denied.

Insurance Carrier's Claims Handling & Service
Each carrier maintains its own unique claims handling philosophy. Defending your claim is why you buy insurance in the first place. Seek a carrier with a long-standing track record for fair claims handling, which strikes a balance between the insurance carrier's obligation to their policyholders and members or shareholders. Your claim is very important to you. Just as your underwriter needs to understand your practice, so does your claims handler. Claims handlers are typically attorneys who represent the insurance carrier, and most often they will supervise the local attorney defending the claim.

If you are a physician in the U.S.A., there is a very strong probability you will be named in a malpractice suit eventually. So be prepared and protect your assets with a comprehensive financial plan which includes a professional liability insurance policy offering broad coverage form an "A" rated carrier who has a good reputation in the marketplace for fair claims handling.

Ed Kuhn, MBA, has over 15 years of experience effectively covering a wide variety of specialty physician-based clinics. His accomplishments while working with Liability Insurance Solutions include developing the industry's first website for "per diem" insurance, assisting hundreds of physicians in covering their practices, speaking and presenting at major industry functions and developing industry programs.