California physicians have a number of options when it comes to shopping for their professional medical liability insurance. A common question from medical physicians is, “Why are claims paid insurance policies less expensive than claims made insurance policies?”
A policy that has continued to attract California medical providers is the “claims paid” policy form. This policy offered by physician cooperatives or medical trusts offers extremely low insurance rates that are considered “assessments” rather than annual insurance policy premiums. The majority of medical doctors with these policies understand that they are saving money, but they are not aware of the dangers of the “claims paid” policy form. To understand the fundamentals of the claims paid policy, it is important to first understand the difference between claims made and claims paid.
The claims made policy is the national standard, it is the most common policy form for California physicians and Diederich Healthcare chooses to only work with claims made insurance carriers in California. The claims made policy state that whichever insurance carrier you are with at the time the claim is made will be the insurance carrier to pay for the defense costs as well as the claim. Each year an insurance premium is charged based on the balance between the gains from premiums paid and the losses from expenses incurred by claims from the previous years and also rely on estimated future costs. Claims made policies offered by admitted California carriers are generally not assessable, the rates are generally stable and the insurance companies file their rules, rates and regulations with the state of California.
Claims paid policies state that whichever insurance carrier you are with at the time the claim is paid, will be the insurance company that covers the legal costs and payment of claim. Claims paid policies offered by physician captives charge “assessments” based off of the gains and losses from previous years, similar to the claims made policy, however physicians on a claims paid policy can be reassessed at any time and forced to pay a significantly higher amount based on a recent claim. Once a claim is reported, the claims paid company will only cover the claim expenses if the physician remains with that carrier. This is dangerous because the claims paid policy is assessable and the physician can be assessed an extremely high premium to compensate for the losses incurred. Because the claims paid insurance carrier is working on the claim, the physician cannot transfer to a more cost effective insurance company until the claim is settled.
Claims paid policies have been deemed innovative and cost effective, but the cooperatives that offer claims paid policies in California are usually not recognized by the state as admitted insurance carriers and are not backed by the California Guarantee Insurance Association. The claims paid policy is extremely uncommon and not preferable to the majority of insurance companies. Most importantly, once a claim arises, a physician’s personal assets are vulnerable due to the fully assessable policy form. Contact Diederich Healthcare today at 800-457-7790 if you are currently insured and are part of a claims paid captive. We are fully able to explain your coverage in depth and reevaluate the insurance market on your behalf to find a more cost effective and structured claims made policy.