As professional liability agents, one question we often are asked is, “how can I reduce my premium?” Although this question might appear simple, premiums are directly correlated to multiple factors, including practice profiles, policy types and features, physician background, and even market conditions. Diederich Healthcare employs a highly skilled staff that is able to navigate the market, armed with the practice profile, in order to provide physicians and their staff with tailored, cost-effective solutions regarding their professional liability.
In an effort to assist physicians in assessing their current profile and practice needs, Diederich Healthcare has compiled a list of fourteen factors which most contribute to the final calculation of professional liability premium. In this issue, we will examine aspects of the practice profile which can impact premium.
Carriers often adjust rates for specific territories, in response to change in litigation costs associated with different locations over time and in response to particular market conditions. Many times, a physician will change locations and/or add a location without immediately notifying their agent. Not only does this increase liability, there could be savings associated with a change in territory. For this reason, it is very important to report any new location or move to your agent as soon as possible.
A physician may choose to transition to a sub-specialty or drop a specialty category, such as surgery, both of which will impact their premium. Many carriers require a “step down” process for physicians who are dropping surgery. Although they may not see an immediate impact on their premium, over time it will be dramatically reduced. Some physicians may receive additional, specialized training and choose to devote the majority of their practice to a sub-specialty. Carriers constantly evaluate the healthcare environment and add new specialty and sub-specialty rates. This can, in many cases, reduce the premium paid by the physician if reported to the agent in a timely manner.
Full-time versus part-time physicians is a major contributing factor to premium. Most carriers offer a significant premium discount (up to 50%) to those physicians practicing part-time, which is typically considered to be 20 hours or less per week. If a physician is planning to reduce their hours within the next six months, they should contact their agent for guidance and instruction regarding the impact on their professional liability policy.
When allied or other professional staff is added or terminated from the practice, it is very important to report this to the agent immediately. This is especially true for those policies in which the employee carries separate limits, which will significantly impact premium. Many times, when employees are added, physicians do not immediately report this to the agent, which often prevents the employee from being covered from the first date of their employment and can result in increased liability within the practice.
Claims-Made vs. Occurrence
Professional liability policies are typically one of the following varieties: claims-made or occurrence. Occurrence policies have defined effective dates and will cover all claims that occur during the coverage period, regardless of when the claim is reported. Conversely, claims-made policies cover any claims which occur after the “retroactive date” of the policy, regardless of policy effective dates. Additionally, claims-made policies require the purchase of a tail policy after the policy period has expired, or if the policy cancels, in order to cover those claims from the retroactive date through the policy expiration date. Tail insurance policies are typically 200% of the expiring premium. For this reason, claims-made policies tend to be more cost effective than year-to-year since occurrence policies have tail built into each policy, therefore increasing the annual premiums for this policy type. Many carriers now offer a tail incentive, which provides free tail upon a pre-determined coverage period with a specific carrier and with age restrictions, as well as retirement, death, or disability requirements.
Many states have statutes that provide different policy limit requirements for physician professional liability policies. Additionally, hospitals, third-party payers, and large practices often require minimum policy limits that go above and beyond what is required by the State. Malpractice policies will issue policies with the limits requested by the physician; therefore, it is the physician’s responsibility to ensure he or she has the minimum limits required. The amount of per claim/aggregate limits will directly affect the premium. Additionally, some physicians request limits in excess of what they need, which can often target the physician and/or the physician’s practice in a malpractice claim. It is very important to discuss the appropriate limits for your policy with your professional liability agent.
Consent to Settle
Some carriers offer a premium discount for a policyholder to waive his or her consent to settle a claim. Consent to settle is a settlement-based clause in many policies that effectively require the carrier to obtain the physician’s written consent to settle a case on his or her behalf. In many professional liability policies, consent to settle is standard issue. It is very important to carefully consider waiving this clause in the policy language as it may greatly limit the control a physician has over a settlement offer in the case of a malpractice claim. Alternatively, some physicians in low-risk specialties choose to save money on their premium by accepting the waiver. If you have questions regarding consent to settle, please contact our office.
Although some carriers may require a deductible to issue a professional liability policy, other carriers may allow a physician to increase his or her deductible as a way to lower the annual premium. Often, these carriers may require proof that the physician has access to these funds by requesting financial statements. It is very important for the physician to remember that, in the case of a claim, the deductible payment is required, in full, before the claim will be defended. For some practices though, a higher deductible may be a reasonable route to reduce the premium.
When a physician’s practice is functioning as a legal entity, it is very important for the physician to obtain policy limits for his or her entity. These limits can be either shared with the primary practice physician or be issued as separate, independent limits. When considering whether or not to share limits with the entity, the physician or practice should consider vicarious liability concerns and understand how sharing limits can, in some cases, reduce the policy limits available to defend or settle a claim. A knowledgeable professional liability agent can properly advise a physician, based on a practice profile, of the appropriate coverage for the physician entity.
It is very common in many practice profiles for a physician to employ or contract ancillary medical professionals. In most cases, if the ancillary staff is employed by the practice, the practice will be responsible for the professional liability of the staff member. Alternatively, if the ancillary staff member is an independent contractor, who will provide the professional liability is the decision of both the practice and the contractor. It is very important to ensure that the staff member has adequate coverage if he or she provides his or her own policy, as there can be vicarious liability of the practice if there is a claim against an ancillary staff member. As similar to entity coverage, a physician or practice can provide ancillary coverage on a shared or separate- limit basis. In many cases, shared limits are provided free-of-charge by the carrier; however, a premium charge is usually associated with separate limits. Again, it is very important to have a discussion with your agent regarding the right coverage for your practice.
The factors above demonstrate that there are many policy features and endorsements that will have a direct effect on the annual premium of a professional liability policy. Although it may sound enticing to save money by changing coverage terms, it is only advisable after the physician has had a conversation with his or her agent regarding any adjustments. The professionals at Diederich Healthcare are qualified to review your policy for any opportunities for savings and do so multiple times throughout the annual policy period. If you would like to take advantage of our services as so many other have, please contact our office at 800-457-7790 or complete the quote form here.