How Premiums are Determined and Why They're Rising
Healthcare providers are constantly comparing their med mal premium rates with colleagues, and they always want to understand when their friend’s bill is lower. Our answer is that there are many ingredients in the recipe of med mal insurance premiums, and the process of determining it is complex. Underwriters not only have to abide by the general rates set by their company, but they also need to analyze a provider’s application, claims, medical board, and criminal histories, website, Google search results, online reviews, and more to create a quote.
To help clear up the murky waters of med mal insurance premiums, we’ve outlined several common factors affecting med mal premiums:
Policy type and duration: There are two main med mal insurance policy types: claims-made and occurrence. Claims-made policies are more readily accessible and typically about 2-3 times less than occurrence. But with a claims-made policy comes claims-made step factors. This feature is unique to claims-made insurance policies and lead to changes in pricing for a number of years.
Specialty: Surgical specialties tend to command higher med mal premium rates. Neurosurgery, bariatric surgery, and OB/GYN surgery specialties are among the highest premiums. Among the lowest tend to be allergy and immunology, psychiatry, and podiatry without surgery. Carriers will also often separate specialties into different levels of surgery — from no to major — with no surgery being the least expensive.
Limits: There is often a standard set of med mal insurance limits per state, such as 1M/3M in California. Some providers desire higher limits for a variety of reasons but asking the carrier to put more money behind you in the event of a potential claim will cost more.
Territory: Claims activity varies by state and even by county and can be a strong driver of price. You may be practicing in a highly litigious area, historically speaking, or in one where tort reforms are being scaled back.
Med mal premium discounts
There are a handful of premium discounts that most admitted insurance companies offer regularly to their insureds.
Risk management. When providers complete a certain number of pre-approved CE courses, many insurance companies will apply a 5% risk management discount. The number of hours required varies and some insurance companies will not accept CEs completed externally.
Claims free. If a provider has not been named in a lawsuit or disciplinary action for a certain number of years, carriers will typically offer claims-free credits ranging from 5% to 25%. Once a provider is named, however, the discount is often dropped immediately or at renewal. Even if the claim is eventually closed for $0 indemnity, the claims-free discount typically no longer applies. Not having been named is most often the qualifier rather than any potential payout amounts.
Part time. Thresholds for part-time discounts vary by insurance company but are usually around 20 hours per week or less on average. Keep in mind that the number of hours includes both direct patient care and administrative work.
New to practice. This is for providers who are entering the workforce for the first time since completing their education and training. Insurance companies typically offer credits for the first three years of practice with the largest discount seen in the first year.
One discount we get asked about frequently is bundling coverage. Most are familiar with bundling home and auto insurance to generate savings, for example. Medical malpractice insurance and the companies that afford this coverage typically don’t offer bundles. There are some other coverages you may be able to add to your medical malpractice insurance policies, but these are usually smaller sublimit rather than robust coverages (e.g., $100k for cyber events compared to $1M for med mal claims). Many providers need separate stand-alone policies to comprehensively cover gaps such as cyber, employment practices liability insurance (EPLI), medical directorship, etc.
Why med mal premiums increase:
There are many reasons why your med mal premium rates may be on the rise. Insurance carriers usually review your coverage terms and pricing annually and make necessary adjustments at renewal.
Here’s a few key reasons why you might see your premium go up:
You’ve had a claim. If you previously were given a claims-free discount but had a claim in the last year, this discount should be dropped off automatically at renewal. If you’d had one or more claims in a certain period, your insurance carrier may also add a debit for adverse claims history.
Your insurance company is taking rate. Insurance companies may increase their rates generally for a class of providers based on historical performance and/or broader med mal insurance marketplace conditions. For instance, the insurance company may elect to increase premiums for all OBGYNs, all radiologists in a certain county, or all physicians regardless of specialty in a particular state. We are seeing this happening more frequently due to changes in the larger medical malpractice insurance marketplace and expect this trend to continue in the years to come.
Your insurance company is reducing the kinds and/or amounts of previously offered discounts. Similarly to taking rate, an insurance company may decide to eliminate or reduce certain discounts to collect more premium. This is one strategy we see insurance carriers employ when they need higher premiums but don’t want to increase their rates.
You moved up in claim-made step factors. For claims-made insurance policies, you can expect your premium to increase every year for the first five years. The premium should then level out after year five. This is called claims-made step factors, and it’s standard across all claims-made med mal policies and insurance carriers. The largest jump in premium is usually seen from year one to year two and gradually tapers off as the policy matures.
As brokers, our job is to have our fingers on the pulse of the med mal insurance marketplace so we can find you the best coverage at the right price. We’re here to break down trends and explain how they directly impact your med mal premium rates. Reach out now to learn more about how your pricing was determined and what solutions may be found to change it.