8 Malpractice Insurance Terms Every Medical Professional Should Know
Regardless of your area of practice, all healthcare providers have one thing in common: the need for malpractice insurance, also known as professional liability. This safeguards you against claims filed by your patients and can ensure the longevity of your practice. Arming yourself with knowledge of this insurance can help you proactively choose the terms and type of policy that best meets your needs.
8 Malpractice Insurance Terms Every Medical Professional Should Know
1. Annual Aggregate Limit
This stipulates the maximum dollar amount an insurer will pay on your behalf for all incident claims reported in a given policy year. A malpractice policy contains two numbers: the per claim limit and the annual aggregate limit. If your policy reflects limits of $1,000,000/$5,000,000, you have a $1,000,000 limit on each claim and a $5,000,000 combined (aggregate) limit for the year.
Let’s put this into perspective. If you have two claims in one year, each for $750,000, your insurance will pay both claims. This amount is within the per claim limit ($1,000,000) as well as the total limit for the year ($5,000,000).
2. Claims-Made Coverage
A claims-made policy provides coverage for claims that arise and are reported during the policy’s enforced active period. The start date therefore becomes a permanent component of the claims-made policy, and you will be continually protected against incidents as long as you renew your policy and keep your retroactive date.
An occurrence policy, on the other hand, covers incidents that arose during the policy’s coverage year regardless of when they are reported. This means it doesn’t matter if the policy is still active when the claim comes in. What does matter is that the policy was active at the time of the alleged incident.
3. Mature Rate
This next point piggy-backs off the previous. Typically, the premiums on claims-made policies are cheaper than occurrence policies in the earliest years of coverage. These policies expect the likelihood of malpractice claims to increase as the policy ages. You can therefore expect to pay in the first year or two around 30% of the mature rate. The premium then increases annually until the mature rate is reached; usually after five years or so. At NOW Insurance our premiums factor in this risk, therefore your premiums are stable year over year and would only increase if you have a change in circumstance, or if overall rates are raised.
4. Premiums
This word refers to the amount of money you, as the policyholder, pay for insurance coverage, typically on a yearly basis. Premiums are deemed essential to:
- Pay expenses and taxes necessary to operate the insurance provider’s business
- Reserve money that will pay for anticipated losses
- Pay current losses
Your premiums are influenced by a variety of factors, including your specialty – those with the riskiest specialties include ER doctors, surgeons, and obstetricians – and location. For instance, providers in New York, Rhode Island, and Pennsylvania can expect to pay more than providers in Ohio or Tennessee.
5. Nose and Tail Coverage
It’s reasonable to expect you will occasionally want to change your malpractice provider. You might therefore need nose coverage, also known as prior acts. This provides coverage (subject to the policy’s terms and conditions) for malpractice claims that arise prior to the effective date of your new coverage.
Similar in nature is tail coverage, which pays for claims that occur during the policy period and are filed shortly after that policy’s termination. Tail coverage generally costs between 125% and 250% of the previous year’s premium. The goal with nose and tail options is to deliver continuous coverage even if you choose to switch providers.
6. Retroactive Date
This applies only applies to claims-made policies and refers to your original coverage effective date. You get a retroactive date when you first purchase a policy that is equal to the effective date and you will keep that same retroactive date throughout the life of your policy and renewals. The key is that you have to maintain continuous coverage to maintain the same retroactive date.
7. Consent to Settle
Also known as a hammer clause, this policy provision is designed to encourage you, the insured, to accept an advised settlement offer. It stipulates that if you refuse this offer as recommended by your insurance provider, that provider’s liability remains at the suggested settlement offer.
Consider this scenario: a claim is filed against you, and your insurance provider recommends a settlement offer of $100,000. You refuse the offer, and the claim leads to a judgment of $250,000 against you. Your insurance provider will ultimately pay only $100,000, less the deductible identified in the policy. You therefore become responsible for paying the claim’s remaining balance, and would be responsible for your defense costs.
8. Claims Severity
This refers to the degree of financial liability that comes from a claims settlement. To illustrate, a claim settled with no payment for damages is usually perceived as having a “small” severity. A claim that forces the insurance provider to pay a policy’s full limits is, on the other hand, defined as a “large” severity. Each year, settlement rates are largely determined according to trends in claims severity. Severity includes defense expenses as well as settlement amounts.
NOW Insurance is committed to developing tailored plans at affordable rates. All medical providers and allied medical professionals need professional liability coverage, including licensed counselors and therapists. Learn more about our professional liability coverage by visiting NOW Insurance. You can also get a quote in less than three minutes by completing our easy online application.