[Editor's Note: I've been running a guest post once a week for years now. Readers seem to enjoy them and it provides more voices, more experiences, and more expertise on the site than I personally possess. One of my favorite tactics for getting good guest posts is to ask readers who ask me a question I don't have the answer for to do some research and send me a guest post when they know the answer. Another tactic is to ask someone who has done some unique research or done something new recently to write one. That second tactic is where this post came from. I figure if they just got done doing the research, why recreate the wheel? Dr. Sanghamitra Sadhu is the author, and we have no financial relationship. However, the original post as submitted ran over 5000 words, so I'm breaking it into three parts which we'll run this week Tuesday to Thursday. Dr. Sadhu wishes to thank Steven Roylance, her insurance broker for assistance with this post. I have no financial relationship with him either.]
Most doctors do not have to go through the process of picking out their own Medical Malpractice Liability Insurance (MPLI) since it is almost always provided by the group/hospital employing you. Unless you set up your own practice or, like in my case, work as an Independent Contractor, you may not have first-hand information of how to go about purchasing MPLI. Since I am planning to moonlight for other practices in town, I got my own malpractice insurance to give me the most flexibility to work with different groups. This is an account of what I learned going through the process recently.
The medical malpractice insurance industry tends to go through cycles. In the early 1970s, several private underwriters left the segment due to increasing payouts and low premiums. This led to an availability crisis. In response to this dearth of availability, physicians across the nation turned to their state Professional Associations and formed their own malpractice insurance companies, jointly owned by them. These originally physician-owned MLPI companies now control half the market share. Examples include The Doctors Company (TDC) from CA- that operates nationwide and MAGMutual from Georgia, which operates in 10 states of the SouthEast. These companies are mutually owned by policyholders and often return profits back to them in the form of dividends or rate cuts. For this reason, they are called “participating” carriers. As examples, in 2016 MAGMutual returned $25M to policyholders in the form of about 10-12% reduction in premiums (based on how long a policyholder has been with the company) and in 2015 TDC returned $28M in dividends to policyholders.
There was another crisis in the late 1990’s, leading to premiums peaking in 2002. Since then, they have gradually fallen and largely remained steady over the last decade or so. Coupled with the fact that the number of claims filed has been decreasing, premiums have fallen 20% since 2006.
Premiums by Specialty and State
This map of the USA shows how average premiums of a primary care doctor varies from state to state. The states that are shown deeper in color have higher premiums than the lighter shade ones.(Image used with permission.)
Since 1991, Medical Liability Monitor has been publishing an annual rate survey for 3 specialties: Int Med, Gen Surgery, and Ob/Gyn (representing the broad spectrum of rates across specialties). Click here to see historical rates by state and specialty.
States with effective tort reform, such as caps on non-economic damages, have seen a significant decrease in litigation followed by a fall in average premiums. Some of these states are CA, CO, KS, TX, Alaska, NC, and the Dakotas. Indiana has a process for pre-litigation screening by a panel, apart from a cap on total damages. Most of these states have seen among the lowest malpractice payouts per capita. Interestingly, many of these state legislatures have a physician in office.
At the other end of the spectrum are Illinois and a bunch of states in the North East- DC, PA, NY, NJ, and Delaware. These states have no effective tort reform and see some of the highest malpractice payouts per capita. Here, litigation is commonplace and premiums are sky-high, sometimes more than six figures annually for high-risk specialties such as surgery and OB. Here is a good summary of Malpractice Laws by state.
Malpractice insurers have had different experiences defending different specialties. As such, they develop proficiency for better defending some specialties than others. It is important to research which carriers have had more success in defending claims in your specialty before you choose a carrier. This also results in you obtaining better premium rates within the context of your geographical region.
Choosing an Insurance Company
It is really important to choose the right insurer — one that has been around a good while, has developed a good reputation, and is financially rock stable.
With regard to financial strength, the principal rating system of the insurance world is A.M. Best. I recommend you stay with a company with at least an A or better (A+, A++) rating unless you have a specific reason for your decision.
Size of the insurance company
There is strength in numbers. The biggest companies in the business are often also the most financially solid. The leading MPLI companies by volume written to physicians (amount of premiums they collect) on a national basis are (as of 4/15/16):
MPLI Co. Volume written to Physicians ($) A. M. Best Ranking
1 The Doctors Company (TDC) 620K A
2 Medical Protective (Med Pro) 425K A++
3 Medical Liability Mutual Insurance Co 376K NR
4 Physicians’ Reciprocal Insurance 240K NR
5 NORCAL Mutual Ins Co 235K A
6 MAGMutual Ins Co 216K A
7 ISMIE Mutual Ins Co 192K A-
8 ProAssurance Indemnity Co 189K A+
9 Hospitals Ins Co 139K NR
10 State Volunteer Mutual 128K A
11 Princeton Ins Co 127K A++
12 ProAssurance Casualty Co 122K A+
13 ProSelect Ins Co 118K A
14 Mutual Ins Co of AZ 114K A
15 MedPro RRG 98K A++
Note that the first 5 companies write more than half the total volume according to annual statement data from SNL Financial as of 4/15/16.
Use Local Defense attorneys
If you get sued, that last thing you would want is to be defended by an attorney sitting halfway across the country from you. You want a really good, local lawyer by your side. Most MPLI companies do have a local network of attorneys but the density of the network will depend on how much they are invested in your state. For example, if there is a CA-based insurer in FL, they may not have as rich a network of defense attorneys and other support staff based locally in each of the bigger cities in Florida than a company based in the Southeast. In that respect, MPLI is not just a commodity where price is the only consideration.
Admitted or Surplus-Line Carriers
Some insurance companies that are licensed and registered to the Dept to Insurance in your state are known “admitted” carriers for your state. They are more tightly regulated and also protected to some extent from insolvency by a “guarantee fund” (kind of FDIC for banks). Some doctors may have a hard time finding insurance in this market with strict underwriting rules if they have had difficult professional or personal issues- negative outcomes, disciplinary action, performing extremely high-risk procedures (like bariatric surgery, when it first evolved) or alcohol or drug dependence. They depend upon a secondary market of insurers- “non-admitted” or “surplus line” carriers. They are thus known because they are not regulated to the same extent nor covered by the state’s guarantee fund. Premiums in this market run significantly higher, often up to 30-50% more than usual and also carry hefty deductibles in the range of $5-10k per claim. Sometimes, your broker may be able to negotiate that the deductible go toward payout.
Now this alternate market is sometimes also available to regular, non-high risk providers, thereby providing them more choices, which helps to bring down costs. Be sure to pay attention to company ratings among these carriers, too.
It is possible for an informed physician to shop for malpractice insurance on her own. However, it makes sense to go with a knowledgeable and scrupulous independent broker who is able to get you quotes from multiple carriers (as opposed to an agent who works exclusively with one insurance company). The broker is reimbursed by commission from the insurance carriers- so they do not directly charge you for their services. This carries with it the usual conflict of interest inherent in a commission-based model of reimbursement. However, the fee-based model may not save you money in this situation because insurers will charge you the same annual rate and you will get stuck also having to pay a fee to your broker.
Brokers do need licenses for the states they operate in but may be able to help out-of-state clients too, by working with other brokers in the client’s state of practice. Please remember, if you contact multiple brokers to obtain a quote from the same insurance companies, it hinders the process since the insurance carriers require additional paperwork from you and the brokers. In choosing a broker, ask the basic questions you would of any financial/insurance professional:
- How long they’ve done this
- How many clients they represent
- What percentage of their business comes from malpractice insurance
- How many insurance companies they can get you quotes from
- Why those companies
- How are those companies rated
In Part 2 we'll continue with this series by looking at my personal experience buying. In the meantime, have you shopped for malpractice insurance? How did you decide on a company? Comment below!