Does this sound familiar? In medical school you are told to never, ever, no matter what buy a claims-made policy for your medical malpractice insurance. They said it is a trap that you cannot escape; a scheme designed to cost you money, but is it really? What is the difference anyway, it’s seems so confusing? Read on and discover the four easy steps to understanding how a claims-made policy works and how it can benefit you and your practice.
Step 1 Retro-Active Date:
When you purchase a claims-made medical malpractice policy the day it is bound is your “retro-active date.” This date simply means that is when your coverage begins and clarifies that there is no coverage before that date. Your retro-active date is very important and will effectively be with you the rest of your medical career.
Step 2 Understanding How Claims Are Paid:
A claims-made policy will only pay for a covered claim if the event happens while the policy is in force (after the retro-active date) and was reported to the insurance company while the policy is still current. As long as the policy is in good standing and active coverage will remain continuous all the way back the retro-active date.
Step 3 What If I Cancel My Policy Or It Lapses:
If a claims-made medical malpractice policy is canceled for any reason there is no longer any coverage all the way back to the retro-active date. This period of time is often referred to as your “prior acts.” What this means is if a claim is reported that occurred in the period of time between the retro-active date and the date of cancellation it will not be covered unless…
Step 4 How To Maintain “Prior Acts” Coverage After Cancellation:
If you decide to move to a different insurance carrier or cancel the policy for any reason you will need to either purchase an extended reporting period (“tail”) policy or purchase prior acts (nose) coverage from your new insurance company. If you elect to buy a “tail” policy it will provide you coverage for the time period that occurred between your retro-active date and the date the policy was cancelled. If you decide to buy “nose” coverage the new insurance company will maintain your same retro-active date and will provide coverage for claims back to that date. (Tip: Usually, if available, “nose” coverage from the new carrier is less expensive than purchasing a “tail” policy from the old company.)
So to what the advantages of a claims-made policy?
- Lower initial premium.
- Lower premium long term.
- Provides you with a lower cost alternative for the same coverage as an occurrence policy.
So now you may be asking yourself how does this differ from an occurrence policy? Here is the easiest way to think of it:
-With an occurrence policy you are just buying the extended reporting period from the beginning.
This is the reason an occurrence policy is more costly. Occurrence policies will provide coverage even after the policy is cancelled for the time that it was inforce without purchasing a “tail” or “nose” policy because that coverage was already purchased up front. With an occurrence policy you pay for coverage that you may not ever even need.
I hope these four easy steps helped you understand how a claims-made medical malpractice policy works and how you can benefit from it as a physician. As you can see a claims-made policy is not a sinister plot contrived by the insurance companies, it’s just a policy option that is, frankly, advantageous for most doctors because it provides you with the same coverage as occurrence but at a lower cost.