Alyssa Lane
There are two types of malpractice insurance: 'claims-made' and 'occurrence'. Claims-made insurance provides coverage for incidents that occurred and were reported while the policyholder is insured with that carrier. This means that the incident and the filing of the claim must happen while the policy is in effect. On the other hand, occurrence insurance provides lifetime coverage for incidents that occurred during the policy period, even if the claim is filed after the policy has ended. For example, if an occurrence malpractice policy was active from 2018 to 2021, any claim that happened in that window is covered, even if the claim is filed after the policy expired.
| Characteristics | Values |
|---|---|
| Claims-made insurance coverage | Covers incidents that occurred and were reported while insured with the carrier |
| Claims-made insurance policy termination | Requires the purchase of tail coverage to cover past incidents |
| Occurrence insurance coverage | Covers incidents that occurred during the policy period, even if the claim is made later |
| Occurrence insurance policy termination | No need for tail coverage |
| Claims-made insurance premium | Cheaper than occurrence insurance initially, but increases over time |
| Occurrence insurance premium | Higher premiums initially, but stable over time |
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What You'll Learn
Claims-made insurance
Claims-made malpractice insurance policies provide coverage for incidents that occur and are reported while the policy is in effect. This means that both the incident and the claim must happen during the policy period. If a claim is made after the coverage period ends, it will not be covered, even if the incident occurred while the policy was in force.
Claims-made policies are triggered when a claim is “first made” against the insured during the policy period, regardless of when the incident giving rise to the claim occurred. This is in contrast to occurrence policies, which are triggered when the event giving rise to a claim "occurs" during the policy period. With a claims-made policy, the insured may be required to purchase additional "tail insurance" if they switch to a new insurance carrier, as they remain liable for malpractice acts performed while covered by the previous carrier.
Claims-made policies typically have lower premiums in the early years compared to occurrence policies, as the risk of loss for the insurer is lower during this period. However, as the policy renews and the coverage period expands, the premiums increase to reflect the growing risk of loss for the insurer. By the fifth year, claims-made premiums are equivalent to occurrence premiums.
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Occurrence-made insurance
In the context of medical malpractice insurance, occurrence-made insurance covers incidents related to patient care that took place during the policy period, regardless of when the claim is submitted. For example, if a physician is covered by occurrence-made insurance on the date that an alleged malpractice incident occurs, the insurance company will provide malpractice coverage even if the claim is filed at a later date when the physician is insured by a different company.
It is important to note that occurrence-made insurance does not provide ""lifetime" coverage in the same way as claims-made insurance. With occurrence-made insurance, the coverage is tied to the specific policy period, and any incidents occurring during that period are covered, regardless of when the claim is submitted. However, this does not guarantee coverage for incidents occurring outside of the policy period.
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Tail coverage
When it comes to malpractice insurance, it is important to understand the difference between 'claims-made' and 'occurrence-made' policies. Claims-made insurance provides coverage only for incidents that occurred and were reported while the policyholder is insured with that carrier. In other words, both the incident and the filing of the claim must take place while the policy is active. If the policyholder drops a claims-made policy, they are not covered for any suits filed later unless they purchase 'tail coverage'.
The cost of tail coverage is typically a one-time assessment that can be quite expensive, often ranging from 1.5 to 3 times the amount of an annual premium. This high cost is due to the fact that tail coverage is usually purchased to cover a long period of time, as it can take years for health issues to emerge and result in a claim being filed.
In contrast to claims-made policies, occurrence policies provide lifetime coverage for incidents that occurred during the policy period, regardless of when the claim is filed. This means that if an occurrence policy was in force from 2018 to 2021, any medical malpractice claim that occurred during that window would be covered, even if the claim is filed after the policy expired. Occurrence policies offer seamless protection without the need for additional tail coverage, as they provide coverage for incidents that occurred during the policy's lifetime.
When choosing between claims-made and occurrence-made insurance, it is important to consider your individual circumstances, including your career stage and financial situation. Claims-made policies tend to be cheaper initially, but the premiums increase over time and there is a need to purchase tail coverage if the policy is dropped. On the other hand, occurrence policies tend to have higher premiums from the start but remain stable over time, offering peace of mind with consistent costs and seamless protection.
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Premium increases
The premium for malpractice insurance is influenced by several factors, including the type of insurance, an individual's specialty, geographic location, and personal claims history. Claims-made policies are initially cheaper than occurrence policies, but premiums increase annually until they reach the mature rate.
Claims-made insurance policies are typically more affordable in the first few years of coverage. The first-year premium may be as low as 10% to 30% of the mature rate, and it increases annually for a period of around 3 to 5 years until it reaches the mature rate. This premium increase is due to the potential for claims building up over time as policy years accumulate. Therefore, when comparing costs between claims-made and occurrence policies, it is essential to understand how much the premium will increase after the first year.
Occurrence policies, on the other hand, tend to have higher premiums from the start but remain stable over time. This stability offers peace of mind with consistent costs and eliminates the need for purchasing additional tail coverage. While occurrence policies may be more expensive initially, they provide lifetime coverage for incidents that occur during the policy period, regardless of when the claim is filed.
It is worth noting that other factors also influence malpractice insurance premiums, such as practice size, the number of patient visits per week, and years in practice. Additionally, regional variations exist, with rates for primary care physicians typically higher in major cities compared to other regions.
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Legal defense
Legal defence is a critical component of malpractice insurance, and the specifics of this coverage can vary between claims-made and occurrence-made policies. Claims-made policies typically include legal defence coverage, which is essential as defending a malpractice claim can be extremely costly, regardless of guilt. This coverage provides financial protection for the insured in the event of a malpractice lawsuit.
In the case of claims-made insurance, the policyholder is covered for incidents that occurred and were reported while they are insured with the same carrier. This means that both the incident and the filing of the claim must take place while the policy is active. If the policy is cancelled or switched, additional "tail coverage" can be purchased to extend the coverage for past incidents. This is important because, without tail coverage, the policyholder would not be protected for any claims arising from incidents that occurred while they were previously insured.
On the other hand, occurrence-made insurance provides lifetime coverage for incidents that occurred during the policy period, regardless of when the claim is filed. This means that even if the policy has ended or the policyholder has switched insurance providers, they are still covered for incidents that took place during the policy's lifetime. Occurrence-made insurance offers peace of mind and consistent protection without the need for additional tail coverage, as the coverage is not dependent on the policy being active when the claim is filed.
It is important to carefully review the terms and conditions of any malpractice insurance policy to fully understand the extent of legal defence coverage. Policyholders should clarify whether they will be reimbursed for lost wages during legal proceedings and what specific services will be provided as part of their defence. Understanding these details in advance can provide valuable peace of mind and ensure that the policyholder knows what to expect in the event of a malpractice claim.
In summary, both claims-made and occurrence-made malpractice insurance policies offer legal defence coverage, but the specifics of this coverage can vary. Claims-made policies typically include legal defence as standard, while occurrence-made policies provide lifetime coverage for incidents during the policy period, eliminating the need for tail coverage. Policyholders should carefully review their chosen policy to fully understand their legal defence entitlements and any potential limitations or exclusions.
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Frequently asked questions
Claims-made insurance covers incidents that occurred and were reported while the policyholder is insured with that carrier. Occurrence malpractice insurance covers incidents that occurred during the policy year, regardless of when the claim is reported.
Tail coverage, also known as tail insurance, is an extension of claims-made coverage. It provides protection from past incidents even if the claim is filed after the policy has been cancelled.
Claims-made policies are cheaper than occurrence policies for the first several years of coverage. The first-year premium of a claims-made policy may be very inexpensive but will increase each year until it reaches the mature rate.
Occurrence malpractice insurance offers lifetime coverage for incidents during the policy period, providing seamless protection without the need for additional tail coverage. It can be helpful as some health issues can take years to show up and the policy will be there as another layer of protection.
