INSURANCE MANAGEMENT SOLUTIONS FOR HEALTH CARE PROVIDERS • CALL 844-735-ROCK

WHAT IS THE DIFFERENCE BETWEEN A "CLAIMS-MADE" POLICY AND AN "OCCURRENCE-TYPE" POLICY?

  • An "occurrence-type" policy is the most traditional insurance policy. Essentially, you are covered against any person who sues you for medical malpractice, as long as the incident that gave rise to the lawsuit "occurred" while you were insured by the insurance carrier.


    In a "claims-made" policy, you are only covered against a person who sues you for medical malpractice if two conditions are met: (1) The incident that gave rise to the lawsuit occurred while you were insured with the insurance carrier; and (2) at the time that the person brings forth the lawsuit, you are still insured with the carrier. However, you are only protected for claims reported after you leave the insurer if you purchase a supplemental or additional endorsement called the Extended Reporting Period Endorsement (ERP), often referred to as the "tail," which may cost up to two or three times your last year's premium.

WHY IS THE CLAIMS-MADE POLICY LESS EXPENSIVE THAN THE OCCURRENCE-TYPE POLICY IN THE FIRST FIVE YEARS?

  • The reason a claims-made policy is less costly in the initial five years is that as the policyholder, you do not represent a large exposure to the insurer in the beginning years of the claims-made policy. When you are in your first year of coverage, it is unlikely that the insurer would have to cover a claim filed against you for an act that occurred during your first year. In the second year, it is more likely that someone may file a claim against you for an incident that occurred in the first year of coverage. That is why in your second year, your insurance premium will be generally 50-65% of your mature rate; third year, it will likely increase to 70-85% of your mature rate; and in the fourth year, it amounts to 85-95% of your mature rate. In your fifth year, your exposure mimics that of an occurrence-type policy, as the insurer is now covering any claims filed against you for an incident that may have occurred over the initial five years.

HOW MUCH INSURANCE DO I NEED?

  • It is not uncommon for physicians to believe they need the highest coverage from their insurers. The truth is that a higher limit increases a physician’s chance of being named in a lawsuit.


    Often cases involve a patient who is cared for by multiple physicians (e.g., ER physician, radiologist, and surgeon on call). When a plaintiff attorney learns one of these physicians has a $3 million/$5 million policy, they will target that physician for an allegation of exaggerated negligence because there is greater exposure for the insurance company, likely resulting in a large settlement. Physicians who are sued most frequently, such as OB/GYN's, tend to carry the typical $1 million/$3 million policy because they understand that the higher the limit, the higher the likelihood they will continue to be sued in the case.