Advising an Obstetrician/Gynecologist in Philadelphia About the Differences Between Claims-Made and Occurrence Coverage
I just got off the telephone with an Obstetrician/Gynecologist who practices in Philadelphia. I’m helping her shop her malpractice coverage and she — somewhat sheepishly — asked, “What exactly is the difference between claims-made and occurrence coverage, and which is best for me?”
On the surface, this sounds like a simple question to answer, but as I shared with her, there are several factors to consider before determining which policy is right for you. A good place to start is having a clear understanding of how each type of coverage works and the differences between the two.
In terms of how coverage is handled or how the policy is triggered, there is no difference. The predominate difference is that the occurrence policy includes “tail” (or extended reporting period) coverage and the claims-made does not. As such, this makes the occurrence policy much more expensive.
All medical malpractice insurance policies are issued with a 12-month policy period. If an occurrence policy is cancelled or nonrenewed, there is coverage forever for future claims arising from services provided during the policy period.
For the claims-made policy, if a physician were to let their policy expire (and not purchase a tail policy), there would be no coverage for future claims arising from services provided during the policy period. Claims-made policyholders must renew their coverage annually in order to make sure that all the previous years are covered. The cost of a claims-made policy escalates during the first five years it is in effect. The first-year premium is generally 15 to 20 percent of what the policy will cost in its fifth year. After the fifth year of the policy, the cost of claims-made coverage is about the same as an occurrence policy. When ready to move to a different insurance company or retire from practice, physicians with a claims-made policy can purchase a separate, one-time tail policy that will provide lifetime coverage for prior acts under the policy period. The price of a tail policy is typically calculated at two-times cost of your last premium paid.
What many clients of mine don’t know is that a physician can position themself to receive free tail coverage from their insurance company. In order to do so, a policyholder must meet three criteria:
- Be age 55 or older
- Intend to completely retire from the practice of medicine
- Have been covered by the insurance company during the previous five consecutive years
As I shared with the Obstetrician/Gynecologist in Philadelphia, now that we have a better understanding of the differences between claims-made and occurrence polices, we next need to figure out what questions to ask so that we can determine which policy would be the best fit for her.
I often tell physicians and surgeons that which coverage is better really depends on what your overall goals are regarding your medical malpractice insurance policy. Do you plan on putting down roots in the community and staying there for a long period of time? If the answer is yes, then the better option is the claims-made policy, and here’s why: You are going to need coverage each year, so you might as well take the policy that provides all the premium savings during the first four years you carry the policy. Since you know what the tail is going to be (two-times your last premium paid), you can start to budget today so that when the day comes to pay for the tail, you have a nest egg dedicated to it. Too many doctors experience sticker shock since they are unaware of how high the tail can get.
If you think you will only need the policy for a year or two, then you could consider the occurrence coverage. This way, once you cancel after the short period of time, you can just walk away and there is nothing further (tail coverage) to pay for.
Of course, it’s always a good idea to discuss with your agent the positives and negatives as well as the projected numbers for each scenario.
Are you looking for medical malpractice insurance in Philadelphia? Or any other city? Call me at 708-848-2300 to discuss your options.