Claims-made Policies and Step Rates: Year 1 to Year 5 (or Maturity)
Every day at MyMedicalMalpracticeInsurance.com we are asked to explain the different features of the types of med mal policies available. Today, we’d like to discuss one aspect of the claims-made policy. It is the claims-made step rate premium increases from year 1 to year 5 (or maturity). If you are unprepared for these rate increases, or don’t shop looking at the big picture of overall policy cost, these rate increases can come as quite a shock when your renewal for years 2, 3, 4, &/or 5 come. This is why we here at MyMedicalMalpracticeInsurance.com always send out a spread sheet with every carrier’s price per policy broken down by year. It is extremely important to know not only the total cost for the policy that you choose and how it compares to the other policies, but to also look at the price per year. Quite simply, the best priced policy in year 1 and year 2 may not be the best priced policy in year 4 or 5 (or at maturity) and therefore, may not be the best choice from a cost perspective.
What do we mean when we say “step-rate increase?” The price of coverage increasing year over year, at times, in a very dramatic fashion. For instance, it’s common for a policy to double from year 1 to year 2 and increase by up to 50% from year 2 to year 3.
Why do we encourage people to shop around every year? Quite simply, because there can be such a difference in the prices of policies year-to-year. This is why with every renewal we also offer another spreadsheet of competitive rates.
What does it mean for a policy to mature? That is when the price of the coverage plateaus and the yearly renewal costs stay the same or possibly drift lower, unless you have a claim or the insurance company raises rates.
But price shouldn’t always be the deciding factor when choosing a plan and/or deciding to change insurance companies. It can often be difficult to move insurance companies, you may appreciate the company you’re with and their reputation for representation in claim defense, and/or your choices may be limited based on your state and/or sub-specialty.