Assessing potential insurance carriers

Warning! Do not buy insurance solely on the basis of the premium charged. There are many factors that should influence a physician's decision to purchase insurance from a particular company. The most important factors include the insurer's financial stability, protections against insolvency, performance record, and claims handling procedures.

Financial stability

The financial stability of an insurer should be high on the list of a physician's considerations. The A.M. Best Company provides useful information on insurers.  Throughout the year, insurers are continually reevaluated, and ratings are upgraded, downgraded, affirmed, or placed under review. A.M. Best rates companies according to this scale:

Secure ratings
A+ + or A+ = Superior
A or A- = Excellent
B++ or B+ = Very good

Vulnerable ratings
B or B- = Adequate
C++ or C+ = Fair
C or C- = Marginal
D = Very vulnerable
E = Under regulatory supervision
F = In liquidation
S = Rating Suspended

The rating for a particular company may be obtained by going to the A.M. Best Web site. You may wish to check the A.M. Best rating against those of other companies that rate professional liability carriers, such as Standard & Poor's, Duff & Phelps Credit Rating Company, Moody's Investment Services, and Weiss Research, Inc. Weiss Research ratings are particularly useful because the evaluations tend to be tougher than those of the other rating companies.

Protections against the insurer's insolvency

You also may want to consider what will happen if your insurer becomes insolvent. State guaranty funds offer protection to a physician if his or her malpractice insurer becomes financially unable to pay claims. Only insurers licensed to do business in the state are covered by guaranty funds, which typically are financed by assessments on all carriers. Although a guaranty fund's protection may be limited, it nevertheless can provide a shield for a physician if his or her liability program is unable to pay claims. When a fund does cover medical liability claims, however, the limits of liability it provides may be lower than the limits a defunct policy provided. A physician whose policy provided a liability limit of $1 million per occurrence may live in a state in which the guaranty fund is limited to payments of $100,000 per occurrence, for example.

For this reason, a physician should consult with a financial advisor to protect his or her assets from judgment in the event the insurer and/or state guaranty fund is unable to pay claims.

Performance record

The state insurance department may provide useful information about specific insurers licensed within the state. A license indicates that the insurer has met the minimum standards established by the state to underwrite insurance in that state. The state also may be able to provide information about how long the company has been licensed in that state, its compliance with state rules and regulations, and the number of complaints lodged against the company. To reach your state insurance department, contact the National Association of Insurance Commissioners.

Handling claims

A physician should understand the insurer's method of handling claims. Often, the procedure is spelled out in a company's promotional material, which also will provide important clues about the insurer's claims-management philosophy. Talking with a colleague insured by the same carrier who has already experienced a claim is also a good idea, if possible.

Key questions for which answers should be determined prior to signing up with a particular insurer include:

What happens when a physician reports a claim? The physician is entitled to a prompt response to a reported claim from experienced claims personnel. Claims personnel should be able to answer questions and give advice when needed, for example, to explain what medical records should be gathered for the insurer.

What is the claim review process? The physician should be told who will review the claim and when, whether physicians will be involved in the review process, and whether lawyers are involved at the outset.

What happens if the claim involves multiple defendants all of whom the insurer covers? Will the insurer assign the same attorney to represent all defendants? There may be an inherent conflict of interest that requires individual representation, especially if the defendants have differing views on the events that led up to the claim.

What position does the insurer take regarding "nuisance" or frivolous claims? Does the insurer settle claims without merit simply to avoid further costs?

Will the physician be involved in resolving the claim? The answer should be yes. Another important follow-up question to this one is: Who makes the decision whether or not to settle a claim? Usually, the answer is contained in the policy's "consent to settle" clause. Insurers' approaches vary. Some promise that a physician's consent will be obtained before a claim is settled. Others retain total control over the decision. A third approach when an insurer wants to settle and a physician does not is for the company to proceed with the case but to limit claim coverage to the amount of the settlement offer it recommended. If an award eventually is made for more than the initial settlement offer, the physician may be personally liable for the difference.

The issue of the physician's control over settlement decisions gained added significance with the establishment of the National Practitioner Data Bank (NPDB). This repository of malpractice claims information was established by Congress pursuant to the Health Care Quality Improvement Act of 1986 (42 U.S.C. 11101, et seq.). By federal law, all malpractice indemnity payments made on behalf of physicians in connection with medical malpractice settlements or judgments must be reported to the NPDB. In turn, the NPDB is required to make this information available to hospitals, state licensure boards, some professional societies, and other health care entities under certain circumstances. There are increasing demands that this information be made available to the public. This mandatory reporting requirement makes it imperative that all settlement decisions be carefully evaluated-as even the settlement of a nuisance case with no real merit will be reported to the NPDB. This record can affect licensure, medical staff privileges, contractual arrangements with health insurers, and future insurability by traditional carriers. For more information, see the AMA's discussion of the National Practitioner Data Bank.

Note: Portions excerpted and adapted from the AMA publication, Medical Professional Liability Insurance. For more information on how to order this award-winning publication, please go to the AMA Physician Catalog.