To Be Insured, or Not To Be Insured (By a Particular Carrier)

- Questions To Ask a Potential Carrier

ATLANTA, April 12, 2004 - There is perhaps no single issue that has a greater affect on healthcare today than professional liability insurance. Gone are the days when a doctor needed only a stethoscope and a scalpel; today’s physicians must carry their insurance policy in their breast pocket at all times as well. However, a policy is only as good as the company that writes it.

"Insurance is a complex and complicated process. It requires understanding the legalities of the insurance industry and keeping up with the changes, something that a majority of physicians may not know," says Ken Shumard, Chairman of the Board for Medical Doctor Associates, the nation’s largest privately held medical staffing company. The medical community has finally realized the true importance of professional liability insurance and is now beginning to place the proper emphasis upon it during medical school and residency. However, physicians remain relatively unaware of the market forces which determine the strength of an insurance carrier, and ultimately, their policy.

An increasing number of physicians are responding to the insurance situation by working as Locum Tenens (LT), or temporary, physicians. In fact, from 1996 to 2001 the number of LT physicians who began doing LT work straight out of residency increased by a whopping 1,300%, pushing the number of physicians who did LT work in 2001 close to 30,000. Physicians are moving into LT because it is one way of avoiding the headaches associated with insurance. A recent survey showed that 81% of Locum Tenens (LT) physicians don’t have to deal with professional liability insurance issues. This is because LT physicians are usually covered under insurance that is provided by the LT company, and the LT company handles all the paperwork (as well as the premiums). However, allowing an LT firm to do the "insurance homework" for you can be risky, especially if you don’t ask the firm to provide you with proper documentation proving you are covered under the policy they say you are covered under.

LT physicians aren't the only doctors seeking to avoid thinking about insurance and let someone else do the homework for them. Group practices and hospitals often provide professional liability insurance for their physicians. During employment negotiations, physicians often assume it is good insurance and do not ask the difficult questions necessary to determine the strength of an insurance carrier and the policies it issues.

It is important to have a good understanding of the different types of insurance coverage, and of the market forces that determine carrier stability, before you finish residency. Ask these questions before committing your professional future to any particular policy, whether you will purchase it for yourself, or a group practice, hospital, or LT firm will provide it for you.

The first thing you should determine about a potential insurance carrier is whether the company is licensed and admitted in the state in which you wish to practice. It is a common misconception that an insurance company must be licensed in a state in order to solicit business in that state. Therefore, the fact that an insurance company wants your business doesn’t mean that the company is licensed in your state. Only work with a company that is licensed in your state.

Being licensed and admitted means that the carrier is subject to the state’s insurance regulation process, and that the state insurance department may investigate and adjudicate any complaints against the company made by a state resident. Also, in many states residents are covered in the event of insurance carrier insolvency by a guaranteed insolvency fund, but only if the carrier is licensed and admitted in the state.

If a non-admitted company writes your professional liability insurance, you will not have access to state insolvency funds or have any state regulatory body to which you can appeal with complaints.

Having determined a potential carrier is licensed and admitted in the state of your practice, the next step is to examine their financial stability. To determine financial stability you should do three things: look into the carrier’s business history, ascertain how the carrier is rated by independent insurance rating companies, and crunch the financial numbers (assets and surplus).

Your main focus when examining a carrier’s history is to find any glaring negatives which would give you reason to not use the carrier. Some examples of information that should raise your warning radar are if the carrier has a high turnover rate among upper management, has only written professional liability insurance for a short period of time, or if the number of policies that the carrier writes has been trending down for a significant period of time. As a general rule of thumb, you should remember that a carrier who has been in the industry for a long time is probably more stable than a newcomer. On the other hand, age and experience mean little if the company has recently changed its leadership and/or business philosophy.

Independent ratings are another prime indicator of a carrier’s financial stability. There are several reputable companies that do independent research on insurance carriers and then give them a letter rating. There are several factors that influence ratings, including global market position, balance sheet strength, sustained profitable growth, and the demonstrated success of a carrier’s management strategies. A.M. Best and Standard and Poor’s are two of the oldest and most respected companies who do independent ratings, and due to the current volatility of the professional liability insurance market, it is recommended to only work with an insurance carrier rated "A-" or higher.

It is also important to note both the financial assets and surplus of a potential insurance carrier. Be wary of what percentage of the carrier’s assets are admitted assets. These are assets that are liquefiable to pay a claim. If a particular carrier boasts high assets, but much of their assets are nonadmitted, then you should view that carrier as being low in assets.

Likewise, a large amount of assets is useless unless the carrier has a high level of surplus. Surplus is an insurance carrier’s safety net in the event that earned premiums and claims reserves aren’t enough to cover the amount of risk taken on by the carrier. If a large claim is made against you, and your carrier doesn’t have enough surplus admitted assets that can be liquefied to pay the claim, then you may be held assessable.

Of course, there are factors outside of the legal and financial realms which help to determine whether you will be pleased with the coverage provided by a potential insurance carrier. Ultimately, if you dislike working with them you will seek out a different carrier. Thankfully, there are ways to determine how good a fit a carrier will be before committing to a contract.

Be aware of the amount of experience in the industry a potential carrier has before deciding to be insured by that carrier. Generally speaking, you probably want to avoid carriers who recently began writing this type of insurance, or have handled only a few claims.

On a more specific level, if a claim is filed against you, you don’t want to work with a claims agent who has handled a bare handful of claims. Although the general rule is to go with an older carrier, it is important to determine the experience level of the carrier’s current employees as well as the overall experience level. Aaron Paul, MDA’s Residency Program Coordinator, advises, "One good strategy is to use the experience level of potential carriers to narrow down your choices, and subsequently use the average experience level of a given carrier’s claims professionals to make the final decision."

Investigate the way a potential carrier handles claims. There is much philosophical disparity between insurance carriers when it comes to handling claims. The main difference among carriers is their preference between settling and defending claims. Some insurance companies immediately seek to settle out of court in an effort to save money. Although this may at times be a healthy economic policy, it isn’t much comfort to a physician whose reputation is tarnished by a merit-less claim that’s given a degree of credibility when the carrier settles out of court. Look for a carrier whose policy is one of un-wavering support for its clients. Will they give you the benefit of the doubt if a claim is filed against you, or will they hang you out to dry?

It is important not only to find an insurance carrier that will defend you against a claim, but also to find a carrier who will defend you well. Someone will be less likely to file a merit-less claim against you if your insurance company has a high success rate at trial. Ask to be provided with statistics regarding each potential carrier’s ratio of claims that go to trial as opposed to being settled out of court, as well as the carrier’s win percentage at trial.

Finally, it is important that you only go with a carrier that has a proven record of customer satisfaction. Although it is difficult to quantify, this may be the most important factor in choosing an insurance carrier. If everyone dislikes working with the company, then it probably isn’t a good choice.

Most carriers will be able to provide you with statistics showing their overall level of customer satisfaction. However, surveys and statistics can be slanted, and it is important to look deeper. Ask other physicians you know who use the carrier to share their opinion of the company with you. If you don’t know any physicians who use the carrier, ask the company to give you a list of some physicians in your specialty that you could call for a reference.

The constantly increasing number of claims and rising claims payouts has made professional liability insurance a subject that can no longer be ignored by physicians. But it isn’t enough to work with an LT firm, group practice, or hospital which will negotiate insurance for you. Don’t trust the word of someone else, double-check everything yourself! Make sure that you have a thorough understanding of the insurance market, and get a copy of the particular policy under which you will be insured, so that you can check out the carrier for yourself before committing to join a group practice, hospital, or work with a particular LT firm.

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About MDA
Founded in 1987, MDA is one of the largest privately held medical staffing companies in the U.S. MDA is the only national multi-specialty locum tenens company that offers Occurrence Form malpractice insurance to its providers.
The company is headquartered in Atlanta, GA with a regional office in Dallas and satellite offices located throughout the United States. MDA provides recruiting expertise for all physician specialties, allied health, and healthcare professionals. For more information about MDA call 1-800-780-3500 ext. 2168.