By Blair Voltz 

In my June blog, we looked at what is occurring rate-wise in the Medical Professional Liability market in the United States overall, none of it positive. In this article I want to focus on factors that are just as important as price and which almost always affect premium. (In the third and last installment of this blog I will look more closely at rates in our region, and specifically in Alabama, for both physicians and hospitals).

There are serval factors which should be considered as important, if not more important, than price. These factors should always be examined and taken into consideration before a physician or hospital administration makes a decision on their medical malpractice coverage.

The first of these factors is the financial stability of the insurance company. A.M. Best Company, established in 1899, rates the strength of insurance companies, their long-term viability, and their ability to pay their financial obligations. A.M. Best also gives a “forward-looking outlook”, which is a predictor of the company’s near-to-midterm expected development (expressed as a rating of Positive, Stable, or Negative). A.M. Best rates by both size of the company and financial strength. The A.M. Best rating represents a comprehensive analysis consisting of a quantitative and qualitative evaluation of balance sheet strength, operating performance, and business profile of an insurance company. Best rates companies on a scale as follows: 

Rating	Rating Symbol	Rating “Notches”
Exceptional	AAA	(none)
Superior	AA	+/-
Excellent	A	+/-
Good	BBB	+/-
Fair	BB	+/-
Marginal	B	+/-
Weak	CCC	+/-
Very Weak	CC	+/-
Poor	C	+/-

TAKE NOTE: You want to be insured by a company that has at least an “A” rating by A.M. Best. There are too many companies from which to choose for your professional liability coverage than to pick one that has a “BBB” or lower rating.

As an insurance Consultant and Licensed Agent, I could never recommend any company with less than an “A” rating. This is especially important for hospitals, as many hospital contracts for construction and leasing of equipment require the hospital to be insured by an “A” rated company or higher.

Next, the insurance policy, commonly referred to as the “Form” should be reviewed. Does the Form/Policy adequately cover the insured? Does it favor the insured, or does it favor the insurance company? There is language in all policies that usually favor the insurance company. The insured needs to have it pointed out where these are, as many times the form limitations can leave a physician or hospital in a tenuous position when they discover, usually the hard way, what those items are, such as limits, deductibles, aggregate deductibles, exclusions, etc. This is where it is advantageous to have an independent Consultant/Agent who is working for you, rather than the insurance company, to point out these things before the decision is made. 

A great example of this is the so-called “Hammer” clause in some policies which practically forces the physician to settle a case if that is what the insurance company wants to do. I could never recommend a policy if it contains a “Hammer” clause, yet I know of Alabama physicians in a certain specialty who are insured by a company that has the “Hammer” clause in their policy. On the other hand, a “Consent-to-Settle” clause favors the insured and puts them in charge of the decision of whether to settle or fight. Most physician-owned companies will have a consent to settle clause in their policy.

This leads to another factor that is critical and more important than price. What is the insurance company’s “Defense Philosophy?” Do they look forward to defending an insured who is facing a lawsuit? Or do they prefer to settle cases? This philosophy is more important to physicians than to hospitals. Hospitals usually have larger deductibles and are willing to pay something to settle the case, to avoid negative publicity. On the other hand, it is more personal with a physician. If a physician settles a case, it remains on his record for the remainder of his career. Any judgement or settlement over $25,000 must be reported to the National Practitioner Data Bank (NPDB), and it remains there. Even worse, with every application a physician has to complete for the rest of her career, she will have to answer the question “Have you ever been notified of a malpractice lawsuit, claim, or incident?” If the answer is “yes”, then the physician has to provide all of the details and the result. It is much better to say “the case was dismissed” or “defense verdict obtained at trial” than to say “I didn’t do anything wrong and I wanted it defended but my insurance company settled the case.” Physicians don’t want a judgement or settlement on their permanent record if they can help it. You want a company that is going to fight for you when you need them. Be careful though: many companies will give lip service to defending you, but will not do it when the time comes. Again, it helps to have a knowledgeable independent Consultant/Agent who is familiar with the various companies and can guide you to one that will execute what they say they will do.

Another important aspect that should be taken into account is the “business model/ownership” of the company, i.e. whether the company is a publicly traded stock company which is constantly under pressure from Wall Street to perform well financially and under pressure from the stockholders to make profit for them. Or is it a Risk Retention Group (RRG) where a number of insureds have come together to insure each other? (RRG’s have notoriously unfavorable terms for physicians, limited coverage limits, and notoriously bad track records!) Or is it a Mutual company? 

The type of company will have a direct impact on the price. Stock companies will usually have higher rates due to the financial pressures to make money for the stockholders. Mutual companies on the other hand do not have to make profit for the stockholders or impress Wall Street, and Mutuals usually pay a dividend back to the physician or hospital policyholder.

The A.M. Best rating (financial strength), policy form, the defense philosophy and execution thereof, and the business model/ownership of the insurance company are all very important factors in choosing a professional liability carrier. Only when all these factors are present and line up in favor of the insured should the decision maker look at the premium. Unfortunately, I know physicians and hospital administrations that are concerned with price only, and may be insured with a company that may not  be there in one way or another.

Now that we have covered these critical items, I will discuss more about rate, price and “Hard-Market” next time.

Blair Voltz began his career in medical professional liability in 1987, spending the next 25 years with Alabama's largest medical malpractice carrier before establishing Voltz Professional Risk Advisors in 2011. Since then, he has helped over 200 physicians and a major hospital system improve their coverage, as well as their bottom line.