Which Medical Professional Liability Insurance Coverage Is Best for Your Healthcare Organization?
If your organization provides healthcare services, you should understand the difference between claims-made and occurrence-based medical professional liability (MPL) insurance. Here’s a short primer to explain the benefits and drawbacks of each type of MPL coverage.
Key insurance terms in this article:
- Claims-made coverage applies only to claims that are reported during your policy period and that arise from medical incidents that occurred after your policy’s retroactive date. If you renew your policy and maintain the policy’s retroactive date, you receive continuous coverage for claims that arise from the services you provided in previous policy periods. However, if you fail to renew your policy or don’t maintain the original retroactive date, you may not be covered for claims that arise after your policy period ends.
- The retroactive date for claims-made coverage is usually the date that you first purchase your claims-made policy. When you renew the policy, it is important to maintain the retroactive date to ensure coverage continuity.
- Occurrence-based coverage applies to claims that occur during your policy period, regardless of when the claim is reported. Subject to reporting requirements, there may be no restrictions on when a claim can be reported, as long as the claim arises from a medical incident that occurred during your policy term.
- Occurrence-based policies provide coverage for claims that are incurred but not reported (IBNR) during the policy term. Claims-made policies can also cover IBNR claims—if you continually renew your policy and if the incident occurred after the policy’s retroactive date.
- An Extended Reporting Period (ERP) endorsement (also called “tail” coverage) extends the time to report claims beyond the expiration of a claims-made policy term. In some cases, the ERP duration is unlimited and essentially converts a claims-made policy into an occurrence-based policy. ERP endorsements can vary widely, so it is important to review them carefully with your insurance broker.
Advantages of Claims-Made Coverage
- Claims-made policies carry lower premiums than occurrence-based policies for the first 4–5 years. Year 1 claims-made premiums can be as low as 25%–40% of occurrence-based rates. But claims-made premiums have annual, incremental, “step-factor” increases. By year 5 or 6, the claims-made rate generally equals or exceeds the occurrence-based rate.
- Claims-made policies are more widely available than occurrence-based policies. In fact, for some risks, a claims-made policy might be your only option.
- Claims-made coverage is “contemporary” and can be designed to fit your current risk profile. Occurrence-based policies cover claims that can be brought far into the future, when your risk profile may have changed.
The annual, incremental increase in the cost of claims-made policies is called the “step factor,” reflecting the cumulative increase in IBNR liability each year. Eventually, often in the fifth year, the potential IBNR liability levels off, at which point the claims-made rate is said to be mature.
Advantages of Occurrence-Based Coverage
- You do not need to worry about “tail” coverage. Even if you do not renew an occurrence-based policy, the policy covers you for any claims that might be brought against you in the future for medical incidents that occurred during your policy period.
- An occurrence-based policy is typically easier to move between carriers. A claims-made policyholder might be able to change carriers, but the process is often easier for occurrence-based policyholders, as the new insurer need not consider “incurred but not reported” (IBNR) claims.
Conclusion
So should you choose claims-made or occurrence-based coverage for your MPL insurance policy? The short answer is … it depends.
Variables include your needs and circumstances, cost factors, coverage terms, and risk factors—especially your potential exposure to future claims.
Talk with your insurance broker about how claims-made and occurrence-based insurance policies compare in your particular situation. The relative advantage of one type of policy over the other could significantly impact your—and your organization’s—financial security.