Original Publish Date: March 6, 2018
As an insurance broker specializing in medical professional liability insurance, I am often asked this question. My usual response is, “What’s the most you could be sued for?” Naturally, it is not economically feasible for an individual physician or small physician group to purchase $10 million, or even $5 million of liability limits. There is no simple formula to determine the appropriate insurance limit, but I do readily advise physicians and small groups that a $1 million liability limit is woefully inadequate in 2018, regardless of specialty.
I started in the insurance business as an underwriting trainee for an insurer headquartered in a building known as the Pyramid, in San Francisco. The year was 1989; Ronald Reagan just completed his Presidency, the Berlin Wall was crumbling, the first internet service provider was beginning operations, and gasoline averaged about 97 cents.i Can you guess what insurance limit of liability most small businesses purchased in 1989? Just as most physicians and small physician groups do today, most of those small retailers and corner grocery stores I underwrote purchased a $1 million limit of liability. When you adjust for overall inflation, that same $1 million limit is now worth just $499,000 in purchasing power. Using medical inflation rates, the current purchasing power would be far less.
What is the most that a physician could be asked to pay? Consider these very recently reported medical malpractice verdicts:
Most physicians who have practiced for a number of years are aware of an incident relating to miscommunication amongst clinical staff, a medical error, or perhaps an endoscopic procedure that resulted in complications. The point is that these are not extremely rare or extraordinary circumstances. In most of these incidents, no harm will come to a patient, but the potential for a catastrophic loss stemming from these common incidents remains.
Increasing medical malpractice liability limits from $1 million to $2 million in most cases costs much less than expected. Far from doubling the premium, my experience is that this change will result in only about a 21% premium increase, on average. If the liability limit per claims is already at $2 million, the cost to increase by another $1 million will likely be less than 11% of additional premium. While this cost is affordable for many, it can often be largely offset by simply obtaining competitive quotes from multiple insurers. This is particularly true if the insurance has been purchased on a direct basis from the insurer and/or has not been marketed for several years. Insurance companies generally do not provide their lowest possible premium unless they know they’re in competition with other viable, professional liability insurers. Working with an experienced professional liability broker with access to multiple insurers to create competition often results in premium reductions of 10% to 35%. Do not make the mistake of assuming that unchanged renewal pricing year after year is, in fact, competitive pricing. This is because rates for medical professional liability have fallen as much as 50% over the past 10 years.
The healthcare industry has achieved tremendous improvements in clinical risk management, leading to significantly reduced frequency of medical malpractice claims; however, medical inflation continues to drive greater loss severity. Physicians need to evaluate their insurance policies and be certain they are purchasing adequate liability limits for the severity risks faced in 2018 and beyond.
iiBangor Daily News (ME), October 30, 2017
iiiArizona Daily Star (Tucson), November 5, 2017
ivPantagraph (Bloomington), December 15, 2017