So you have to purchase “malpractice tail coverage”
The medical malpractice insurance marketplace continues to evolve as more regulations and government oversights place more pressure on traditional medical practices to evolve, join a larger group practice, or sell out to the local hospital system. Although this issue brings up a number of items to potentially dive into, the one I would like to focus on today is the question I most often receive from my clients: “What about my tail coverage?” With the changing healthcare landscape, insurance companies have begun to develop more “product offerings” to increase their revenue capturing opportunities. Not only are they looking to capture more revenue opportunities, but they are also beginning to think creatively rather than staying within the antiquated mindset that carriers have traditionally shown in the malpractice insurance marketplace.
That’s right—you now have different options when purchasing tail coverage. Whether the employment contract you’re in requires you to purchase the tail, or whether you’re joining another practice, etc., you finally have other options to choose from!
Why is it important to “shop around” for your tail coverage?
1) The cost
Some carriers in the marketplace will charge you up to 230% of your un-discounted yearly premium! Why so expensive? Because in the past carriers could get away with charging you a ridiculous amount. If you wanted this coverage it was your only option. Thankfully that has now changed. As a quick example—a client of mine, an orthopedic surgeon, was paying approximately $15,750 per year for his standard malpractice insurance coverage. He decided to join a larger practice and close his private practice. He had been practicing for around 9 years and wanted to maintain coverage for that time period (therefore he needed to purchase tail). We received the tail quote from his current insurance carrier and as a shock to him the quote came in at $48,300. Not only was it that expensive, but it was also due in full should he have chosen to purchase the policy. How could this happen? Well, let’s do the math…
Current yearly premium = $15,750
Un-discounted yearly premium = $21,000
Tail cost = 230% of un-discounted premium
Total cost of tail = 21,000 * 2.3 = $48,300
Luckily this physician had other options and we ended up finding him a standalone tail policy through an alternative carrier with similar policy terms and from a carrier that was A financially rated by AM BEST. The total cost for that policy was $28,735, representing total savings of $19,925.
2) Opportunity to obtain coverage from a financially stronger carrier
In today’s market it’s not uncommon at all for me to come across a physician insured with an un-rated insurance carrier (a carrier that doesn’t carry a financial rating through a rating agency – AM BEST, Moody’s, Demotech, etc.). Although I have nothing bad to say about those carriers (there could be many reasons why they are un-rated), if you have the opportunity to purchase your tail coverage from a rated company at a lower cost it is a no-brainer that that’s what you should do. Remember, when you are purchasing a tail policy, it is something you want to stay in place FOREVER. By purchasing it from a financially sound carrier you don’t completely eliminate the risk of the company going out of business, but you do certainly lower the risk significantly.
3) Possibility of obtaining a stronger policy
Why in the world would you purchase a tail policy with less coverage than another option in the marketplace at a higher cost? You wouldn’t. To compare it to cars, would you like to purchase the Ford Pinto or the Cadillac? And oh, by the way, the Cadillac is less expensive and brand new! Of course you would go with the Cadillac!
Let me be honest with you. You need to shop around for your tail coverage. And you need to work with someone who has all of the potential options out there for you to examine. You deserve to be working with the best and most experienced in the business. If you’re direct with a carrier and they say you must purchase their tail coverage, please understand that you have other options. The benefits of using a broker who can inform you of all your options in the marketplace could potentially save you thousands of dollars. At Gallagher Healthcare we would love to be the team to help you.