Definition of Claims-Made Insurance and how it Affects Your Premium

What Is Claims-Made Insurance?
Claims made insurance dictates that the policy must be in force not only when an incident occurs, but also when a claim is reported. In most states, medical liability laws allow a claimant to file a lawsuit after he or she “reasonably” should have known that negligence has occurred. Given the uncertainty of this definition, as well as the time delays and increased costs it creates, insurers use a claims made form so that they can determine premium for the current exposure period since these costs are more immediate and predictable.

The Structure of Claims-Made Professional Liability Insurance
In a multi-year claims-made policy premium model, the first year premium reflects the risk exposure for only your first year of practice. The second year premium reflects the risk exposure for both your first year plus your second year. This continues for the remaining years of practice until you reach the mature premium.

Premium Development under the Claims-Made Rating Model
When you are new to the practice of medicine you have no prior liability; therefore your premium reflects only the first year of liability exposure. As the liability risk escalates in subsequent years, your premium will reflect this development by increasing annually—resulting in significant cost adjustments during the first few years that you are insured.

You should be prepared for these cost increases, and keep in mind that the price adjustments are not unique to any one insurance carrier. Additionally, all medical liability insurance companies make periodic rate adjustments companywide. And each policy is re-underwritten annually so additional discounts or surcharges may be applied. As a new claims-made insured physician, the increases you will experience over the first five years are primarily a function of the maturity of your practice and not company pricing actions.