What is Malpractice Insurance?
The term “malpractice insurance” refers to toa form of professional liability insurance that is purchased by healthcare professionals to protects themselves against patients who file lawsuits against them. These legal suits are booked stating that the patients have been harmed due to the healthcare provider’s negligence or harmful treatment. In such cases, malpractice insurance covers the healthcare personnel’s legal fees, damage costs along with other associated expenses. The death of a patient is also covered by malpractice insurance.
Explanation of Malpractice Insurance
Malpractice insurance is for healthcare providers, which include doctors, surgeons, dentists, nurses, physical therapists, opticians etc. This insurance policy is also known as professional liability insurance. As per the Insurance Information Institute, there are different varieties of malpractice insurance based on the policy coverage packages. Typically, it covers attorney’s fees, settlement, arbitration and damages costs, but it doesn’t cover expenses that arise out of criminal or sexual misconduct. This policy also helps in curbing the impending requirement of compensating the patients who is the victim of medical negligence.
Types of Malpractice Insurance
There are primarily two major types of malpractice insurance – claims based policy and occurrence based policy.
- Claims-Based Policy: This is the most common form of malpractice coverages that are underwritten. A claims based policy covers the claims brought against the insured only if the policy is in effect at the time of both act and the claim. After the expiry of the policy, the claims will be covered only if there is a tail coverage. In some cases, the policies come with the option of a retroactive date, and the claims are covered as long as the medical misconduct happened on or after the retroactive date.
- Occurrence Based Policy: In some cases, malpractice insurance is available in the form of an occurrence-based policy. In an occurrence policy, the only condition is that the policy should be in effect at the time of the act, while the time of the claim doesn’t matter. As such, if the act was committed when the policy was in effect, the claims can be made even several years after the policy expiration, and as such insurers are reluctant to underwrite this policy.
Examples of Malpractice Insurance
Now, let us look at some of the top malpractice insurance provider from across the globe:
- Berkshire Hathaway: It is one of the largest malpractice insurer in the world with a market share of 17.19%. During 2019, it had an underwritten direct premium worth $1.66 billion and earned a direct premium worth $1.6 billion, which indicates stable direct premium growth. The ratio of direct loss to earned premium was 55.26 and that of direct loss and defense and cost containment to earned premium was 74.10.
- The Doctors Company: It has a market share of 7.41%. During 2019, it had an underwritten direct premium worth $715million and earned a direct premium worth $692 million, which indicates a slight growth indirect premium. The ratio of direct loss to earned premium was 39.99 and that of direct loss and defense and cost containment to earned premium was 70.78.
- CNA Insurance: It has a market share of 5.79%. During 2019, it had an underwritten direct premium worth $559million and earned a direct premium worth $550 million, which indicates stable growing direct growth. The ratio of direct loss to earned premium was 59.45 and that of direct loss and defense and cost containment to earned premium was 70.78.
- Proassurance: It has a market share of 5.07%. During 2019, it had an underwritten direct premium worth $490million and earned a direct premium worth $489 million. The ratio of direct loss to earned premium was 61.99 and that of direct loss and defense and cost containment to earned premium was 103.76, which means that the company is incurring operational losses (since the ratio is greater than 100).
- Coverys: It has a market share of 5.05%. During 2019, it had an underwritten direct premium worth $488million and earned a direct premium worth $476 million. The ratio of direct loss to earned premium was 62.07 and that of direct loss and defense and cost containment to earned premium was 87.50, which is on the slightly higher side and can be a warning signal.
Need of Malpractice Insurance
Given the nature of medical service, grave risks are an inherent part of a medical practitioner’s life and so these professionals need professional liability insurance. In fact, an average US doctor is expected to face a malpractice charge once every seven years. According to some studies, there has been a significant increase in the number of diagnostic errors in the US resulting in the death of c.250,000 patients every year itself. Consequently, lawsuits against diagnostic errors and medical negligence have also increased and it is believed that c.17,000 lawsuits are filed every year in the US. These facts underline the need of malpractice insurance for the healthcare professional.
However, it should to be noted that medical professionals working for federal agencies don’t needs malpractice insurance as they covered under the self-insurance policy of the federal government. In some cases, the state or local governments provide liability protection for healthcare professionals.
Some of the major advantages of malpractice insurance are as follows:
- It is used as a risk transfer mechanism, even in cases where the lawsuit is fake.
- It helps in protecting the medical expert’s reputation in society.
Some of the major disadvantages of malpractice insurance are as follows:
- This type of policies may result in an increased number of cases of medical negligence or fake lawsuits.
- In some cases, policy exclusions can be very strict.
So, it can be seen that malpractice insurance is a form of professional liability insurance that helps medical professionals settle claim brought against them by patients due to medical negligence. However, the amount of claim under each policy is defined by the limits prescribed in the policy.
This is a guide to Malpractice Insurance. Here we also discuss the introduction and types of malpractice insurance along with advantages and disadvantages. You may also have a look at the following articles to learn more –