Malpractice Insights #79 // 5 Reasons to pick Occurrence malpractice coverage
So, your malpractice agent has brought you quotes for both Occurrence and Claims-Made coverage options. How do you know which one is right for you? Let’s talk about why Occurrence coverage might be the right choice.
In the world of medical malpractice insurance, there are two types of policies that you can buy: Claims-Made and Occurrence. In order to make sure you’re setting yourself up for success down the road, it’s important to understand what makes these policies different.
The easiest way to remember the difference is this:
The name of the policy type describes how the coverage is triggered.
If you have an Occurrence policy, your malpractice coverage is triggered based on when the incident actually occurred.
If you have a Claims-Made policy, your malpractice coverage is triggered based on when the claim is made against you.
Occurrence coverage is the most flexible policy type available. With this type of insurance, you only need to carry the insurance while you’re actively practicing. When you’re done, you simply cancel the policy and walk away. There is no need for tail insurance with an Occurrence policy.
If a claim is filed later on for a patient that you treated during the years when you were covered under the Occurrence policy, that insurance will respond to cover you for the event.
Occurrence coverage tends to be a little more expensive on an annual basis, as compared to a fully mature Claims-Made policy, but because you don’t have to buy tail insurance at the end, the long-term cost difference is nearly identical. Occurrence premiums, though higher, are more stable and you can expect to pay roughly the same price for your policy year over year.
Now let’s look at Claims-Made coverage.
A provider who has Claims-Made coverage must carry the insurance while they are actively practicing, but once they cancel the policy, they must secure TAIL insurance. Tail covers a healthcare provider from their cancellation date into the future for any filed claims that may still be made against them for patients that they treated during the years when they were covered under the Claims-Made policy.
Claims-Made premiums start out at a low price in Year 1 and then the rate goes up every year for approximately 5 years, until it finally reaches the mature rate. After this time the price remains stable.
Tail insurance typically costs 1.5 to 2 times the mature premium, so when a provider is looking at the total cost for a Claims-Made policy, it’s important to look at the premiums you’ll be paying each year as well as the tail cost that you’ll be responsible for at the end.
Ok, so now let’s talk about why a healthcare provider might pick an Occurrence policy over a Claims-Made policy.
Reason #1: Flexibility
Since there’s no need for tail coverage it’s easier to start and stop these policies at any time. They’re great for independent contractors, locum tenens providers, or doctors who are doing short term assignments. They’re also good for doctors who just want to set it and forget it… and they don’t want to worry about tail down the road.
Occurrence is also a good choice for telemedicine providers because it’s easier to add or remove states to your coverage without the fear of having to buy tail if you make a significant change to your scope of practice.
Reason #2: More coverage for your premium dollar
With an occurrence policy, each year that you renew your coverage, you retain the previous year’s limits.
We often use an analogy of books on a book shelf to demonstrate how occurrence limits stack up and are accessible, as needed going forward. So if you have a claim for a procedure that you rendered in the year 2023, you simply access your 2023 occurrence policy and use that coverage to pay the claim. All of your other policy years remain fully intact. There’s no doubt that the Occurrence policy gives you more coverage in the long run and more value for your premium dollar.
Reason #3: It’s easier to budget for your future premium costs.
Occurrence premiums are relatively stable. It’s essentially the same price year over year. They don’t have that “step increase” that you see with the Claims-Made premium, where the rate starts low and increases year over year. Occurrence premiums, while a little more expensive, tend to be flat, so it’s easier to budget for the future and know what your out of pocket costs will be for your practice in the long-run.
Reason #4: It’s what you’ve always had.
For providers who have been insured on an occurrence policy for many years, they are comfortable with the coverage structure and they appreciate the benefits of the limits and the freedom from tail insurance. Since they’re used to occurrence, it’s their preferred policy type and these providers usually don’t want to switch to claims-made down the road.
Reason #5: Someone else is paying for it!
Yes, this is a pretty practical reason, but I mention it because if you are getting reimbursed for your malpractice costs or are receiving a stipend or money towards your premium, I’d highly recommend that you go with occurrence because you’re going to get more bang for your buck. If you had a claims-made policy and an employer or contractor was paying for your premium, you’d have to negotiate the terms of the tail at the end (essentially, who is going to be buying it)… so it’s cleaner and simpler if you go with occurrence coverage in instances where someone else is paying for your coverage.
There is no right or wrong type of malpractice insurance to buy – it just depends on your unique practice situation. If you’re not sure which policy type is right for you, contact a knowledgeable malpractice insurance agent for help and guidance.