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When it comes to malpractice insurance, one of the most critical times for doctors is when they’re looking to CANCEL their insurance to make a significant change… perhaps you’re leaving your current employer and moving to a new group, or maybe your premium has been going up and you want to move to a new insurance carrier, or you just want to switch to a different type of coverage to better meet the needs of your growing practice.

Well, no matter the reason, when you’re getting ready make the switch you have some decisions to make – are you going to buy tail insurance? Or are you going to carry forward your prior acts?

Wait a minute… you may be thinking… I don’t even know what those things are. Well, today we’re going to talk about Tail Insurance vs. Prior Acts…. What’s the difference between the two and when does it make sense to go one direction vs. the other?

We’ll start our conversation with some general definitions… let’s start with Tail Insurance. This is a term that you’ve likely heard before… or maybe you’ve even had to buy one in the past.

So, what exactly is tail insurance?

Well, as the name implies… it’s insurance that covers your tail. Picture yourself leaving your practice and walking out the door for the last time… well, tail insurance covers your tail (basically everything you’re leaving behind) as you move on in the future.

When a doctor buys a Claims-Made malpractice policy, coverage is triggered based on when the claim is made again them. So, you must carry the insurance while you’re actively practicing, and then once you cancel, you must secure TAIL to have coverage for any claims that may be filed in the future for the patients that you treated all the way back to your policy retroactive date (which is the inception date of coverage for that particular policy).

Sometimes tail insurance is also called an Extended Reporting Endorsement, but most people just refer to it as tail coverage.

Your tail starts at your cancellation date and then it extends your coverage into the future for any claims that may be made against you later on.

Once you cancel your Claims-Made malpractice policy, your insurance carrier will give you an offer to buy tail. This is a 1-time offer that is only available for a short amount of time. Usually, you’ll have 30 to 60 days to purchase it, if desired.

Tail insurance generally costs 1.5 to 2 times your premium. So, if your premium was $15,000 per year, then you can expect your tail to cost around $30,000.

Tail insurance is a 1-time payment – so you only need to purchase it ONCE for a given policy. It’s not an ongoing cost. Once you buy the tail, it’s permanently in place and is available to cover you for any future filed claims for the patients that you treated in the past.

How does that compare to Prior Acts coverage?

Most malpractice insurance carriers offer prior acts or “nose” coverage, which allows healthcare providers to carry forward their current policy retroactive date – transferring liability to the new carrier for any potential claims for services rendered back to that original inception date.

Now, be sure to remember… By carrying forward your prior acts with a new insurance company, this does not NEGATE the need for tail, it simply defers it. You just don’t have to buy it right now.

If, after a few years, you find that you need to change your insurance again, you can simply repeat the process. You can request prior acts coverage again and again, all throughout your career… So, prior acts simply refers to covering your prior activities that were once insured by another company.

Prior acts only affect Claims-Made policies. Occurrence coverage does not need prior acts coverage, because of the nature of that insurance. Occurrence policies are triggered based on the occurrence date, so the insurance company that covered you at the time of the alleged incident is the company that will cover the claim – so there’s no need for prior acts protection.

Ok, so the question that I usually get from doctors at this point is – Alright, prior acts coverage sounds great, but it’s probably more expensive, right? Well, the answer is… not really.

If you remember back to our discussion of Claims-Made vs. Occurrence, Claims-Made premiums start at a low price and then increase in rate every year for approximately 5 years – until they’ve reached their “mature” price. Once the premium has matured, you’ll pay essentially the same price every year after that.

So, if you’re requesting prior acts coverage, you’ll simply lateral over to the equivalent price on the new carrier’s rate tables. So… if you’re carrying forward 3 years of prior acts, then you’ll pay the 3rd year Claims-Made premium with the new company. If you’re carrying forward 4 years of prior acts, then you’ll pay the 4th year Claims-Made premium with the new company. And if you’re bringing with you 5 or more years of retroactive exposure, then you’ll just pay the “mature” rate with the new carrier.

When it comes to prior acts or nose coverage, it doesn’t cost you any more than a normal policy would. The new carrier simply picks up the same retroactive date and charges you the equivalent price according to their rates.

Alright, so now you’ve got a good handle on tail insurance and prior acts. And you probably agree with me that prior acts is a much more affordable way to handle your coverage when you’re switching insurance companies… BUT, there are some instances when prior acts aren’t an option and you MUST obtain tail. So, let’s talk about those next.

There are 4 reasons why a doctor would need to get tail.

1. If coverage is no longer needed.

Perhaps you’re retiring, or you’re no longer going to be practicing on your own, or you’re going to be covered by a hospital or new employer’s program… In these instances, prior acts won’t be an option, so you’ll have to secure tail insurance after you cancel your policy.

2. It’s a requirement of your employment agreement.

For many healthcare providers, tail insurance must be purchased when you leave a practice as a way of “closing out” your time with them. Similarly, many NEW employers will want to make sure that you’ve tailed out with your old job before starting with them. So, make sure you know what you’re personally responsible for either coming or going as you transition between jobs.

3. If you’re switching to Occurrence coverage.

Sometimes doctors will start out on a Claims-Made policy because it’s more affordable, but later on they want to move to the Occurrence form. You’re welcome to make this switch at any time, but just be aware that you’ll need to purchase your tail to close out your old Claims-Made policy BEFORE you can move to an Occurrence policy.

4. If your risk has changed significantly.

If you were previously insured for work as an OB/GYN and now you’re only doing office gynecology, the new insurance carrier may not want to pick up your prior acts because that exposure is a higher risk than what they’ll be covering for you going forward.

Sometimes this also happens when a provider is relocating. If you’re moving from a higher risk area to a lower risk area (let’s say you’re moving from New York City to Tucson, AZ), the insurance carrier may not want to pick up prior acts from that higher rated area – or an area that they don’t generally cover.

If you’re moving to or from a Fund State (such as Indiana, Pennsylvania, Wisconsin, Kansas, etc.) the intricacies of those states may make it difficult for an underwriter to approve any prior acts coverage. So, if you’re relocating from a fund state or moving INTO a fund state, chances are you will not be able to continue your prior acts coverage and must buy tail.

This can be a lot for a doctor to remember, but don’t worry… a knowledgeable malpractice insurance agent can help you navigate the situation. And if you don’t have an agent, we’re here to help.

Published On: March 20, 2024
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