The Dangers of Claims-Made Policies

During the peak of the medical malpractice insurance crisis when several large insurance carriers began to report losses for failing to properly reserve for claims most insurance companies began to change the type of policy they offered physicians in New Jersey. In fact, many companies only offer the claims-made policy to new policyholders, and because most physicians rely only on what their agent or broker advises them many physicians have switched to the claims-made policies. This has caused major problems for many doctors in New Jersey.

The difference between the claims-made policy and the occurrence-type policy is the reporting period that a physician has to report claims to the insurance carrier. A
claims-made policy will cover an insured only if the incident occurred and is reported while he or she is insured with the carrier. If a physician is insured on a claims-made policy and decides to leave his or her carrier, they will have the option of purchasing an expensive tail, which usually costs between 167% and 300% of what the physician paid the year before they leave the carrier, or face the choice of going without insurance coverage for the years they were insured on the claims-made policy. In contrast, a traditional policy – termed the ”occurrence-type policy” will cover any incidents that occurred while the insured was with the carrier, even if the incident is reported after the physician leaves the carrier.

Many agents tell physicians that the cost of the claims-made and occurrence-type policies are essentially the same, and it is just a matter of paying for the tail now or later. This is very misleading and has been the cause of frustration for a growing number of New Jersey physicians. In fact, many groups are being forced out of business or take a 5 year loan on the corporation to simply fund their tail with the claims made policy.

It is true that the first year of a claims-made policy is less expensive than the occurrence-type policy, but with step-up factors and rate increases, in many instances the claims-made and occurrence-type policies cost the same by the third year, but keep in mind the claims-made policy does not include the expensive tail coverage.

Many physicians think that they will receive a free tail if they are insured with the same carrier for 5 years, but do not realize that they have to be at least 55, 60, or 65
years old, depending on the carrier, and must completely retire from the practice of medicine when they are non-renewed, cancelled or their insurance carrier decides to leave the State of New Jersey. Most importantly, the decision to stay with an insurance carrier for 5 consecutive years is not a unilateral decision by the physician. A growing number of physicians in New Jersey have been recently non-renewed by their insurance company with only 60 days notice, and they are being forced to either purchase a costly tail or go without any insurance.

There is hope for New Jersey physicians wish to leave their restrictive and costly claims-made policies. NJ PURE now offers a limited prior acts coverage in order to enable doctors to escape the claims-made policies and join NJ PURE which offers the traditional occurrence-type policies to new and renewing physicians.

NJ PURE is the only medical malpractice insurance carrier in NJ that does employ the use of agents or brokers, therefore the only way to obtain a rate indication from NJ PURE is by calling them directly at 877-2NJ-PURE or visiting www.njpure.com

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