By Paul DeFronzo, CPA, MBA
Q: Why is my liability insurer’s financial health important?
At the end of the day, you expect your medical malpractice insurer to be there for you when you need them. Evaluating the financial health of your insurer will help you determine if they are likely to be there to support you through a malpractice claim.
Q: How can I assess a medical malpractice insurer’s financial health?
Consider whether your insurer has:
Q: Why is it important for my insurer to have a large surplus?
- A large surplus. Surplus is equivalent to equity in insurance-speak. It is like equity in your home. When the value in your home exceeds what is owed in the form of a mortgage, you have equity. The larger the surplus the better. Companies with a large surplus are better able to adapt to the ever-changing dynamics of the healthcare environment, withstand challenging business cycles, and develop new products and services without reneging on these services when they run into problems.
- Consistent income generation. The ability to consistently generate income year after year is another good indicator of financial health. If your insurer has losses in multiple years, this detracts from its equity, which can affect whether they can pay their bills—and your malpractice claims.
- Stable investment philosophy. You want a company that does not have high-risk assets or a history of making bad investments. A company that invests in secure fixed income securities such as government debt or safe corporate debt should be at the core of any insurance company investment philosophy. Ask your state’s insurance department for financial information on your insurer to determine how it invests your premium dollars.
- Longevity. Has your insurance company stood the test of time through many business cycles? A company with more than 30 years in the medical professional liability market has proven its ability to withstand market cycles and deliver services to its policyholders.
- High A.M. Best rating. A.M. Best is the preeminent rating agency for insurance companies. This rating provides an unbiased view of an insurance company’s operations and standing in the industry. Companies rated A (”Excellent”) are considered by A.M. Best to have “an excellent ability to meet their ongoing insurance obligations. Insurance carriers are not required to obtain an A.M. Best rating. However, most hospitals require physicians be insured by a company with an A.M. Best rating of A- or higher to grant hospital privileges. You can easily get the rating from your insurance company, normally on their website. More detail is often available through agents who subscribe to A.M. Best reports.
Unlike car or property insurance, medical policies are “long-tailed” in nature. For instance, if someone makes a claim years after treatment, the payout could happen far down the road and after the case makes its way through the court system. Your insurer must be financially healthy to stand the test of time and support you on a claim filed today with a final resolution years out. That’s why stability is so important.
Q: What do policyholders overlook when evaluating an insurer?
The medical professional liability landscape changes quickly, so it’s important to evaluate an insurer’s financial health in real time. What may have been relevant five years ago may not be today, especially for newer companies. Be sure to use the latest financial and ratings information available.
Q: How often should I look at my medical malpractice insurer’s financial health?
Every year. In today’s rapidly changing healthcare environment, it is important to review your insurer’s financial health before you renew your policy.
The information described is for general education purposes only and is in no way intended to serve as legal or financial advice. For advice on handling specific legal problems, always consult with an attorney.