Malpractice Tail Insurance is Largely Misunderstood
A malpractice insurer is obligated to offer tail insurance (normally valid for 30 days) after a claims-made policy is canceled or non-renewed. An occurrence-type policy automatically includes tail insurance, and the premium cost is roughly 3x higher or more for the extended coverage. Occurrence-type policies are typically used when the employment period is short such as temporary moonlighting. In this article, we will discuss the premium cost for tail insurance, possible alternative options, and how an employment contract can control the terms for purchasing tail insurance.
What is Medical Malpractice Tail Insurance?
Medical Malpractice Tail Insurance, also known as “tail coverage” or “extended reporting endorsement,” is an insurance policy that offers protection to physicians even after they have relocated or stopped practicing altogether. Upon eventual retirement, most insurers provide a “free tail” insurance benefit if their policy has been in force for a certain period. The current insurer will most often provide the quote for tail insurance. However, larger tail insurance premiums or group tail coverage may be negotiated with alternative insurers. A real example of this can be found on my website at Testimonials – Aviso Insurance.
When a medical professional retires, change specialties, or switches insurance providers, the standard medical malpractice policy usually comes to an end. This leaves them exposed to potential lawsuits for incidents that occurred during the period the original policy was in effect. This is where tail insurance steps in to fill the gap. If possible, it is beneficial to keep “retroactive coverage” (the original policy starting date) on future policies to avoid purchasing a tail policy. An independent agent can help you shop the insurance markets for potential savings. The new policy will keep your retroactive coverage so that tail insurance is not necessary.
How Does Tail Insurance Work?
Tail insurance is an extension of a physician’s current medical malpractice policy. When a physician decides to make a career transition or switch insurers, they typically need to notify their current carrier about the impending change. The insurance company then offers the option to purchase tail insurance, which covers the physician for any incidents that occurred during the previous policy’s term.
The coverage period of tail insurance can vary depending on the insurance policy and state regulations, but it commonly ranges from one to several years, or without expiration. It is crucial for physicians to carefully assess their needs and choose an appropriate tail insurance policy to ensure adequate protection.
How much does tail insurance typically cost?
The tail insurance premium is roughly 230% of an individual’s “mature premium rate” for their malpractice insurance coverage. There is no expiration date for tail insurance in the standard markets which accounts for this high premium cost. Therefore, keeping retroactive insurance coverage (avoiding tail insurance) is a much better option whenever this can be done. Surplus line insurers may offer tail insurance for one, three, or five years to lower the premium cost.
A “mature” malpractice insurance premium rate is achieved in the fifth year of a claims-made policy. The premium is step rated for the first 5 years until the risk and premium cost are considered mature. The following is a sample of this step-rate factor where the premium increases each year (more years add more risk) until the risk matures at Year 5.
Sample Claims-made Policy Premium Step-Rate Factor
Year 1 Premium Cost is 35% of the mature rate at Year 5
Year 2 Premium Cost is 60% of the mature rate at Year 5
Year 3 Premium Cost is 80% of the mature rate at Year 5
Year 4 Premium Cost is 92% of the mature rate at Year 5
Year 5 Premium Cost is at 100% and has reached a mature rate.
Who Needs Tail Insurance?
Physicians retiring, changing specialties, relocating to another state or country, or switching insurance providers should seriously consider purchasing tail insurance. Additionally, physicians who are moving from a claims-made policy to an occurrence-based policy should obtain tail insurance to cover the gap between the separate policies. The original contract offer of employment will include an “Insurance Clause” that makes clear how tail insurance is required when an employee chooses to leave the practice. Insurance agreements can vary and can be negotiated before the original employment agreement is signed. For example, will the employer pay the full premium cost or half the cost if the employee remains with the practice for a minimum of two years?
Conclusion
Medical Malpractice Tail Insurance serves as a crucial safety net for physicians, offering protection against potential future claims even after they have stopped practicing or changed their insurance carriers. If keeping retroactive coverage is not an option to avoid purchasing tail insurance, then being protected is crucial in either event. With the ever-changing nature of medical careers, it is vital for healthcare professionals to be aware of the importance of tail insurance and to consider purchasing it when transitioning in their careers. By investing in tail insurance, physicians can safeguard their professional reputations and focus on their patients without worrying about the uncertainty of past medical practice liabilities.
“At Aviso Insurance, we are proud to serve the many heroic professionals in our healthcare community.”
Aviso Insurance is an independent insurance agency that works for YOU, the medical professional. We have access to nearly all the medical malpractice insurance markets to serve you.
Dan Reale, Independent Agent/Owner – Telephone: (407) 808-6149
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