How Physicians Can Select the Right Insurer for the Long-term

In reflecting on the insurance marketplace for physicians, I keep thinking of all these old sayings that seem so very appropriate for the market today. For instance, remember, “If something sounds too good to be true, it probably is?” In tough economic times, it’s tempting to forget that age-old truism, especially if the “good” comes from an organization or entity we have historically trusted.

But in today’s insurance marketplace, things are changing. There are mergers and acquisitions as well as prolonged economic turmoil. In many cases, once highly established insurers are struggling financially and have experienced reductions in their ratings, some dropping from A+ to B or even lower. These ratings are critical for physicians to understand, as they indicate financial strength and long-term stability.

What’s more, because the marketplace today is “soft” and becoming increasingly more competitive, carriers are being especially aggressive with their pricing - perhaps dangerously so - to attract new clients. In addition, some companies are so desperate to write new business they have lost focus on disciplined underwriting practices, pricing policies too low to actually cover the risks involved.

The result? To quote another age-old axiom, “buyer beware.” The risk is obvious. If you have a claim, the carrier may not be around to provide the financial protection they’ve promised. The onus is now on physicians and their brokers to make sure they avoid being tempted by the low-cost leader “of the moment” and to ensure they always consider the strength and stability of their medical liability and disability insurance carrier. These two coverages in particular have “long tail” exposures that require long-term insurer financial strength.

Consider this: If a 45-year-old surgeon becomes disabled, he or she will expect to have their income replaced until they are 65 - for 20 years. However, if the insurer goes belly-up, they’ll never see 100 percent of the benefit payments they have paid premium for or planned to receive. Assuming a basic $10,000 per month disability benefit, this would be $2.4 million in benefit payments owed to the physician.

If you are paying premium every month, you need to make sure your insurer will be there for the long run. The problem is we all sometimes become complacent - whether we’re physicians buying insurance or brokers advising physicians. We assume the big name carriers are stable. In today’s market, we can’t always make that assumption.

If this sounds a bit alarmist, it’s for good reason. A few years ago I had a very large book of business with a large well-known insurance carrier that went out of business with no notice at all. It was a shock to all of us, especially the physicians we covered. Fortunately, I was able to find replacement coverages, but it was challenging to say the least. I’ve now lived through that scenario twice, and to quote yet another saying, “once bitten, twice shy.”

What can you do if you are concerned? If you don’t know exactly who covers you and what you are paying, take a few minutes to find out.

• Look at the carrier covering you. What are their financial ratings? How long have they been in business? Ask your broker or consultant if they have a reputation for strong underwriting and experienced claims management - for your type of risk -specifically, physicians.

• Check the history of the carrier; it may not be a name you’ve heard every day, but if the company has been in business for many years - and survived past volatile industry cycles - chances are, they will survive this one too.

• Make sure you look at your own coverages and ensure they are up-to-date and meeting your needs today. For example, perhaps you’ve decided to retire earlier than expected, adjust your medical specialty, or to sell the practice. Ask your broker how that may impact your insurance portfolio and if adjustments need to be made.

Keep in mind that because of the long-term obligations of insurers, the only assurances you have for security is with A+-or-better rated companies. Maybe more importantly, frequently check these ratings to make sure they remain strong. If not - unless you’ve had a major claim within the past 3 years to 5 years - you are likely better off moving to a more stable carrier.

I’m not suggesting that you disregard pricing - not at all! You should benefit from a softer market and resulting price decreases. Just be sure that the focus remains on the best carrier (e.g., strength, stability, longevity, expertise), offering the best price.

I shared my “horror story” of an insurer gone belly-up. I wonder if any of you physicians have been in that same situation and what you did. In a future blog, I’ll share some real world advice from physicians and what they did to ensure they had a strong risk management program.

Find out more about Jeffrey Brunken and our other Practice Notes bloggers.