Elements of Malpractice - Insurance

2. Elements of Malpractice - Insurance • Coverage for negligent acts or allegations of malpractice • Individual physician limits • Medical Board hearing coverage • This policy provides the same coverage as any other good medical malpractice insurance

3. Elements of Malpractice - Service • Ability to add physicians without immediate charge • Group underwriting rather than individual underwriting – no second guess of hires • Grandfathered free tail • Dedicated claims handling • Risk Management Services

4. Elements of Malpractice - Financial • Financially this is very different from traditional medical malpractice • Uses a Self-Insured Retention (SIR) which works differently than a deductible • Uses an Aggregate Retention • Gives financial control to the group without taking away coverage

5. Differences • We always view the group as a group and not as an association of individual physicians. • Under this plan the group is insured, with each individual physician having their own individual limit of insurance. • With one insurance policy. • We underwrite the management, not the individual physician.

6. Goals of the Malpractice Program • Reduce the cost of physician’s malpractice insurance. • Provide exemplary service by simplifying the process and insuring the group. • Use fluctuating market conditions to the financial benefit of the group. • Align financial incentives to improve malpractice loss experience and further reduce premium.

7. Basic Principle Number 1 • It makes no sense to trade premium dollars with an insurance company. Do not give money to an insurance company to pay claims that are, statistically, likely to happen. • Any insurance company will want more money coming in than going out, so the premium will be greater than the amount of the likely claims.

8. Basic Principle Number 2 • The first dollar of insurance protection costs the most. The final dollar of limit costs the least. • The insurance company knows that it will probably pay out the first $1.00 of premium it collects to settle claims. Therefore it will charge much more than $1.00 for that first $1.00 of protection. • With every additional dollar collected in premium the insurance company is less likely to have to use it to settle claims.

9. Basic Principle Number 3 • The malpractice market changes. Sometimes premiums are high relative to risk, sometimes low. When premiums are high – increase the amount of risk you retain. When premiums are low – when insurance companies are willing to “buy” claims – let them.

10. Basic Principle Number 4 Claims have two parts: • Claims management and litigation management – requires a professional to handle the claims and includes legal representation. • Claims payment –requires the ability to write checks.

11. Typical Deductible Program • The typical physician malpractice deductible program has a per-claim deductible. • For instance: with a $1,000,000/$3,000,000 policy, and a $50,000 deductible. The policyholder would pay the first $50,000 of each and every claim. • Some policies have an “aggregate deductible.” At $2,000,000, for instance, this means that the total of all the individual claim deductibles could not exceed $2,000,000 out of pocket in one year.

12. The first step is determining the anticipated annual loss level for the group. We suggest the use of an actuarial firm much as Milliman. For the purposes of this presentation we’ve assumed that the anticipated annual loss level, after trending and development, is $1,000,000. Anticipated Annual Loss Level

13. Self Insured Retention • If the anticipated annual losses are $1,000,000 we will suggest a $1,000,000 SIR (Self Insured Retention). • The group needs to be able to pay those claims when they are presented. • The group pays the first $1,000,000 of claims and claims expenses – regardless of the source.

14. Hudson Specialty • Hudson Specialty Insurance, in exchange for premium (which is much less than the cost of first dollar insurance) pays all claims and expenses over the $1,000,000 annually up to the individual policy limits. • Hudson provides each individual physician with either a $1,000,000/$3,000,000 or $2,000,000/$5,000,000 limit. • Or a combination of limits within the same group depending on specialty. • Hudson Specialty also handles all claims management in consultation with the group.

15. What Happens to the Money? What happens if the group doesn’t use the entire $1,000,000 to pay claims? The group keeps the money, and interest.

16. Physician Incentives and Loss Control • Having physician money at risk and having the opportunity to keep money that is not used for claims has proven to be a tremendous incentive to active claims and loss control management.

17. Premiums and Adding or Deleting Physicians • Premiums are paid annually with some financing available on the entire group. • Under certain circumstances the option is available to add or delete a certain number of physicians each year without a premium charge.

18. It is possible to “grandfather” physicians that have earned free retirement tail with another insurer. Tail coverage can be done on an individual physician or “departed physician” basis. Subject to the SIR or first dollar. Retirement tail is available after age 55 and 1 year with Hudson, if the physician completely retires from the practice of medicine. Tail Coverage

19. Service • Certificates can be provided on each physician within 48 hours because the group is insured. • If the group’s credentialing process is approved – additional physicians can be added without underwriting or applications. • Quarterly reports are provided to the group showing all activity (physicians added, terminated, locums, etc.), current rosters, and latest loss runs. • There is a tremendous amount of flexibility in the program that allows for a sense of group ownership.

20. Next Steps • Written approval to work with the interested groups and Hudson Specialty. • Information collecting. • Past loss information • Actuarial analysis • Physician Rosters • Entity Application • Options that include the interested groups or the association.