How Malpractice Premiums are Calculated

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Medical malpractice insurance premiums are determined by a variety of factors. Each carrier has their own unique set of underwriting guidelines that dictate how to appropriately rate a risk. Premiums are generally calculated by determining the base rate (sometimes referred to as the manual rate) and then the price is either credited or debited to account for special risk factors.

To determine the base rate, malpractice insurance carriers generally look at the following information:

Specialty – Your specialty will be one of the biggest factors in determining your malpractice premium. Underwriters will look at your training, practice experience, and the procedures that you will be performing to determine the appropriate rate.  Most specialties have additional classifications to further refine the rate, based on the type of work that you’re doing.  For example, a Family Practice doctor could be rated as “No Surgery”, “Minor Surgery”, or “Major Surgery – Including Obstetrics”, depending on the carrier’s rating structure.

Area – The geographic area where you’ll be practicing will also have an affect on your malpractice premium.  Carriers use rating territories (usually state and county driven) to price coverage based on the claim experience in that particular location.  Larger metropolitan areas tend to be priced higher than more rural areas, but each state is different.  If you practice in more than one place, the underwriter will generally look at your percent of practice in each area to determine the appropriate amount to charge.

Policy Type – Claims-Made and Occurrence policies are priced differently, so your rate will be determined based on which type you choose.  If you are quoted a Claims-Made premium, the rate will also take into consideration any prior acts (or retroactive exposure) that the carrier may be picking up from a previous policy.   

Limits – The amount of coverage that you need will also affect the cost of the policy.  Generally speaking, the higher the limits, the higher the price.

Effective Date – The start date of coverage will also have an affect on the price, since rates can fluctuate year to year.  For example, if a carrier changes their rates on 7/1/2019, any policy with an effective date of 7/1/2019 or later will be priced at that new rate.

Once the base rate has been determined, the underwriter may apply credits or debits to modify the premium to more accurately price the exposure.  Key factors such as part time/full time status, number of years in practice, claim history, affiliation with societies/associations, board certification, etc. may be taken into consideration as the underwriter refines the price. 

Large groups can also be experience rated, which allows the underwriter to price their coverage based on that group’s loss experience as compared with the actual loss experience of similar risks in that segment.  Experience rating allows the underwriter to build the premium from the bottom up and is often a more accurate price, since it is unique to that group’s claim history.

When you compare quotes from carriers, be sure to look at all of the rating criteria to make sure it’s an apples-to-apples comparison.  As you can see, there are a variety of factors that may have an impact on your rate.  And if you need help with your assessment, contact a qualified Independent Insurance Agent to walk you through the options and help you find the coverage that’s the right fit for you.