Understanding the Non-Standard Malpractice Insurance Market

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Has your malpractice insurance been declined or non-renewed? Not to worry. In today’s marketplace, there are coverage solutions for nearly every situation - whether it's rebuilding your practice after a licensure issue, recovering from several adverse claim events, or looking for insurance for unique types of practices and procedures. The non-standard malpractice market has more options than ever.

Standard Market vs. Non-Standard Market

Standard market insurance companies are admitted carriers, which means they must comply with rigorous rules and regulations set by the Department of Insurance (DOI). Their rates, business practices, advertisements and financial condition are closely monitored by the state and any changes must be reviewed by the DOI for approval. Standard market policyholders are protected against company insolvency through the state’s guaranty fund, which steps in to offer coverage in the event that a carrier becomes distressed or goes out of business. Standard market carriers generally have a traditional underwriting approach and they prefer to insure lower risk physicians and medical groups.

Non-standard market companies (also known as excess and surplus lines or E&S carriers) are not admitted and therefore are not subject to the same rules and regulations from the DOI. They can set their own rates, offer different terms, and take on business that standard market carriers may shy away from. Although their policyholders are not protected by the guaranty fund, most non-standard market carriers are financially stable and have the backing of reputable reinsurers. They offer physicians a wide variety of coverage solutions when they are not able to find insurance otherwise.

Reasons for the Non-Standard Market

A physician may need to obtain coverage through a non-standard market carrier for any of the following reasons:

·       Claim issues (too many or high payouts)

·       Licensure issues

·       Gap in insurance coverage

·       Alcohol/drug issues

·       High-risk procedures

·       Practicing in a high-risk area

How to Access the Non-Standard Market

In order to write a policy with a non-standard market carrier, a broker or agent will have to show “diligent effort” in placing the business in the standard market before they can access the secondary market. Usually this means obtaining at least 3 declinations in order to demonstrate to the non-standard carrier that the insured does not qualify for other insurance. The coverage that is issued through non-standard carriers is generally more limited in nature. For example, most non-standard carriers do not offer Occurrence coverage (only Claims-Made) and they typically have a hammer clause (the policyholder does not get consent to settle claims). Every carrier has slightly different policy provisions, so it is important to work with a knowledgeable malpractice agent to understand the differences between each coverage option.

Transitioning Back to the Standard Market

For most providers, coverage in the non-standard market is temporary and is seen as a “rehab” period while a provider gets back on their feet after an unfortunate event (a series of bad claims, a substance abuse issue, etc.). Most standard market carriers want to see at least 5 years with no claim activity and a demonstration of compliance before they are willing to reconsider a doctor for coverage. When a provider is able to transition back into the standard market, they will generally have to start over in their coverage; meaning they will have to obtain Occurrence coverage or a 1st Year Claims-Made policy – prior acts are usually not allowed. Expect to purchase tail coverage from the non-standard carrier that you were insured with before.  

The Importance of Using an Agent

For providers in the non-standard market, it is incredibly important to have a knowledgeable malpractice insurance agent working with you. Your agent can do the legwork to assess the market for you on an annual basis to determine what your real options are and obtain the necessary declinations, etc. to get you access to the non-standard market or renew your coverage. If/when it becomes possible for you to move out of the secondary market and back into the standard market, an agent can help ease the transition and help you find a suitable option for your new malpractice coverage going forward.