Navigating Medical Malpractice Insurance: Expert Insights and Strategies for Effectively Managing Risk

If you’re a leader in the healthcare industry, understanding the intricacies of medical malpractice insurance is crucial to the success and sustainability of your organization. While your primary focus is undoubtedly the safety and care of your patients, choosing the right medical malpractice protection can significantly impact your bottom line. The right coverage can mean the difference between financial stability and substantial losses. Therefore, someone in your organization must become an expert in the business aspects of running your practice—and they likely have questions. 

In this article, we will discuss insurance as a form of capital and how liability exposure can be managed with internal sources of capital. We want to help you better understand all the possibilities for protecting your practice — and which one might be best for you.  

Capital Management and Risk Mitigation 

A key consideration when examining your capital management options is how much risk your organization is willing to retain. 

The illustration below shows the range of risk transfer options, from full insurance coverage (where the insurer takes on the most risk) to a self-insurance model (where your organization retains the most risk).  Factors like access to capital, the cost of that capital, and your organization’s risk tolerance will help guide the decision toward the best insurance structure for your needs. 

First Dollar Coverage

For organizations that want to transfer most of their financial risks to an insurance company, a guaranteed cost policy offers the most comprehensive coverage. This means that all potential claim costs that are within policy limits are covered by the insurance company. The insurance company also handles everything related to the claims process, including legal representation, if a case goes to court. 

Policy with a Deductible 

For organizations that are large enough and comfortable taking on some of the risk, a policy with a deductible can be a good option. This type of policy provides similar services to first-dollar coverage, but the organization agrees to reimburse the insurance company for a predetermined amount of each insurance payment. This reduces the upfront premium cost, but the organization must be prepared to cover the initial portion of any claims. 

Self-Insured Retention (SIR) 

An SIR program is suitable for larger organizations that want to manage their own insurance risks. This requires the creation of an in-house or contracted claims department, as well as additional financial planning to fund expected losses. Commercial insurance or reinsurance can be used to protect against large losses by providing additional coverage beyond the organization's self-insured retention. 

Protected Cell Captive 

As healthcare systems grow, they might consider creating their own insurance company. A good first step is partnering with a subject matter expert like MagMutual that offers a "protected cell captive," which allows the organization to set up a captive insurance company without starting from scratch. This may provide a ready-made solution but comes with fees and capital requirements. Additional insurance can be purchased to reduce the amount of capital needed to cover risks.  

Single Parent Captive 

For healthcare systems ready to create a stand-alone insurance company to manage their insurance risks, setting up a captive insurance company is an option.  (The protected cell captive generally also requires the creation of a separate legal entity). This company will need approval and regulation from the authorities. There are initial and ongoing costs for setting up and maintaining this company, which can be many times more than those associated with Protected Cell Captives. These costs include administration, legal, claims, accounting, audit and actuarial services. Additional insurance can be used to minimize the capital needed to meet regulatory requirements. Specialist companies like MagMutual can act as consulting partners to evaluate and provide this reinsurance. 

MagMutual as a Trusted Partner 

Navigating the complexities of insurance options can be challenging, but at MagMutual we are committed to guiding you every step of the way. In the coming weeks, we will be publishing a series of in-depth articles exploring each of these insurance solutions to help you make informed decisions. Our team of experts is always available to answer your questions and provide personalized advice. Reach out to Kevin Carnell at [email protected] or Johnathan Brutlag at [email protected] to learn more about how MagMutual can support your organization's insurance needs.