Cheap Medical Malpractice Insurance: The Costly Consequences of Low Premiums & Discount Carriers

When physicians opt for cheap medical malpractice insurance from financially weak carriers, they expose themselves to a high risk of lost coverage and financial devastation from uncovered or denied claims. Given that one-third of all physicians will be named in a malpractice suit at some point in their careers, discount coverage is not a worthy gamble, no matter the rate.

At a concerning pace, poorly funded carriers and Risk Retention Groups (RRG) are growing in popularity nationwide, appealing to doctors as they search for ways to minimize operating costs. My client in Florida, for instance, recently applied through a low-funded RRG and received a $25,000/year policy quote. At less than half of his annual premium from a reputable carrier, this cheaper policy will significantly cut his expenses, but at what price?

As a business owner, I can empathize with the temptation to bargain hunt. Still, as a professional liability broker, I strongly caution physicians against sacrificing quality for short-term financial gain.

In this article, I aim to demonstrate the unnecessary risks and pitfalls of inferior coverage and highlight the contrasting value of an adequately underwritten policy from a financially stable carrier. Keep reading for a case study about a neurosurgeon and his million-dollar lesson on clearance-bin carriers.

Often climbing into multiple tens of thousands, medical malpractice premiums represent a significant line item in a physician’s operating budget, underscoring the irresistible appeal of cheap policies that promise:

• Immediate Cash Savings
  RRGs and other non-traditional or discount insurance companies offer low-rate premiums, severely undercutting standard carriers by 20-50%.
• Fast & Easy Enrollment
  With minimal underwriting requirements, discount carriers expedite enrollment by rushing through claims history and risk overview.

These short-term benefits often come at the expense of financial security and comprehensive coverage, leading to a cascade of issues such as:

• Generic Underwriting
  When rushed, the underwriting process fails to accurately capture your unique risk profile, allowing you to make claims based on uncertainty.
  Another consequence is unexpected rate spikes or non-renewals, likely once the carrier recognizes any misalignment between a low rate and a high-risk profile.
• Minimal Coverage
  Though your general practice may be covered, the fine print of a low-rate policy often contains exclusions for high-risk procedures or any treatments that extend beyond the strictest definition of your primary specialty.
• No Control Over Settlements
  Because settling a claim is usually cheaper for the carrier, financially weak companies typically avoid a consent-to-settle clause requiring them to obtain physician approval before a settlement offer.
  Without this clause, the carrier maintains full autonomy. It can settle a claim regardless of your personal preference or professional concerns about the settlement’s potential impact on your reputation and future insurability.
• Limited Defense Funds
  A malpractice policy either designates a separate limit for defense fees or includes defense fees as part of the professional liability limits. Financially weak carriers usually choose the latter to protect their assets. This drastically reduces the funding potential for lengthy legal battles, compensatory damages, and settlements.

With law firm rates steadily increasing yearly, limited defense funding poses a significant threat to undercovered physicians, exposing them to personal liability for out-of-pocket legal expenses and/or plaintiff awards.