An Allied Health practitioner who has prescriptive, diagnostic, or simple practice authority without being subject to a physician’s supervision can engage in a truly independent practice; that might be as a sole practitioner, an independent contractor to one or more providers, groups, or systems, in a group setting with similarly situated professionals, or operating their own business. Some of the professionals who most frequently find themselves in this situation are chiropractors, dentists, nurse anesthetists, nurse midwives, nurse practitioners, optometrists, pharmacists, physical therapists, physician assistants, podiatrists, and psychologists. The increased earning potential and work freedom that comes with these practices also comes with an increase in responsibility. One such responsibility involves satisfying requirements by payors and practice settings for adequate malpractice insurance.
Malpractice coverage for Allied Health practitioners is readily available and affordable for students and for employed individuals. Several specialty producers offer it, often in an affiliation with a professional association that has meaning to that individual. However, when practicing on their own after graduation, the necessary insurance – which may include additional insured or other requirements – is sometimes more challenging to find. This is especially the case where their practice characteristics or history diverge from what underwriters consider normal for their profession. These situations present an opportunity for brokers to use their creativity, expertise, and relationship skills to provide a consultative, customized solution to the provider in this circumstance. The absence of a skilled professional liability practitioner assisting the provider could result in the provider leaving practice entirely.
In the ideal world, a broker faced with this sort of challenge would market the risk to carriers well-known to have an appetite for individual Allied Health practitioner risks, identify the salient features and prices of the responding markets and present their findings and recommendation to the client who would then be able to congratulate their broker on the excellent variety of options and the informative summary.
Unfortunately, expectations in this regard do not always match reality. Let’s look at the process to see where issues arise. The first task in any placement is evaluating the risk in question with respect to the available market mechanisms and determining how it fits with each. Broadly, market mechanisms are characterized as belonging to one of the following groups.
- Standard: This category represents commercial carriers or other participants who intend to provide coverage to as many members of a profession with their individual purviews as possible; they are the mechanism by which most risks obtain coverage. Appetite is, however, limited to risks in the lower to moderate hazard portion of a space. In addition to those specializing in Allied Health providers, standard physician carriers would be considered to be in this category as well. The carriers in this space are what typically come to mind when considering the Allied Health provider marketplace. While these participants do an admirable job of serving a great many providers, it can be difficult to market a specific individual risk to them.
- Non-Standard: These participants specialize in covering more complex risks, which fall outside of a standard market appetite. Usually, such carriers will provide coverage at pricing, terms, and conditions very favorable to the participant and somewhat less so with respect to the insured. As these carriers specialize in complex, outsized risks, it can be challenging to attract interest and service for smaller premium items, such as individual Allied Health providers.
- Residual: The residual category constitutes governmentally organized and/or sponsored entities which exist for the purpose of maintaining availability and (sometimes) affordability of coverage. These mechanisms are common where a state government enforces a requirement for coverage. Common examples are AIPSO (automobile), FAIR (property), and SIF (workers’ compensation) mechanisms. Usually, risks within the mechanism’s mandate are automatically eligible, and coverage is designed to meet minimum requirements and rates are moderated to maintain some degree of affordability.
- Uninsurance: From the standpoint of not just professional liability practitioners but society, this is an undesirable mechanism. It is, however, regrettably common.
Likewise, the accuracy of risk/mechanism match can be expressed with a small number of possible states:
- Perfect (P): This is an ideal pairing. The desires of both parties are met without qualification.
- Adequate (A): This state represents situations where pairings exist and are imperfect but exhibit moderate inaccuracy.
- Inadequate (I): This state represents situations where pairings exist, but they exhibit significant inaccuracy. Typical examples of such from a broker perspective are inappropriate pricing, undesirable and/or inadequate terms or overly restricted access. Typical inaccuracies observed from the perspective of an underwriter are risks outside of underwriting appetite, those without a classification and underpriced risks.
- Not available (N): There is either not an actual match between the mechanism and the risk, or there is an effective lack of match – for instance if the necessary pricing is below what is practical for an underwriter to work on a risk will not be serviced while other higher value risks exist.
Finally, risks can be grouped into some broad categories for the purpose of mechanism matching:
- Acceptable: These types of risks are broadly accepted by all available mechanisms.
- Borderline: Individual members of mechanism (e.g., carriers) will have different reactions based on risk specifics.
- Unacceptable: Risks in this category are broadly unacceptable to voluntary mechanisms.
- Mispriced: These risks possess characteristics which result in them being inaccurately priced by the marketplace.
Rendering the above into a matrix shows the following combinations.
As we can see, many of the combinations produce less than desirable results. Further, even this state is achieved only where there is a qualifying residual market. Within the context of the Allied Health professional liability marketplace this is rarely the case. Few states require these professionals to obtain their own coverage and, even where a residual market for medical malpractice is in place, the residual market is not always obligated to provide coverage to all individual Allied Health providers. Updating the table to reflect the reality of the lack of residual market mechanisms for most providers would produce the following:
This result is a lack of acceptable matches for risks falling into the Unacceptable category. Without a proper coverage source, practitioners in this category may be forced to do without their own professional liability insurance, which has the effect of preventing them from independent practice. Some may decide the best alternative is to exit professional practice altogether.
How can we resolve this? Let’s imagine there is an additional category of market participant, which I would term “Dedicated,” to resolve this imbalance. As a mechanism category, “Dedicated” would encompass some key attributes:
- Pricing expertise, so that premiums are adequate but not excessive, for qualifying risks.
- Broad eligibility criteria within the overarching Allied Health umbrella, so that few – if any – risks that fit the definition would fail to qualify.
Adding this to our table, we can achieve an expanded result set:
So, with the availability of “Dedicated” markets, the process of identifying and marketing these risks becomes much more fruitful. What then of identification of features and prices of the respondents?
Thankfully, here the answer is easier. The basic principles of coverage review, and assessment do not change for this type of risk. Since this discussion relates to independent providers, we should realize that there will typically be a requirement that some type of contractual coverage be provided to the requiring entity, whether that entity is a practice facility (e.g., clinic, hospital, etc.), payor (e.g., Medicare, or private insurer), or other entity. It is important then to highlight the availability (or lack thereof) of this feature in a coverage comparison.
Likewise, pricing comparisons are no different for this group of risks than any other. Of note, however, is the unusual situation that some carriers, especially in the Standard mechanism model, offer both claims-made and occurrence coverage for many risks. As a result, it becomes important to be able to describe the difference between the claims-made and occurrence pricing structures, where claims-made appears more attractive than occurrence at first glance. The advantage should disappear once the cost of an extended reporting period (ERP) or “tail” is amortized over a relevant period. Below is a fictional example of how this can be presented to make the true costs apparent.
|Year 1 (Step “0”)||Year 2 (Step “1”)||Year 3 (Step “2”)||Year 4 (Step “3”)||Year 5 (Step “5”, “Mature”)||ERP (“Tail”)||Total Five-Year Cost|
Naturally, the specifics of an actual placement will be different, but in general the pricing of claims-made and occurrence should converge over time, once the cost of ending the claims-made policy series is included.
We are all fortunate to have a diverse and vital world of Allied Health providers helping us. As independent professionals and small business owners, they sometimes need the help of dedicated insurance professionals, like the members of PLUS. I hope this helps show how providing that help can be a rewarding and productive experience.
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