Claims-Made or Occurrence? The Money or the Box?

“Switch your insurance to us and save on premiums”! Insurance companies commonly make this promise as they attempt to attract new customers. Usually, this form of marketing is found in consumer insurance products like home, car, or life insurance. Yet some doctors in Singapore have recently received the same type of offer if they agree to switch their Medical Malpractice Insurance from occurrence to claims-made indemnity.

Should doctors accept such an offer?

I should first declare my stake in this game. Howden provides malpractice insurance on an occurrence basis to individual doctors in Singapore. (Oh, by the way, switching to Howden would indeed save you on premiums!)  However, my intention today is to offer those doctors who have received an invitation to switch to claims-made cover my perspective on whether they should “take the money”.

To begin, let’s try to understand why an insurer might make such an offer. Occurrence-based insurance policies have been around for hundreds of years and are a tried and tested form of protection. You purchase a policy for a year and are then covered for any claims that might arise from treatment you provided during that year no matter how it might take for the claims to emerge. The simplicity and effectiveness of this type of cover has made it the preferred form of protection for Singapore doctors in private practice. 

Whilst it is ideal for individual doctors, occurrence-based cover presents problems for the companies that offer it. Imagine for a moment that you are an insurer providing an annual occurrence-based Medical Malpractice Insurance policy to a doctor in Singapore. At the end of the year, how do you decide if you made a profit or not? The answer is that you have no way of knowing. You will need to wait and see if future claims emerge from that year of treatment, and if the insured doctor is dealing with children or infants then your wait can be as long as 24 years! If you have ever wondered why Howden is virtually the only provider of occurrence-based indemnity for obstetricians, now you know.

Insurers who offer occurrence-based policies must estimate the amount of money to be set aside to pay these future claims, a task that falls to actuaries. Given that the cost of malpractice claims increases over time in line with medical inflation and other trends, the process of estimating the future value is complex. It is also an enormous weight on the provider’s balance sheet. 

Consider next an insurer offering claims-made insurance policies. Such policies do not focus on the timing of the treatment but are instead triggered by the timing of the complaint or claim. If a doctor performs a procedure in 2019 and receives an allegation of negligence in 2021, it is the 2021 policy that responds to the claim. What this means is that at the end of a policy year the insurer does not need to hold the policy open for future claims – they only need to create reserves for those claims reported during the year.  This reduces dramatically the expected future claims amount on the insurer’s balance sheet.

So it is clear that claims-made policies offer benefits to insurers. What, then do these policies offer to the individual doctors?

Well, claims-made protection is usually cheaper than occurrence-based protection.  When you consider the financial burden that accounting for occurrence-based protection creates, it is not hard to understand why insurers would apply more competitive pricing to claims-made policies.

Unfortunately, that is pretty much where the benefits for the individual doctor ends. On the other hand, there are some disadvantages of claims-made policies that also need to be considered.

The first problem is the reporting requirements. Claims-made policies require that all claims and even incidents that might give rise to claims must be reported to insurers before the end of the policy year. To fail to do so is to lose your right to cover(!) Based on recent events in Singapore, you could argue that every time a patient suffered a reaction to a H&L injection the insurer would need to be formally notified. This places a considerable responsibility on doctors’ shoulders, and the implications of failure could include facing a malpractice claim unprotected.

The second problem is the need to purchase run-off insurance. As claims-made protection does not extend beyond the period of cover, it follows that doctors who retire, stop practising, or change careers must continue to purchase cover for protection against future claims. The cost and availability of run-off cover is subject to normal market forces, and this risk that must be balanced against the savings that claims-made protection offers.

As an insurance broker, my primary responsibility is to protect my insured doctors from the impact of malpractice claims. Nobody wants to pay any more than necessary for that protection, but finding the best possible price only becomes a consideration once the appropriate form of protection has been identified. Claims-made indemnity for doctors offers premium savings, but at the expense of more onerous reporting requirements and diminished certainty of future cover. 

That is a deal that I cannot recommend.

Mike Griffiths
Regional Director, Healthcare