Insurance and Resources for Dentists Practicing in Maryland and Washington DC

Practice Articles

Professional Liability Professional Liability Dentists Advantage Program Professional Liability National Society of Dental Practitioners  
Workers Compensation Insurance        

  Business Overhead Expense

Disability Income

Medical Expense Insurance Resources  
Home Contact Us       
         
 
 
 

 

INSTANT Health Quote     

                                      

 

 

Get a Quote

e

 

 

Pricing

 

Claims-Made policies will respond to claims made during the policy term.  The pricing reflects the probability of claims during the current policy period.

 

Occurrence policies will cover claims regardless of when made for services rendered during the policy period. 

 

Assumptions:                Level premiums for 10 years at $2,000 per year.  If the premiums change during the period the assumptions will change.

 

Claims-Made Pricing -

 

First Year:        Because the probability of a claim in the first year is small (claims-made the first year for services rendered that year) the premium is reduced. 

 

Second Year:  In the second year the risk increases to claims made in year 2 for services rendered in year one and two.

 

Third Year:       In the third year the risk increases to claims made in year 3 for services rendered in year one, two and three.

 

The step process increases to the sixth year, when the addition of another year of risk is offset by the reduction of risk for the first year.

 

Premiums would then remain level (barring an overall price increase or decrease).

 


 

 


 

The Tail

 

At the end of the coverage period all coverage stops.  Claims made after the termination of coverage are not covered because the policy is not in force.

 

To provide coverage after the termination of coverage the insured may be required to purchase an Extended Reporting Period Endorsement.  This endorsement will cost about $3,000 in the example above.

 

However, the insured may not be required to purchase the tail in the following events:

 

Death               The Tail is available at no cost

 

Total and          The Tail is available at no cost

Permanent

Disability

 

Retirement        The Tail is available at no cost but may require that the insured be a certain age ie 50, 55 or 60 and be insured by the company for a certain number of years ie 5 years 10 years.

 

 

 

Occurrence Pricing

 

Because an occurrence policy insures the services rendered during the policy period, the premiums are level (barring a premium change in later years).

 

At the end of the coverage period, the insured has no further obligation and is insured with no time limit for services rendered during the policy periods.

 


 

 

 


 

 


 

Which policy will cover a claim

 

Claims-Made

 

The policy in force at the time of the claim will respond.

 

 

Services Rendered in 1995

 

 

 

Claim Made in 1999.

 

 

 

 

 

 

The Claims Made policy in effect in 1999 covers the claim

 

 

1995

1996

1997

1998

1999

2000

2001

 

 

Occurrence

 

The policy in force when the services were rendered will respond to the claim.

 

 

Services Rendered in 1995

 

 

 

Claim Made in 1999. 

 

 

The Occurrence policy in effect 1995 covers the claim

 

 

 

 

 

 

1995

1996

1997

1998

1999

2000

2001

 

 

 


 

Advantages and Disadvantages

 

Claims-Made

 

Coverage, limits and terms are governed by the current policy.  This can be an advantage if terms are liberalized or a disadvantage if terms are made more restrictive.

 

Advantage Example.  If the insured has $100,000/$300,000 limits for the first 5 years and $1,000,000/$3,000,000 limits in years 6-10, and is sued in year 7 for $500,000 for services rendered in year 2 (when the insured had $100,000/$300,000 limits) the current limits will apply to coverage.

 

Disadvantage Example. The insured has $1,000,000/$3,000,000 limits for the first 5 years and the insurance company reduces the limits to $100,000/$300,000 in year 6 and 7 and a claim is made in year 7 for services rendered in year 3, the lower limits in effect in year 7 apply.

 

Occurrence

 

            Coverage limits are based on the limits in effect when the services are rendered. 

 

Disadvantage Example.  If the insured has $100,000/$300,000 limits for the first 5 years and $1,000,000/$3,000,000 limits in years 6-10, and is sued in year 7 for $500,000 for services rendered in year 2 (when the insured had $100,000/$300,000 limits) the limits in effect when the services were rendered will apply to coverage.

 

Insurer Solvency

 

If an insurer becomes insolvent (goes out of business) all coverage during the period of time with that insurer is lost.  If the insurance company was an admitted insurance company, there may be coverage under the Guarantee Fund of the state where the insurance company was domiciled.  This will be limited by state statute.

 

 

 

The policy in force when the services were rendered will respond to the claim.

 

Insured by Company A on the Occurrence Policy

Insured by Company B on the Occurrence policy form.

Company A goes out of business-All coverage is lost

 

1995

1996

1997

1998

1999

2000

2001

             

 

 

                               

 

 

 


 

I AM NOW INSURED ON A CLAIMS-MADE POLICY, CAN I CHANGE TO THE OCCURRENCE POLICY FORM?

 

Yes.  There are two way to make this change.

 

1.      You can purchase the Extended Reporting Period Endorsement (Tail) on your current policy to cover claims for services rendered while you were insured on the claims made policy, and the Occurrence Policy will cover services rendered during the policy period while the occurrence policy is in force.

 

What is the cost?

 

The cost of the Tail is a percentage of the claims made premium for your current policy.  If you current policy is $1,500, the cost would be about 1.5 times your last annual premium, $2,250 ($1,500 x 1.5)  The Occurrence premium will about 10% more than the cost of mature claims made coverage.  Using the example above the first year Occurrence premium would be $1,650.  The total cost if the year of the change would be $2,250 + $1,650 = $3,900.   The cost of the Tail is a one time charge, the cost of  coverage in future years would be the cost of Occurrence Coverage, ie $1,650 using the assumption above.

 

2.      You can purchase prior acts coverage on the Occurrence Policy.  If you elect this option, the company that issues the Occurrence Policy form will be liable for covered claims for services rendered during the period that you were insured on the claims made policy form.

 

What is the cost?

 

The cost of prior acts coverage added to the first year Occurrence Policy is a function of the first year Occurrence Premium.  Typically the cost would be 1.4 to 1.5 times the Occurrence premium.  Using the assumptions above, the cost to include prior acts coverage in the Occurrence policy is $1,650 + (1650 x 1.5 =  $2,475) = $4,125.

 

What else should I consider?

 

Limits of Liability

If you select option one, the limits of liability for the Tail will be in addition to the limits of liability for the first year of Occurrence Coverage.  If you select option 2 there would be one limit of liability for the period of time insured on the claims made form and the first year of Occurrence Coverage.

 

Insurer Solvency

If you purchase the Tail from your current insurance company, that company is liable for claims in the future for services rendered while you were insured on the claims-made policy, which could be 13 or more years.  If the company goes out of business, you will lose that coverage.

Coverage Terms

If you purchase the prior acts coverage on the Occurrence policy, the conditions of the Occurrence policy will apply to claims for services rendered during the period of time that you were insured on the claims-made form.  If the coverage terms on the Occurrence policy are more restrictive than the terms on the claims- made policy you will have a reduction in coverage.

 

Unreported Claims or Incidents

If you have a claim or incident that could be the basis of a claim that has not been reported, coverage for the incident may be lost if not reported prior to the change.

 

 

This information is intended to be general in nature.  For complete information please consult the actual insurance policies for full terms, conditions and exclusions.

This is intended to provide general information. For a complete description of coverage including policy provisions, limitations and exclusions, please consult the actual insurance policy.
Copyright Bryan Lau 2007 - 2013