Malpractice Insurance Strategies Evolve as Docs Get Hired
Anne Arundel is yielding significant savings thanks to its strategy of covering many tail policies through its captive. "As a general rule, we are saving somewhere between 15% and 20%," Reilly estimates.
Additionally, the health system saves money because it operates an offshore captive located on Grand Cayman, which reduces many of the associated expenses.
"On the administrative side, the regulatory requirements and funding requirements for an offshore captive are initially less to establish the company," Reilly says. "The legal work is less, and the exposure to taxes is less. Quite a few organizations are now self-insuring offshore. … [T]he logistics on the whole work very well."
Because mitigating risk is the objective when it comes to tail coverage, Anne Arundel purchases reinsurance from Lloyd's of London to protect itself even further from the possibility of the steep financial loss that could result from a malpractice lawsuit.
"We reinsure and cap our risk on an annual basis so that if we have a major claim, we won't have to pay out of pocket … We lay off some of the high-dollar risk to a greater insurance population," Reilly says. "Lloyd's of London has the ability to provide insurance on a consistent basis and not have to raise premiums or drop clients because of big claims. The London market has proven to be a little more stable because of the enormity of the insurance base and the history of the way they do business."
Regardless of how hospitals and health systems ultimately decide to pay for the tail, making the offer to cover the expense is a smart way to start off on good terms with physicians, says Arnold.
"You have to look at this transaction as a long-term relationship and think about what is good for both parties," he says. "Ideas like using tail coverage as a negotiating tool are good. If physicians think they are working for someone who cares about them, it's a lot better than just getting a paycheck."
This article appears in the October issue of HealthLeaders magazine.
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