One point of interest for RRGs, as covered in our 10 Reasons to Reconsider RRGs blog, are the hidden fees. This time, not so much talking about membership fees associated with RRG and mutual trusts. Now we’re focusing on the costs associated with risk pooling.
When considering insurance companies, let’s distinguish the difference in the relationships between you (the insured) and the insurance company (the insurer).
What’s the difference between Risk Transfer and Risk Pooling?
When you purchase insurance, an insurer agrees to indemnify, or secure you against your legal responsibility for actions as a medical professional. Up to a certain amount for specified losses, in exchange for a premium billed monthly, quarterly, semi-annual or annually you’re covered.
For instance, say a Doctor buys Medical Professional Liability insurance with a $1M/$3M limits. The insurance company agrees to cover claims up to $1 million per occurrence with an aggregate limit up to $3 million total during the policy period.
Essentially your premium is influenced by the following variables:
- Years in Practice
- Claims History
An alternative to the traditional risk transfer relationship is the Risk Pooling.
RRGs utilize risk pooling by grouping large numbers of physicians together to minimize the cost or impact of the highest-risks physicians. Attainable by insuring people who have similar exposures.
Although risk pooling is a fundamental concept of insurance, particularly health insurance, it’s slightly less enticing for professional liability insurance. Risk Pooling allows the higher costs of the riskier physicians to be offset by the relatively lower costs of the physicians with less exposure, either in a plan overall or within a premium rating category. In general, the larger the risk pool, the more predictable and stable the premiums can be.
Risk pooling premiums are influenced by the same traditional risk transfer elements such as Specialty, Years in Practice, Procedures, Location, and Claims History. However, the nature of being in a pool enables the activities (claims) of other members of the pool to influence your premium.
What does this mean?
If another doctor in the pool has a rather large claim settlement, your premium may be at risk of an increase. All so the RRG can recoup some of the loss.
In general, you can expect an increase in premium from the following factors:
- Step Rate (Policy Reaching Maturity)
- Change of Practice Profile (Specialty, Additional/New Procedures/Services)
- Adding Employees on separate limits
- Changes in Limit of Liability
Claims from year to year are an understandable reason as to why you could see an increase in premium.
However, if none of the above apply, are you really comfortable having your premium affected by the actions of other physicians?