The Hidden Costs of Risk Pooling

Insurance renewal season is here again and that means many medical professionals are looking to make changes to their insurance coverage. Before deciding on what type of insurer to work with, it is important to understand the different types of insurers and why you should be wary of reciprocal insurance companies.

Risk Transfer and Risk Pooling Insurers

Stock Insurance Companies and Mutual Insurance Companies transfer the risk of claims in exchange for premium.

Reciprocal Insurance Companies share or pool the risk amongst all the members.

Reciprocal Insurance Companies

A reciprocal insurance company is a group-owned insurer that pools the risk of insureds together. This differs from typical insurers, who transfer the risk from the insured to themselves in exchange for the premium. This means that with a reciprocal insurance company, the members or subscribers are sharing the risks together and could be subject to an increase in dues based off the claims of other members. In other words: Most insurers transfer the risk, reciprocal insurers share the risk.

What to Look Out for with Reciprocal Insurers

Low Initial Cost: One of the reasons that medical professionals can be attracted to Reciprocal Insurers is the low initial cost to join in the first year. Many reciprocal insurers allow new members to join for an initial capital contribution which is often much lower than the cost of the premium they would pay with a traditional insurer. This capital contribution is often confused for a yearly premium, but it is actually not representative of the yearly dues which are much more expensive and subject to change drastically year to year.

Hammer Clause: A hammer clause is a clause in an insurance policy that states the insurer does not have to pay for trial in the case of the claim over the amount they can settle the case for. This differs from most insurers that have consent to settle clauses and policy limits the insurer must pay up to.

If you would like more information on this subject or would like to explore your professional liability coverage options, contact Presidio Insurance Solutions.


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