What Determines Professional Liability Insurance Rates?
If you are in the market to purchase Professional Liability Insurance, you’ll find there are quite a few options with varying coverage and costs. Coverage fact sheets are usually available from the insurance carrier or agent to help you compare policies and identify the differences between them.
What’s not easily understood, though, is how insurance companies determine their professional liability insurance rates for their respective policies. Prudent shoppers understand the adage “you get what you pay for,” and while insurance is regulated, it’s important to know what goes in to rating a policy to help you choose the best coverage at a price that is fair.
Lockton Health uses the following factors to calculate a policyholder’s professional liability insurance rates — many of which are circumstantial.
Your profession and role—The risk within a profession is evaluated based upon the potential for frequent loss, severe loss or both. Jobs with more responsibilities will usually mean higher insurance rates. Typically the more education and training a professional has, the higher standard they are held to compared with those who haven’t completed such education and training (i.e. Physical Therapists may be held to a higher standard of care than a Physical Therapy Assistant, thus they will have higher premiums).
Employment status—People who work part-time spend less time on the job, making for lower chances of claims. Insurance premiums are generally lower for part-timers than they are for their full-time counterparts, or owners of a group.
Potential for severe claims—The more severe claims have the potential to be (i.e., how expensive they are to defend and settle), the higher the insurance rates will be. The potential severity could stem from the nature of the alleged injury/damage or due to the costs to defend a complex matter.
Number of individuals covered by a policy (group policies)—In cases where more than one person is covered under the same policy, group discounts may apply.
Liability claims history—Individual claims history has a substantial bearing in calculating insurance rates. Just one prior claim, depending on its severity, can result in higher rates. Multiple claims can almost guarantee higher rates.
Many of these factors are circumstantial and out of your control in influencing rates up or down. The good news is that you do have some control over the premium you are charged for your insurance based on the liability limits you choose.
The limits of liability of a Professional Liability policy are directly correlated to figuring Professional Liability Insurance rates — in other words, how much the premium will be. The higher the limit of liability, the higher the premium. The choice of liability limits typically varies by state and, in most cases, it’s offered as a “per occurrence limit” with an “annual aggregate.” For example: $1,000,000 per occurrence/$3,000,000 annual aggregate is a common limit of liability. This means that each claim will be covered up to $1,000,000, with $3,000,000 being the maximum amount of coverage provided for all claims during the policy period.
When deciding on the per claim limit of liability for your policy, carefully consider the maximum potential cost to defend and settle a typical claim in your field. Choosing the lowest limit that’s available simply to get the lowest premium, while tempting, may not provide the amount of coverage a practitioner in your field should carry. Before you make your Professional Liability Insurance purchase, you may want to consult your professional association, and even colleagues, to find out what limits they would recommend for your profession.
Check out more tips for managing your Professional Liability Insurance.