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Related Experiment Videos

How your "free" tail liability policy is funded.

D R Bickerstaff1

  • 1Bickerstaff & Whatley, 45-210 Club Drive, Indian Wells, CA 92210, USA. dbick@bickwhat.com

The Journal of Medical Practice Management : MPM
|November 12, 2003
PubMed
Summary

Professional liability insurance offers "free tail" coverage for doctors upon death, disability, or retirement. This coverage is pre-funded through a premium loading based on insured demographics.

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Area of Science:

  • Medical professional liability insurance
  • Actuarial science
  • Risk management

Background:

  • Claims-made professional liability policies often include Extended Reporting Endorsements.
  • These endorsements, commonly known as "free tail" coverage, protect insured doctors against claims made after policy expiration due to death, disability, or retirement.
  • This coverage is provided without an explicit additional premium charge.

Purpose of the Study:

  • To elucidate the pricing mechanisms behind "free tail" policies in professional liability insurance.
  • To explain how these seemingly free endorsements are pre-funded.
  • To review the core concepts involved in actuarial assessments for such policies.

Main Methods:

  • Analysis of premium loading structures in claims-made policies.
  • Examination of demographic data utilization in actuarial pricing.
  • Review of the financial pre-funding models for Extended Reporting Endorsements.

Main Results:

  • "Free tail" coverage is not truly free but is pre-funded by a percentage loading on all insureds' premiums.
  • The specific loading percentage is dynamically adjusted based on ongoing analysis of the insured population's demographics.
  • This loading ensures the financial viability of providing post-separation coverage.

Conclusions:

  • Professional liability insurers utilize a pre-funding model for "free tail" endorsements.
  • Demographic analysis is crucial for accurately pricing these endorsements.
  • Understanding this pricing structure is essential for insured doctors to comprehend their policy's true cost.

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