Determining rates: The art and science of establishing a fair share.
Physician » Insurance » Determining Rates
There’s no getting around it. In order to protect you and your peers from the financial impact of professional liability claims, an insurance company needs to charge adequate rates to cover those claims and related expenses, as well as the operating expenses related to the company’s everyday work. Commercial carriers must also consider the need to show adequate profit to keep the company’s investors happy.
That said, how do we determine the premium you pay for your insurance?
Medical Mutual determines rates by first conducting an assessment of loss exposure for every specialty. This involves the analysis of losses aggregated over defined periods of time. Actuaries look at loss data nationally, within the state targeted for the rate analysis, and among the specialties insured by Medical Mutual.
The fewer local physicians practicing in any given specialty, the more important those comparisons to national data become. With a relatively small sample, the data can easily be skewed based on one or two large judgments or settlements. Actuaries cannot completely ignore disproportionately large “local” claim payments, but the comparative data enables much more informed rate-setting, moderating the peaks and valleys seen in the local experience.
Using this data, the actuaries and underwriters propose a base rate they believe reflects the Company’s exposure for that specialty in each state’s current legal and practice environments. The proposed rate is provided to Company management in the form of a recommendation, which may be accepted, rejected or modified based on management’s assessment of the marketplace, returns on investments and the Company’s overall financial performance.
From that base rate, individual premiums may be higher or lower based on individual loss history, earned credits and other such factors.