Emergency medicine physicians are keenly aware of the need for purchasing insurance. They are less familiar with many of the details associated with personal and professional insurance. Whether it is car, life, health or professional liability, our lives and careers are impacted significantly by the availability and affordability of insurance. The insurance business is complex and few physicians understand the vocabulary, structure and detailed mechanics of medical malpractice insurance. Yet in New York’s litigious society physicians must have professional liability insurance to protect their assets and careers. Insurance is big business with billions of dollars spent annually. In the United States last year, approximately $24 billion alone was spent on medical professional liability insurance. Although this is a small part of the almost $300 billion in total U.S. tort litigation costs, it is equivalent to approximately 3% of total health care costs. This paper will assist in outlining the general concepts, some details and overall operational mechanics of the medical malpractice insurance business from a physician’s perspective.

Insurance, what is it?

Insurance takes many forms but generally serves to provide security to those who purchase it in an attempt to provide predictability in uncertain situations. Insurance makes dollars available to compensate for loses that are incurred from unpredictable or undesirable events. Insurance is one mechanism used to protect individuals and organizations against the risk of loss by distributing the burden of losses over a large number of individuals. Based on the law of averages, actuarial projected losses drive formulas for premium dollars that are then paid to contribute to the coverage reserves. These reserves are used to provide compensation for any member of the group who suffers from a defined loss.