Choosing the Right Type of Medical Professional Liability Insurance Company
When purchasing Medical Professional Liability Insurance, buyers often focus on coverage limits, pricing, and service. While these factors are important, another key consideration is often overlooked: the type of insurance company providing the coverage.
Not all insurance companies are structured the same way. It may be helpful to learn more about the most common types of insurance companies.
Stock Insurance Companies
A stock insurance company is owned by shareholders who invest capital in exchange for stock. These shareholders may or may not be policyholders.
Key characteristics include:
- Primary obligation to generate returns for shareholders
- Boards of directors are chosen by stockholders
- Profits may be distributed as dividends or reinvested in the company
- Policyholders are customers, not owners
- Decisions are often influenced by market performance and investor expectations
- May be able to expand capital/surplus through the issuance of additional shares
- Who or what entity(ies) controls the company through share ownership may be significant in how the company operates and its goals
Stock companies can be large, well-capitalized organizations with broad product offerings. Because they are accountable to shareholders, business strategies including pricing and underwriting usually benefit the company.
Mutual Insurance Companies
A mutual insurance company is owned by its policyholders. There are no outside shareholders because policyholders collectively own the company.
Key characteristics include:
- Policyholders are members and owners
- Boards of directors are selected by policyholders and typically have strong representation of policyholders as board members
- Profits are often returned to members as dividends, used to reduce future premiums, or retained to support financial strength or growth
- Long-term stability and conservative financial management are common priorities
- Decisions are typically aligned with member interests
- Fewer potential sources of additional capital place greater emphasis on capital/surplus adequacy
Because mutual insurers answer directly to their policyholders, they often emphasize service, consistency, and long-term relationships over short-term financial performance. This structure can be particularly appealing to healthcare providers seeking stability and alignment with their professional and ethical values.
Reciprocal Insurance Exchanges
A reciprocal insurance exchange is an unincorporated group of policyholders who insure one another by exchanging insurance contracts. These exchanges are typically managed by an attorney-in-fact, which handles daily operations.
Key characteristics include:
- Policyholders both insure and are insured by one another
- Controlled and Managed by a third-party attorney-in-fact
- Surplus belongs to the members
- Often focused on specific industries or professions
- Limited to policyholders for additional capital
- More likely to use assessments for additional premiums creating greater volatility in pricing for policyholders
Reciprocals can offer a strong sense of community and shared risk, but governance and operational structures can vary widely depending on how the exchange is managed, and policyholders may have very little say.
Risk Retention Groups (RRGs)
A Risk Retention Group (RRG) is a type of liability insurance company formed under the federal Liability Risk Retention Act of 1986. RRGs are owned by their insureds and are designed to cover similar risks among members engaged in related businesses.
Key characteristics include:
- Owned by policyholders with similar liability exposures
- Control of the entity may not align with ownership depending on governance
- Licensed in one “domicile” state and able to operate nationally
- Exempt from many state insurance regulations
- By Federal law, limited to writing liability coverage only
- Policies are not protected by state guaranty funds
- Fewer potential sources of additional capital place greater emphasis on capital/surplus adequacy
RRGs emerged as a response to liability insurance availability crises and can provide access to coverage for specialized or high-risk professions. However, because they are exempt from many state solvency protections and guaranty funds, policyholders should carefully evaluate an RRG’s financial strength, governance, and claims management practices.
Captive Insurance Companies
A captive insurance company is an insurer formed and owned by a parent company or group of companies to insure their own risks.
Key characteristics include:
- Owned by one organization (single-parent captive) or a group (group captive)
- Customized coverage tailored to specific risks
- Often used by large organizations or sophisticated risk-sharing groups
- Costs to form and manage a captive may outweigh the benefits
- Requires significant capital, governance, and risk management expertise
- May not accomplish goals of transferring risk
- Certain smaller captives electing favorable tax treatment have faced greater scrutiny by the IRS
- Policies are not protected by state guaranty funds
- Sources of additional capital are very limited
While captives can offer flexibility and potential cost savings, they are generally not practical for smaller organizations or individual healthcare providers due to complexity and financial requirements.
Surplus Lines Insurance Companies
Surplus lines insurers provide coverage for risks that admitted insurers are unwilling or unable to insure.
Key characteristics include:
- Not licensed (admitted) in the policyholder’s state, but legally allowed to operate
- Often used for unique, emerging, or high-risk exposures
- Not subject to the same rate and form regulations as admitted insurers
- Policies are not protected by state guaranty funds
Surplus lines coverage can be valuable in certain circumstances, but policyholders should understand the trade-offs related to limited regulatory oversight and consumer protections. Also, many of the policy forms differ from admitted carrier policy forms.
Conclusion
Regardless of structure, understanding the financial strength of an insurance provider as well as their mission and track record are key to your confidence in the value of any insurance policies purchased. Medical Professional Liability insurance is a long-tail line of business in which claims may not be resolved or paid until years after the policy is purchased, making it essential to have confidence in the insurer’s long-term financial strength and ability to fund both defense costs and claim payments.
The structure of an insurance company can affect how claims are handled, how premiums are set, and how committed the insurer is to long-term partnerships. For healthcare providers, whose reputations and livelihoods depend on consistent, high-quality coverage and claims support, choosing an insurer with aligned interests and healthcare-specific expertise can be just as important as choosing the right policy terms. Understanding these distinctions empowers providers to make more informed decisions and select insurance partners that truly support quality healthcare delivery.
Healthcare Services Group offers medical professional liability insurance for hospitals, facilities, and physicians through Medical Liability Alliance (MLA) and Missouri Hospital Plan (MHP). For more information contact Monte Shields, Director of Business Development at (573) 545-5927.
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