28 Feb Captive Insurance Basics: New York Physicians
New York physicians often ask about using a captive company to insure their medical malpractice insurance. Our experience has been that there are many different levels of understanding within the physician community relating to what a captive is and how it can benefit a practice.
Simply put, a captive is an insurance company formed by a physician practice to insure all affiliated physicians associated with their Professional Limited Liability Corporation (PLLC). New York State has enacted restrictions on the direct use of a captive by physicians to provide medical malpractice insurance. In addition to these restrictions, a competitive commercial insurance market and securing captive approval from hospitals have been practical deterrents to captive use by physicians in New York.
Phalanx Healthcare Solutions has successfully navigated these obstacles and has created captive-like insurance programs for physician practices in New York as well as many captive structures outside of New York. We believe that it is important for physicians to understand the basic captive insurance concept and its use by physicians as a wealth building tool to profit from their medical malpractice insurance expense. Before we dive deeper, we must be clear that a captive is not the right move for everyone. The minimum annual malpractice insurance premium for a captive typically falls into the $1,000,000 premium range to offset the expenses of running a captive (although, if you do not meet the minimum premium requirements, Phalanx has worked with smaller practices through rent-a-captives and micro-captive structures that allow the PLLC to realize the same benefits as larger practices). Another deterrent would be if your malpractice losses are higher than your premium, you are likely not a great candidate to enjoy the benefits of owning a captive.
In assessing a captive’s feasibility, it is critical for physicians to assess the cost benefits of this insurance protection relative to the commercial malpractice insurance market. A good rule of thumb is that if you can buy malpractice insurance commercially at a lower cost than your expected retained losses, then you should do so. It is important for physicians to remember that the main objective of purchasing medical malpractice insurance is asset protection and that individual practice considerations will determine the best way to protect a PLLC’s assets.
A captive can be an excellent wealth building tool for a PLLC. Using a captive to convert a pure medical malpractice expense into an asset positions the practice to benefit from positive claims experience and build assets. When structured correctly, the captive can be an invaluable tool to have in a practice’s financial arsenal and can deliver strategic benefits including:
- Asset protection for the PLLC
- Strategic value added benefits to insured partners
- Enhanced profit potential through positive underwriting results and investment income
- Create an “off balance sheet” asset
- Reduced insurance costs by eliminating a portion of the insurers built in profit margin
- Coverage and underwriting flexibility
- Claims management and control
- Risk management oversight and protocol
Phalanx Healthcare Solutions is a New York based medical malpractice insurance consultant specializing in insurance and reinsurance solutions for physicians, physician organizations, and healthcare systems. For more information, visit our web site at www.phalanxllc.com.