Most everyone in our country has felt the effects of COVID-19 — some more than others. While coping strategies vary by individual and industry, it is essential to understand the complexities and consequences before taking any action.
Many of our health care clients have seen their volume of business decrease, putting increased pressure of their financial performance. For medical professional liability insurance and other insurance coverage a health care entity or provider might have, it is extremely important to keep all the policies in force.
If you do not pay your premiums to the premium finance company or the insurer (if you pay the insurer directly), your policy will be cancelled for nonpayment of premium.
For most policies that are claims made, when the policy is cancelled for nonpayment of premium the insurer will not offer you an extended reporting period endorsement option (commonly referred to as tail). If you cannot purchase your tail coverage (even if offered), you will lose your retroactive date which means your past services back to the retroactive date are no longer covered. You are uninsured and exposed.
In addition to being uninsured for claims, the insurance continuity gap can possibly cause you difficulty securing new coverage from insurers. Some insurers will not cover applicants with gaps, and you may not be hired/contracted by a new employer or be approved through third party credentialing processes.
If you end up uninsured and you incur a claim, it will put your business and personal assets at risk of being lost since you will be uninsured.
Options to Consider
As your policy nears expiration, you can request your insurer to offer a one to two month extension for an additional premium. The extension typically needs to be paid in full. More and more insurers are not offering this option, but it is still a possibility to consider. This might bridge you over to when you can reopen and see new patient flow.
If you are closed or going to close as your policy nears expiration and you are considering not renewing, but cannot afford the tail, you should consider renewing your policy anyway since the cost of renewing is much lower than the cost of the tail.
If you are having mid-policy term challenges making your premium payments, you can request your premium finance company or insurer (if you pay the insurer directly) for a grace period to pay your bill. The grace period typically ranges from 30 to 60 days. The challenge with this option is that upon expiration of the grace period you will have to pay back all of the delayed grace period premium. If you do not pay all of the required premium, the policy will retroactively cancel back to the original cancellation date at the start of the grace period. Please refer to the section entitled “Claims risk during the payment grace periods.”
Not all premium finance companies and insurers are offering payment grace periods. Sometimes there are requirements by the premium finance company that your insurer is not willing to comply with.
Some states have mandated the insurers and premium finance companies to delay cancellation for nonpayment of premium (the grace periods vary by state). So far, most of these requirements still allow the insurer to retroactively cancel the policy back to the original cancellation date if the premiums are not paid and brought current by the end of the grace period. This will leave you in the situation referenced above — uninsured with a gap in coverage and unable to purchase tail.
If you are going to temporarily close, some insurers will offer a leave of absence option (suspension). They suspend your policy during your temporary closing period and no payments are due during this time period. The timelines they are willing to offer the leave of absence vary. The leave of absence option is more likely for individual policy holders and not for policies where multiple providers are insured. The use of premium financing will limit this option.
If your business volume has been reduced, you can request reconsideration of the premium being charged. We are finding most insurers are not willing to make any changes in your premium midterm. If you are preparing for your renewal, be sure to reflect your downturn in what you submit. Some insurers may not offer as much of a renewal reduction due to still having liability from the past when you were fully operational or if you have other insurability issues. You might also be at a minimum premium level that the insurer cannot go below.
Claims Risk During the Payment Grace Periods
A new complexity has occurred with the phenomena of the insurer and premium finance company delaying the cancellation being processed for nonpayment due to approved grace periods with the premium finance company, with the insurer directly or state mandated grace periods. There could be possible coverage issues if you incur and/or report a claim to your insurer during the payment grace period and then do not catch up your payments before the grace period comes to an end.
If you do not make your payments current, the insurer will retroactively cancel your policy making the cancellation date before you reported your claim. When we posed this situation to some insurers they were noncommittal on how they would respond. If you incur and/or report a claim during your grace period, it is very important to immediately make your payment obligations current and not wait until the very end of the grace period.
If you incur and/or report a claim to your insurer on the eve of your grace period coming to an end and you still have not caught up your payments, you might not have enough time to make the payments current and for that process to get to the underwriter before the policy retroactively cancels. This is a very likely scenario that could leave you with the retrospective cancellation negating the new claim being considered for coverage.
Even though this article is about claims made policies, if you have an occurrence policy you still have a similar risk. There could be possible coverage issues if you treat a patient during the premium grace period and report a claim for the treatment of that patient to your insurer during the premium grace period and then do not catch up your payments before the grace period comes to an end. If you do not make your payments current, the insurer will retroactively cancel your policy making the cancellation date before you reported your claim. You end up with a possible lack of coverage eligibility for the claim.
There are widely differing responses from insurers and premium finance companies regarding the options they are willing to offer. Since there are so many risks associated with not making your premium payments, even if grace periods and other options are in play, we believe the best advice is to make your premium payments so you do not end up permanently uninsured or have claims eligibility put at risk.
We are confident this challenging time will eventually end. We believe patients will gain more confidence and feel safe utilizing all the health care industry services again. Everyone will need to adapt and evolve, including making changes in how health care services are delivered, but along the way you must always have the proper coverage in place to protect your business.