Nobody loves medical malpractice insurance – especially the physicians employed by your health system. The American Medical Association reports that premium increases are at a 20-year high, and many states have seen rates jump by 15% or more in a single year.
For many physicians, malpractice coverage is the second-largest expense after payroll, with annual premiums running tens of thousands of dollars for specialists in high-risk fields. By joining a health system, physicians gain access to institutional malpractice coverage that pools their individual risk across hundreds of colleagues.
Malpractice coverage is one of the most frequently cited reasons physicians choose to leave private practice and align with health systems. Some may say they long for the independence of private practice, but the economics of malpractice insurance tend to keep them settled and comfortable in employment arrangements.
That calculus may be about to change.
I recently came across an emerging company called Indigo that aims to offer faster, cheaper, and far more individualized malpractice coverage using AI-driven underwriting. With nothing more than a physician's National Provider Identifier (NPI), Indigo can generate a bindable quote built from roughly 200 data points covering the physician's specialty, patient population, procedures, prescribing patterns, and claims history.
The company currently targets individual physicians, not health systems. Its stated goal is to identify doctors who are currently overpaying because they've been lumped in with higher-risk colleagues. With more precise AI underwriting, Indigo says it can lower premiums by 10% or more, and nearly 1,000 providers nationwide have chosen Indigo policies.
Implications for Workforce & Finances
It’s still a very young company, but Indigo is backed by financial heavyweights like Optum Ventures, the investment arm of UnitedHealth Group. I think that makes Indigo worth watching for at least two important reasons – one related to workforce, and one related to finances.
First, the availability of cheaper malpractice insurance may undermine the value proposition that keeps some physicians aligned with their health system employers. Every time we interview physicians as part of a provider planning engagement, there are some who long for the “good old days” of private practice, but for the added expenses and administrative burdens. If Indigo’s malpractice model is able to remove one of the major hurdles to private practice, health systems may need to re-think the value of their employment contracts.
Secondly, if Indigo or other insurance disruptors succeed in picking off some of your lowest-risk, most desirable physicians with better individual rates, then the economics of your institutional malpractice pool could erode. I’m not an insurance specialist, but I think that’s the kind of scenario that CFOs might want to start modeling.
An AI Upside for Malpractice Costs?
Stepping back to think more broadly about AI and malpractice insurance, I do see a chance that policy costs will decline as the industry learns to account for widespread adoption of AI tools. As I said, I’m not an insurance expert, and this is not my original analysis. Instead, my thinking was spurred by an interview in STAT’s AI Prognosis newsletter.
Health tech reporter Brittany Trang spoke with Jared Kaplan, the Indigo CEO, about coming changes in malpractice underwriting. When physicians are armed with AI scribes, chart review, and diagnostic tools, Kaplan believes that error rates will come down, leading to fewer malpractice claims and lower premiums. Coming from someone who actually sets premiums, that’s a bold prediction.
Something similar is already happening in auto insurance, he noted, where Tesla drivers can lower their premiums by 50% when using Full Self Driving mode. The underwriters at Lemonade, a fintech insurance company, looked at Tesla’s safety data and concluded, essentially, that FSD technology made human drivers less prone to mistakes and thus less likely to file expensive claims.
Kaplan says there is “no question” in his mind that the same scenario will play out in healthcare: “Errors and omissions will go down in medical offices and therefore medical malpractice insurance should get less costly over time.”
That won’t happen overnight, of course, but it’s worth keeping in mind as you do your cost-benefit analysis on potential AI investments. For now, there are two steps worth considering:
- Audit whether your malpractice policies cover AI-assisted care scenarios, as legacy policy language likely predates these scenarios.
- Begin documenting safety and error-reduction outcomes data for AI clinical tools, as this will become negotiating currency with malpractice carriers within the next several years.
Conclusion
Artificial intelligence should eventually allow health systems to save money on their medical malpractice expenses – but the risk of near-term disruption can’t be ignored.
If you’ve been thinking of your group malpractice coverage as a kind of “golden handcuffs” for keeping physicians in their employment contracts, it might be worth dusting off your provider recruitment and retention strategy for a fresh look.
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