DEFINITION OF ‘CHANNELLING’
A commercial insurance policy which insures employees and affiliated personnel under one policy rather than requiring them to each have their own policy. Channelling is most commonly associated with hospitals and medical facilities, which insure their doctors and medical staff under a general liability policy.
INVESTOPEDIA EXPLAINS ‘CHANNELLING’
Physicians, nurses, and the medical staff working at a hospital stand the risk of one day being named in a lawsuit, such as a medical malpractice lawsuit. These lawsuits can be expensive to defend against, which is why medical professionals often purchase professional liability insurance to retain coverage. When a doctor and the hospital are under separate policies, the claimant may name both the doctor and the hospital in the suit. This can create a situation in which the hospital seeks to push blame on the doctor in order to reduce its risk exposure, which can lead to an adversarial relationship once the claim is settled.
Companies may choose to purchase a master channelling policy in order to ensure that both the hospital and its staff have a common legal defence against the claim suit, which can reduce the risk of an adversarial relationship developing. It also reduces administrative costs, since there is now one policy instead of potentially hundreds of liability policies.
The downside to channelling is that, despite having a common legal defence, the hospital may wish to settle a claim while the doctor may not. For example, a doctor may insist that he or she provided adequate medical care and that a patient’s outcome was not something that could be avoided. The hospital, however, may decide that settling the claim makes more financial sense, even if the doctor’s reputation may be negatively impacted by deciding not to fight the claim in court. Because the hospital is more powerful relative to the doctor, it may ultimately have more say.