- Absolute Liability
Liability regardless of fault.
- Accident-year Basis
The annual accounting period, in which loss events occurred, regardless of when
the losses are actually reported, booked or paid.
- Allocated Loss Adjustment Expenses (ALAE)
Expenses directly attributable to specific claims. Includes payments for defense
attorneys, medical evaluation of patients, expert medical reviews and witnesses,
investigation, record copying, etc.
- Annual Aggregate Limit (claims made)
The maximum amount the carrier will pay for all claims arising from incidents
that occurred and were reported during a given policy year.
- Annual Aggregate Limit (occurrence
The maximum amount the carrier will pay for all claims arising from incidents
that occurred during a given year of insurance.
- Assessability
A policyholders obligation to pay additional money, in excess of premiums, to
cover past company losses for which reserves have proven to be inadequate. Trust
arrangements and joint underwriting associations are generally assessable. (See
also "Nonassessable.")
- Assets
All the property and financial resources owned by an insurance company. Admitted
Assets are those assets that are liquifiable to raise cash to pay claims. Nonadmitted
Assets are assets, such as real estate (other than home office), furniture, and
other equipment that are not liquifiable.
- Assumed Premium
The consideration or payment an insurance company receives for providing reinsurance
for another company.
- Attorney-in-Fact
The entity that manages an interinsurance or reciprocal exchange and to whom
each subscriber (policyholder/owner) gives authority to exchange insurance among
the subscribers.
- Bundling
The practice of grouping several individual procedures or services together
for the purpose of paying for them as one package.
- Claim
A written notice, demand, lawsuit, arbitration proceeding or screening panel
in which a demand is made for money or a bill reduction.
- Claims-Made Coverage
The most common type of professional liability coverage available, it provides
protection for claims that occur and are reported while the policy is in effect
(coverage period). Within the conditions of a claims-made policy, a claim must be
reported to the carrier in writing by the insured. Tail coverage, or a Reporting
Endorsement, provides coverage for claims that occur during the coverage period
but are reported after the policy terminates.
- Claims-Paid Coverage
Under a claims-paid policy, premiums are based only on claims settled during
the previous year and projected to be settled in the coming year. Many claims-paid
policies are assessable for a number of years, or even indefinitely, after a physician
has terminated the policy.
- Claims Reserves (claims-made policy)
Funds set aside to satisfy those claims that have been reported to the company
but not yet resolved or paid.
- Claims Reserves (Occurrence Policy)
An additional reserve must be set aside for incidents that occurred but were
not formally reported during the policy year and are expected to be reported after
the close of the policy year.
- Claim Severity
Refers to the amount of financial liability resulting from settling a claim.
A claim that is settled with no payment for damages is generally considered to have
a "small" claim severity, while a claim in which the carrier pays the full limits
of a policy is a "large" severity claim. Trends in claims severity on a specialty-by-specialty
basis are important factors in setting rates each year.
- Composite Rate
A composite rate is a unique component of claims-made insurance coverage. Composite
rates are used by actuaries to calculate premiums in specific cases in which the
future claims risk has been significantly reduced or increased.
- Date of Incident
The date on which a situation of alleged malpractice took place. Also called
"date of occurrence."
- Date of Reporting
The date of reporting is the date on which the incident was reported to the
insurance company.
- Declaration
Also called "Declarations Page", this portion of the policy states information
such as the name and address of the insured, the policy period, the amount of insurance
coverage, premiums due for the policy period, and any coverage restrictions.
- Deductible (voluntary)
Allows the insured to pay an amount of the "first dollars" of a claim payment
and to pay a lower premium for assuming this risk.
- Deductible (involuntary)
Is imposed by the insurance company due to the adverse risk characteristics
of an insured. Involuntary deductibles do not include a premium reduction.
- Deductible (straight)
Provides that all loss payments are reduced by the amount of the underlying
deductible with no other considerations.
- Deductible (franchise or quota share)
Provides that the insured and the insurance company split all costs within the
deductible amount, such as on a 50-50 basis.
- Direct Written Premium
A carrier's gross premium written, adjusted for cancellations, before deducting
any premiums paid or ceded to a reinsurer.
- Dividend
A partial return of premium to policyholders.
- Domiciled
Refers to the state in which an insurance company receives a license to operate.
The company is then regulated by that state's Department of Insurance.
- Earned Premium
The portion of premium that applies to an actual coverage period. Insureds usually
pay a calendar quarter or more in advance of the actual coverage period; the advance
payment is initially unearned and becomes earned incrementally during the ensuing
coverage period.
- Economic Damages
Out-of-pocket damages, such as incurred medical expenses, lost wages, etc.
- Endorsement
An amendment, sometimes referred to as a rider, added in writing to an insurance
contract or policy.
- Excess Insurance
A separate insurance policy with limits above the primary (or "first dollar")
policy.
- Experience Rating
The system of rating or pricing insurance in which the future premium reflects
actual past loss experience of the insured.
- Extended Reporting Coverage
See "Tail Coverage."
- Hold-harmless Clause
A hold-harmless clause (also known as an indemnification clause) attempts to
shift liability from one party to another (e.g., from an HMO to an employed physician).
- Incident
An occurrence that the plaintiff claims has led to culpable injury. Incurred
But Not Reported Losses (IBNR) - An estimate of losses for incidents that have occurred
during a policy period (usually a year) but have not yet been reported to the company.
- Incurred Losses
Includes both paid and unpaid (reserved) losses.
- Indemnity
An insurance company's payment to a plaintiff in settlement or adjudication
of a claim.
- Indemnity Reserves
Claims reserves that are set aside to pay the portion of claims costs paid directly
to claimants.
- Informed Consent
An agreement obtained voluntarily from a patient for the performance of specific
medical, surgical or research procedures after the material risks and benefits of
these procedures and their alternatives have been fully explained in non-technical
terms.
- Insurance Gap
When a physician has professional liability insurance under a claims-made policy,
once the coverage period has expired without renewal, claims that have not yet been
made and reported to the carrier (insurance company) during the "active" policy
period are not covered. In such cases, a physician is said to be "bare" (uninsured),
unless he or she has purchased an extended reporting endorsement (tail coverage)
from the former carrier, or has obtained "prior acts" (nose) coverage from a new
carrier.
- Limit
The maximum amount paid under the terms of a policy. A professional liability
insurance policy usually has two limits, a per-claim limit and an annual aggregate
limit. (See "Annual Aggregate Limit.")
- Locum Tenens
A substitute physician who temporarily takes the place of a named insured policyholder
or physician member of a medical group. This coverage may be contingent upon the
policyholder or member physician not practicing during the period in which the Locum
Tenens coverage is in effect.
- Loss Ratio
A paid loss ratio is the amount of premium a policyholder has paid to the carrier
through the years versus the amount the carrier has paid out on his or her behalf
for defense and indemnity. For instance, a paid loss ratio of 50% means the carrier
has paid out 50% of what they've received in premium from a particular policyholder.
However, the loss ratio doesn't take into consideration the carrier's expense costs,
which usually run an additional 25-35%. As a result, a loss ratio greater than 75%
usually means the carrier is losing money. An incurred loss ratio is the amount
the carrier has paid out (defense and indemnity) plus the amount they expect to
pay out (reserves) for a particular policyholder versus the amount of premium a
policyholder has paid throughout the years. A policyholder that has never filed
a claim has a 0% incurred loss ratio.
- Loss Reserves
Amount set aside to pay for reported and unreported claims. For an individual
claim, a case reserve or estimate of the expected loss is set aside. Back to top
- Malpractice or Professional Negligence
An abrogation of a duty owed by a health care provider to the patient; the failure
to exercise the degree of care used by reasonably careful practitioners of like
qualifications in the same or similar circumstances. For a plaintiff to collect
damages in a court of law, the plaintiff's attorney must show that the provider
owed the patient a duty and that the provider's violation of the standards of practice
caused the patient's injury.
- Mature Premium
A step rating system may be used to set premiums for its claims-made policies.
The mature premium is the fee a policyholder will pay during the year the policy
matures, generally the 5th through the 7th year. The first level premium is substantially
lower than a mature premium. It is designed for policyholders that are new to practice
and therefore have no claims history. The mature-level rate reflects the fact that
the majority of claims are filed within four to five years of an incident.
- MICRA
Medical Injury Compensation Reform Act of 1975. Among other things, MICRA places
a $250,000 cap on non-economic damages (pain and suffering), limits attorney contingency
fees, allows periodic payments of future damages in excess of $50,000 and establishes
a statute of limitations of three years from an injury or of one year from the discovery
of an injury and its negligent cause.
- Net Earned Premium
Net written premium (plus assumed premium for reinsuring risk) minus unearned
premium.
- Net Written Premium
Direct written premium minus payments to re-insurers.
- Non-assessable
A condition under which an insurance company is sufficiently sound so that policyholders
are not obligated to pay additional money for past losses for which reserves are
inadequate.
- Noneconomic Damages
Pain, suffering, inconvenience, loss of consortium, physical impairment, disfigurement,
and other non-pecuniary damages.
- Nonstandard Risk
Those persons or entities that must pay higher premiums and be subject to special
coverage restrictions based on underwriting standards.
- Nose Coverage
Nose coverage covers claims first made against the physician after the effective
date of coverage on the policy. To be covered, such claims must arise out of the
physician's acts or omissions prior to the policy's effective date and after its
retroactive date. (Both dates are shown on the declarations page of the policy).
Nose coverage is also known as retroactive coverage or prior acts coverage.
- Occurrence Insurance
A type of policy in which the insured is covered for any incident that occurs
(or occurred) while the policy is (or was) in force, regardless of when the incident
is reported or when it becomes a claim. Occurrence insurance for medical liability
coverage is rarely offered today because of the difficulty in projecting long-term
claims costs under this type of policy.
- Paid Losses
The amount paid in losses during a specified time period.
- Policy
The contract between an insurance company and its insured. The policy defines
what the company agrees to cover for what period of time and describes the obligations
and responsibilities of the insured.
- Policy Term
The length of time for which a policy is written.
- Premium
The amount of money a policyholder pays for insurance protection. The amount
is deemed necessary to pay current losses, to set aside reserves for anticipated
losses, and to pay expenses and taxes necessary to operate the company during the
time period for which the policies are in force. Premiums allow the company to generate
a reasonable profit that reinforces future solvency and contributes to the company's
growth. In the case of a reciprocal insurer, the premiums allow the company to offer
insurance to new applicants without the need for additional capital contributions.
- Premium Credits
A credit included in the premium computation that recognizes a reduction in
hazard, which makes the account a better risk.
- Premium-to-Surplus Ratio (P/S)
The ratio of net written premium to surplus. This ratio reflects a company's
financial strength and future solvency. The ratio should not exceed 3:1.
- Profit or Loss
Underwriting results are combined with investment income, expenses and taxes
to calculate profit or loss. Actual profit results from underwriting profit plus
investment income that exceeds losses, expenses, and taxes or from investment income
that offsets the underwriting loss expenses and taxes. Actual loss results if the
investment income does not offset the underwriting loss, expenses, and taxes. Actual
losses must be offset by drawing on the company's surplus. Companies offering assessable
policies can impose payments on their policyholders to amend the loss. (See also
"Underwriting Results.")
- Punitive Damages
Also called "Exemplary Damages." Optionally covered by professional liability
insurers. A few states require that punitive damages be covered. Other state laws
prohibit insurance companies from covering punitive damages because such damages
are intended to punish the defendant for willful, fraudulent, oppressive, malicious,
or otherwise outrageous behavior that should not be covered by insurance.
- Rate Maturation
In the early period of coverage (typically the first four to seven years), claims-made
insurance rates rise annually until they are considered "mature." Increasing the
premium is necessary because the longer the physician is insured, the greater the
potential for a claim. That is due to the delay between incidents occurring and
patients filing claims from those past incidents.
- Reinsurance
An agreement between insurance companies under which one accepts all or part
of the risk or loss of the other. Most primary companies insure only part of the
risk on any given policy. The amount varies among carriers. The remainder of the
policy limits is covered by reinsurance entities. The less primary risk that the
company insures, the more premium it has to pay to the reinsurer to cover the remaining
policy limits. In general, smaller companies are able to cover only a relatively
small proportion of the liability limit. This results in large premium payments
to reinsurers. Larger companies can cover a large proportion safely, thus reducing
the payments they must cede to reinsurers, which indirectly reduces the cost of
insurance to their policyholders. Reserves - See "Claims Reserves."
- Reserves-to-Surplus Ratio (R/S)
A ratio that measures a company's financial ability to pay claims if reserves
prove to be inadequate. Such payments must come from the insurer's surplus. This
ratio should not exceed 4:1.
- Retroactive (Prior Acts) Coverage
Under a claims-made policy, this coverage provides insurance for claims arising
from incidents that occurred while a previous claims-made policy or policies were
in effect, but that were not reported until that policy (or the last in a succession
of policies) was terminated. With retroactive coverage, the new policy covers such
claims. With such coverage, purchase of tail coverage from the previous carrier
is not necessary. (See also "Tail Coverage.")
- Retrospective Rating
A formula of premium computation that reviews the previous loss experience and,
after the policy year ends, adjusts the premium up or down based on the loss experience.
Some plans provide a guaranteed maximum cost; some guarantee that the premium will
not exceed the standard premiums otherwise applicable.
- Re-underwriting
The process by which the company reevaluates policyholders and, as necessary,
imposes surcharges, deductibles, or non-renewal in cases where the policyholder's
claims history or other experience presents a consistent pattern that creates an
undue liability risk.
- Risk Classifications
A classification based on the number and amount of losses that can be expected
from a physician's specialty and procedures.
- Risk Management
A systematic approach used to identify, evaluate, and reduce or eliminate the
possibility of an unfavorable deviation from the expected outcome of medical treatment,
and thus prevent the injury of patients due to negligence and the loss of financial
assets resulting from such injury. Back to top
- Standard Risk
A person who, by the company's underwriting standards, is eligible for insurance
without restrictions or surcharges. Stop Loss Insurance - Insurance offered to medical
groups and hospitals that hold managed care contracts. This insurance covers the
policyholder in case its patients suffer catastrophic medical conditions beyond
the standard and customary.
- Surplus
The amount by which a company's assets exceed its liabilities. A company's surplus
allows it to take on risk and serves as a cushion in the event that the losses from
that risk exceed the premiums intended to cover the risk. Stated another way, surplus
can be used to make up for deficiencies in loss reserves that were set aside from
earned premiums. Thus, surplus serves to provide strength and to maintain fiscal
integrity in the face of adverse loss experience that was not actuarially anticipated.
- Surplus Contributed and Surplus Earned
Surplus contributed is the amount of capital insureds must provide for a mutual
company or reciprocal exchange during the early years of the company's operation.
Surplus earned represents the earnings of the company after losses, expenses, and
taxes. As the company stabilizes and grows in financial strength, earned surplus
from profits is added to the contributed surplus, and the contributed surplus can
be returned to the early policyholders.
- Tail Coverage
This supplemental insurance covers incidents that occurred during the "active"
period of a claims-made policy but are not brought as claims against an insured,
nor reported to the insurer, by the time the claims-made policy has been terminated.
Needed at various times including when leaving a claims-made carrier, upon the decision
to change claims-made carriers, at the time of retirement, or due to death or total
disability of the member. Tail coverage is purchased from an insured's previous
claims-made carrier and is generally 125% to 250% of the prior year's premium.
- Unallocated Loss Adjustment Expenses (ULAE)
Claims expenses of a general nature not directly attributable to specific claims.
They include the salaries of claims personnel and the other costs of maintaining
a claims department.
- Underwriting Results
The profit or loss of the insurance company, computed by subtracting from earned
premium those amounts paid out and reserved for losses and expenses. Any residual
amount is called an underwriting profit. If those deductions exceed the earned premium
this is called an underwriting loss. Underwriting results do not include investment
income. (See also "Profit or Loss.")
- Unearned Premium
That portion of a premium that is paid in advance of a coverage period. Insureds
usually pay a calendar quarter or more in advance of an actual coverage period;
the advance payment is initially unearned and starts to become earned on the first
day of the coverage period and incrementally thereafter during the ensuing coverage
period.
- Vicarious Liability
Liability for the acts of someone else.
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