Absolute Liability - Medical malpractice liability, regardless of fault.
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.
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.
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, 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.
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.
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 from medical malpractice.
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).
Claims-Paid Coverage - Under a claims-paid policy, premiums are based only on claims settled during the previous year and projected to
Claims Reserves (claims-made policy) - Funds set aside to satisfy those claims that have been reported to the company but not yet resolved
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 medical malpractice claim.
Combined ratio - a statistic similar to the loss ratio that incorporates information about the insurer's administrative expenses.
Composite Rate - A composite rate is a unique component of claims-made insurance coverage.
Date of Incident - The date on which a situation of alleged medical malpractice "date of occurrence."
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 "of a claim payment.
Deductible (involuntary) - Is imposed by the insurance company due to the adverse risk characteristics of an insured.
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.
Direct Written Premium - A carrier's gross premium written, adjusted for cancellations, before deducting any premiums paid or ceded to a reinsurer.
Dividend - A return of some portion of the 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 - Out-of-pocket damages, such as incurred medical expenses, lost wages, etc.
Endorsement - An amendment, sometimes referred to as a rider, added in writing
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.
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 - An estimate of losses for incidents.
Incurred - Includes both paid and unpaid (reserved) losses.
Indemnity - An insurance company's payment to a plaintiff in settlement or adjudication of a claim.
Indemnity - Claims reserves that are set aside.
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.
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 - 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.
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 years 5-7.
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.
Nonadmitted Assets - Assets, such as real estate (other than home office), furniture, and other equipment that are not liquifiable.
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 - 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.
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.
Operating ratio - A measure comparing premium and investment income to the insurer's loss costs and expenses.
Paid Losses -The amount of actual losses paid by the insurer during the policy year.
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 - 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.
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.
Prior Acts Coverage - See Nose Coverage
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.
Punitive Damages - Also called "Exemplary Damages." Optionally covered by professional liability insurers. Some 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 first period of coverage (usually 4-7 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.
Reinsurance - An agreement between medical malpractice insurance companies under which one accepts all or part of the risk or loss of the other. Most primary companies insure part of the risk on any given policy.
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.
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.
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 medical malpractice 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.
Standard Risk - A person who is eligible for medical malpractice 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 a medical malpractice insurer's assets exceed its liabilities.
Surplus Contributed and Surplus Earned - The amount of capital insureds must provide for a mutual company or reciprocal exchange during the early years of the company's operation. It represents company earnings after losses, expenses, and taxes.
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.
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 medical malpractice insurance company, computed by subtracting from earned premium those amounts paid out and reserved for losses and expenses. They do not include investment income.
Underwriting Profit - Any residual amount subtracting from earned premium those amounts paid out and reserved for losses and expenses. They do not include investment income.
Underwriting Loss - If the amounts paid out for losses and expenses those deductions exceed earned premiums. They do not include investment income.
Unearned Premium - That portion of a premium that is paid in advance of a coverage period. Insureds usually pay at least 3 months in advance of an actual coverage period.
Vicarious Liability - Liability for the (medical malpractice) acts of someone else.
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