Glossary of Insurance Terms

Annual Aggregate Limit:

For claims-made carriers, the annual aggregate limit is the maximum amount the carrier will pay for all claims arising from incidents that occurred and were reported during a given policy year. For occurrence carriers, the annual aggregate limit refers to the maximum amount the carrier will pay for all claims arising from incidents that occurred during a given year of insurance.

Assessability:

A policyholder’s obligation to pay additional money, in addition to normal premiums, to cover losses for which reserves have proven to be insufficient. (See Non-Assessable)

Assets:

The property and financial resources owned by an insurance company. Admitted assets are those that can be liquidated 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 recognized for solvency purposes by state insurance laws or insurance department regulations.

Best’s Rating:

A rating given to insurance companies by the A.M. Best Company, an insurance industry ratings agency. The ratings range from A++ (Superior) to D (below minimum standards). Ratings of E and F are given to companies under state supervision or in liquidation. The ratings reflect A.M. Best’s evaluation of an insurance company’s financial strength and operating performance relative to the norms of the property and casualty insurance industry.

Captive:

In its simplest form, a captive is a wholly owned insurance company that is formed by a noninsurance entity or group to insure or reinsure some or all of the risks of its parent. A captive is usually administered by specialized consultants.

Claim:

A written notice, demand, lawsuit, arbitration proceeding, etc., in which a settlement is made for money or another form of compensation.

Claims-made Insurance: Claims-made is a form of insurance in which coverage is limited to liability for those claims that arise from incidents or events that occur and are reported to the insurance company while the policy is in force. As premiums for claims-made insurance reflect ongoing claims experience, they can be readily adjusted as experience changes.

Claim(s) Reserves:

Money set aside by the insurance company to satisfy claims that have been reported but not yet resolved or paid.

Claim(s) Severity:

Refers to the amount of financial liability resulting from settling a claim or claims.

Class A and Class B Stock:

Premier Physicians Insurance Company has both Class-A (Voting) and Class-B (Common, Non-Voting) stock. As with any corporation, the return rate of Premier Physicians Insurance Company stock is based on the annual returns of the company.

Premier Physicians Insurance Company is an Association Captive Risk Retention Group (RRG). Under this structure, the Federal Liabilities Risk Retention Act requires that all policyholders also be share holders. Therefore, a portion of a Premier Physicians Insurance Company policyholder’s premium includes the cost of Class-B stock.

Class-A stockholders are allowed to sell their stock at any time. The value of Class-A stock is decided upon by the Board of Directors at least annually and is dependant on the performance of the corporation. PPIC retains first right of refusal to purchase Class-A stock from a stockholder wishing to sell. In the event Premier Physicians Insurance Company waives this right, the stock may be sold to another shareholder.

Class-B stockholders are fully vested after three years. Once vested, Class-B stock is refundable and valued according to the current value of Class-B stock, dependent on the performance of the corporation.

Contribution Amount:

Capital contribution proceeds are used to further capitalize the Company for organizational and transaction expenses and for working capital. A physician’s capital contribution also purchases Class B (Non-Voting) Shares for the physician. A capital contribution is required to become a member/owner of Premier Physicians Insurance Company.

Credentialing Report:

Provides up-to-date information on a physician’s policy and claims experience.

Date of IncidentOccurrence:

The date on which a situation of alleged malpractice took place.

Date of Reporting:

The date on which an incident was reported to the insurance company. The shorter the time between the date of incident and the date of reporting (i.e., if the insured promptly reports the incident or claim), the easier it is for the insurer to investigate the case and handle the insured’s defense.

Declaration:

Also called “Dec Page,” this portion of the policy contains information on the coverage period, the limits of coverage, premiums, and other summarized details on how the coverage is structured.

Deductible:

As in other types of coverage, a deductible is paid by the insured prior to the insurance company paying toward a claim. A deductible can be set in varying amounts, in return for a lower premium.

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. In an interinsurance exchange, the company’s governing board would normally declare a dividend to be disbursed for a particular state or specialty if the company’s claims and financial experience for one or more past years resulted in funds exceeding those needed to pay the claims for that year or prior years.

Domiciled:

Refers to the state in which an insurance company receives a license to operate. The company is then regulated by that state’s insurance laws and regulations. Premier Physicians Insurance Company is domiciled in Nevada. Once domiciled in a particular state, the company can file to operate in other states, as well.

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 expenses, such as medical bills incurred, lost wages, etc.

Endorsement:

An amendment, addition or rider added to an insurance policy. Endorsements are commonly added to policies in order to specify coverage for certain specific procedures, practices, etc.

Evidence Based Medicine (EBM):

The integrations of the best research evidence with clinical expertise and patient values.

Excess Coverage Insurance:

A separate insurance policy providing limits above and beyond those of the primary policy.

Exemplary Damages:

(See Punitive Damages)

Experience Rating:

The component of underwriting in which past claims history is taken into account when pricing a policy.

Extended Reporting Coverage:

(See Tail Coverage)

Incident:

An occurrence that the patient claims has led to an injury or loss.

Incident Trigger Report:

The initial written report of any incident which may lead to a claim covered by the policy. Incident Trigger Reports notify Premier Physicians Insurance Company’s Risk Management department of a potential claim. This allows Premier Physicians Insurance Company staff and legal council to get involved as soon as possible. An Incident Occurrence Form can be found here

Incurred Losses:

These losses include 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:

A voluntary agreement from a patient regarding the performance of a medical procedure, after the risks, benefits and alternatives have been clearly explained.

Limits:

The maximum amount paid out under the terms of a policy. Premier Physicians Insurance Company’s limits are expressed in two parts; per-claim annual aggregate limits. (See Annual Aggregate Limit and Per-Claim Limit)

Locum Tenens:

A physician who temporarily fulfils the duties of a Premier Physicians Insurance Company policyholder while that policyholder is not practicing.

Loss Ratio:

The ratio of the premium a policyholder has paid vs the amount the carrier has paid out in losses.

Loss Reserves:

The 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:

Professional negligence-an abrogation of a duty owed by a health care provider to the patient; it is 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 Rating:

A “stepped” rating system used to set premiums for claims-made policies. The mature premium is the amount a policyholder will pay during the year the policy matures. Premier Physicians Insurance Company considers the 5th year to be “mature”. Premiums for years 1 though 4 will be lower than those for year 5. The difference is due to the likeliness of claims being filed within the first few years following an incident.

MICRA:

MICRA was designed to address the “claims side” of malpractice premiums. By capping non-economic damages, allowing for the admission of collateral sources and periodicizing of future damages, reducing plaintiffs’ attorneys’ fees, and having cases tried before arbitrators instead of juries, MICRA was designed to significantly reduce and stabilize indemnity and expense payments associated with medical malpractice actions.

Multi-Year Rate Cap:

A method of contracting that guarantees a set annual premium level over multiple years on the condition that a certain maximum loss ratio is achieved.

Noneconomic Damages:

Pain, suffering, inconvenience, loss of consortium, physical impairment, disfigurement, and other nonpecuniary damages.

Non-Assessable:

Premier Physicians Insurance Company is a non-assessable model. Therefore, our members cannot be assessed additional premium. As a member, physician’s liability extends only to the amount of their premium and stock ownership.

Nonstandard Risk:

Those physicians that must pay higher premiums and be subject to various policy restrictions based on certain underwriting standards.

Nose Coverage:

Also called retroactive or prior acts coverage, nose coverage extends the effective date of claims-made policies to a prior date. (See Retroactive Prior Acts Coverage)

Paid Losses:

The amount paid in losses during a specified time period.

Per-Claim Limit:

The limit a policy will pay on a single claim. (See Limits)

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 it describes the obligations and responsibilities of the insured.

Policy Term:

The length of time for which a policy is in effect. This is measured from a policy’s Effective Date to Expiration Date.

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-to-Surplus Ratio:

The ratio of net written premium in relation to surplus held.

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 because of 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:

Money set aside by the insurance company to satisfy claims that have been reported but not yet resolved or paid.

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, retroactive 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 retroactive coverage, purchase of tail coverage from the previous carrier is not necessary. (See Tail Coverage)

Retrospective Premium Plans:

A method of rating that returns to the client a percentage of premium following the completion of a plan year in which a certain “preferred” loss ratio is achieved. A “Base” rate and a “Preferred’ rate is established based on a normal expected annual loss ratio and a preferred annual loss ratio, respectively. If, at the completion of the plan year, the preferred loss ratio is achieved, the client is then entitled to the difference of the Base Rate and Preferred Rate.

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:

Premier Physicians Insurance Company risk management approach employs a broad process that begins with responsible underwriting and extends through to the patient’s perception of care following a visit to a Premier Physicians Insurance Company physician. Risk Management is 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.

Risk Purchasing Group:

Risk purchasing groups (RPGs) came into existence as a result of the federal Risk Retention Act of 1986. Unlike a risk retention group (RRG), an RPG is not an insurance company but an association of insurance buyers with a common identity (e.g., a medical specialty society) who form an organization to purchase liability insurance on a group basis. Since an RPG purchases coverage from an insurance carrier, no capital contributions are required in order to join. The company from which the RPG purchases insurance need not be licensed in every state. The purchasing group’s insurer must indicate how much premium was generated by the purchasing group in each state on its National Association of Insurance Commissioners’ annual statement. Physicians considering purchasing insurance through an RPG should inquire about the strength of the insurance company that provides coverage to the purchasing group.

Risk Retention Group:

Risk retention groups (RRGs) came into existence as a result of the federal Risk Retention Act of 1986. That act allows an RRG to form as an insurance company and requires that it follow the insurance laws of at least one state. When first joining an RRG, a physician is typically required to pay a capital contribution in addition to the annual insurance premium.

An RRG is governed by the regulations of the state in which it is domiciled. If an RRG is appropriately capitalized and operated, it is a viable insurance alternative. As there is less regulatory scrutiny in some states, however, some RRGs are inadequately capitalized and charge inadequate premiums. As a result, insolvencies that imperil the coverage of the insureds have occurred among RRGs. An RRG must file an annual financial statement with its chartering state and all other states in which it operates. Doctors considering purchasing insurance from an RRG should review that statement. They should also carefully evaluate the degree to which the state in which the RRG is domiciled requires them to meet the high standards of solvency and effective management necessary to ensure that the company is able to fulfill its insurance obligations.

Standard Risk:

A person who, by the company’s underwriting standards, is eligible for insurance without restrictions or surcharges. 

Substandard Risk:

A person or entity that must pay higher premiums and is subject to special coverage restrictions based on underwriting standards.

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 (Extended Reporting Coverage):

Coverage that protects the physician against all claims that arise from professional services performed while the claims-made policy was in effect, but which were reported after the termination of the policy. Some insurers offer this feature free of charge for retiring doctors who meet certain requirements.

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.

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.