In an effort to better inform you, we've compiled a list of many of the most frequently used terms in our industry.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

Absolute Liability
Liability regardless of fault.

Adjudication
The act of determining an issue or settling a dispute in court.

Allocated Loss Adjustment Expense (ALAE)
Expenses that are directly attributable to a claim, such as the costs of patient medical evaluations, defense attorney fees and expert medical reviews and witnesses.

Alternative Dispute Resolution
An alternative to settling a dispute in court. Key methods include arbitration, in which the disputing parties agree to be bound to the decision of an independent third party; and mediation, in which a third party tries to arrange a settlement between the two sides.

Alternative Markets
Refers to various non-traditional mechanisms used to finance risk, some of which were authorized by the Liability Risk Retention Act (LRRA) which Congress passed in 1986 to help businesses, professionals and municipalities obtain affordable liability insurance. The goal was to facilitate alternative mechanisms for group insurance programs, and, in turn, promote greater premium competition and reduce costs.
The mechanisms authorized included the risk retention group (RRG), which is a professional liability insurance organization owned by its subscribers (policyholders or owners). Popular because of their cost savings and program control benefits, the number of physician-owned risk retention groups has grown dramatically, with more than 70 formed in the last seven years. Today 40% of all risk retention groups are physician-owned. Alternative markets also include captives, which is an insurance entity whose primary purpose is to provide the captive's owner with coverage for specific risks.

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
An obligation of insureds to pay money, in excess of premium amounts, to cover past company losses for which reserves have proven to be inadequate. Risk Retention Groups, like Physhield, are not assessable.

Arbitration
An alternative to going to court to settle disputes in which the parties agree to settle an issue or dispute by accepting the decision of an independent third party or panel operating under guidelines established by the American Arbitration Association.

Assets
The property and financial resources owned by an insurance company. Admitted assets are those recognized by state insurance laws as those that can be liquidated to raise cash to pay claims. Non-admitted assets include 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.

Attorney-in-fact
The entity that manages an interinsurance or reciprocal exchange and to whom each subscriber (policyholder or owner) gives authority to "exchange" insurance among subscribers. Physhield is a reciprocal exchange and its attorney-in-fact is Phyhealth Underwriters, Inc. a subsidiary of Phyhealth Corporation.

B

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.

C

Captive
An insurance entity whose primary purpose is to provide the captive's owner with coverage for specific risks.

Claim
A written notice, demand, lawsuit, arbitration proceeding, or screening panel in which a demand is made for money or a fee reduction based on an alleged injury, disability, sickness, disease, or death of a patient that arose from a physician's professional services or failure to provide services.

Claims Made Policy
A popular form of insurance in which coverage is provided for claims that arise from incidents or events that both occur and are reported to the insurance company while the policy is in force. That differs from an occurrence policy in which the insurer that carried the risk when the act occurred is liable for the claim regardless of when it was reported. In order to have coverage for prior acts in the future, the insured needs to maintain a claims made policy through an extended reporting period or "tail" coverage, purchased to cover acts in the past.

Claims Paid Coverage
A form of insurance coverage often used by Trusts. Under a claims paid policy, premiums are based only on claims settled during the previous year and projected for the current year. Claims paid policies are generally assessable for a number of years after the policy has been terminated. In addition, claims paid policies usually have restrictive claims "triggers," under which a claim is not considered formally made until a "Summons and Complaint" is received. As a result, policyholders changing from claims paid coverage to claims made coverage might find it difficult to obtain retroactive (prior acts) coverage from the new carrier. Physicians leaving a claims paid carrier will most likely have to purchase expensive tail coverage from that claims paid carrier.

Claims Reserves
Funds set aside to meet future payments associated with claims reported but not yet settled.

Credentialing Report
Report with up-to-date information on a physician's insurance policy and claims experience.

D

Date of Incident
The date on which the alleged malpractice took place. It is also referred to as the date of occurrence.

Date of Reporting
The date an incident is reported to the insurer. The insured should report any incident or claim immediately to the insurance carrier in order to facilitate the investigation and defense.

Declaration
The part of the insurance policy that states the name and address of the insured, the policy period, the amount of insurance coverage, premiums and any coverage restrictions. Also called the declarations page or "dec" page.

Deductible
The amount of the loss paid by the subscriber. Also referred to as Self-Insured Retention (SIR).

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 insurer and the insured split all costs within the deductible amount, such as on a 50-50 basis.

Direct Written Premium
Insurers can share some premium and risk with their reinsurer. Direct written premium is the gross premium the insurer collects from the subscribers (policyholders or owners) before deducting any premiums paid to a reinsurer.

Dividend
Money returned to subscribers (policyholders or owners) from an insurer's earnings. In an interinsurance or reciprocal exchange, the company's governing board normally declares a dividend to be disbursed 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 department of insurance.

E

Earned Premium
Insurance premiums are payable in advance but the insurer does not fully earn them until the policy period expires. The earned premium is the part of premium that applies to the portion of the policy period that has expired.

Economic Damages
Out-of-pocket expenses, such as medical bills incurred or lost wages.

Endorsement
A written amendment attached to an insurance policy that alters the policy's coverage, terms or conditions. Sometimes referred to as a rider.

Excess Insurance
A separate insurance policy with limits above the primary (or "first dollar") policy.

Exemplary Damages
Damages in excess of those required to compensate the plaintiff for the wrong done. Awarded to punish the defendant for wanton or willful conduct. May or may not be covered under insurance policies depending on state regulations and type of coverage.

See also Punitive Damages.

Experience Rating
A system of pricing insurance in which the future premium reflects the actual past loss experience of the insured.

Extended Reporting Coverage
See Tail Coverage.

I

Incident
An occurrence that the plaintiff claims resulted in culpable injury.

Incurred But Not Reported Losses (IBNR)
An estimate of losses for incidents that have occurred during a policy period but have not yet been reported to the insurer. The sum of IBNR losses plus incurred losses provide an estimate of the insurer's eventual liabilities for losses during a given policy period.

Incurred Losses
The total amount of paid claims and unpaid claims (loss reserves) associated with a particular period of time, usually a policy year.

Indemnity
An insurers' payment to a plaintiff in the 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.

J

Joint Underwriting Associations (JUA's)
Non-profit, risk-pooling associations established by state legislatures in response to the lack of availability of certain kinds of insurance coverage. Some states have established JUA's to provide medical malpractice insurance for physicians who are unable to purchase affordably-priced insurance coverage in the standard marketplace.

L

Liability Risk Retention Act (LRRA)
A federal law that Congress passed in 1986 to facilitate alternative mechanisms for group insurance programs, and, help businesses, professionals and municipalities obtain affordable liability insurance. The goal was to help businesses, professionals and municipalities obtain affordable liability insurance by promoting greater premium competition and reducing costs.

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, i.e. for all losses under a single policy or for all policies during an underwriting period. (See Annual Aggregate Limit.)

Loss Ratio
The proportionate relationship of incurred losses (indemnity and ALAE) to earned premiums expressed as a percentage.

Loss Reserves
An insurer's best estimate of what it will pay for claims, which is adjusted periodically. Loss reserves represent a liability on the insurer's balance sheet.

Loss Reserves-to-Surplus Ratio
Measures an insurers' ability to pay claims if reserves are inadequate. The payments must come from the insurer's surplus.

M

Malpractice
An error, an omission or an act of negligence by a health care provider to the patient. Normally it is considered 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.

N

Net Earned Premium
Net written premium (plus assumed premium for reinsuring risk) less unearned premium.

Net Written Premium
Written premium less deductions for commissions and ceded reinsurance.

Nonassessable
An insurance policy in which the insurer does not have the right to assess subscribers (policyholders or owners) additional amounts to cover shortfalls in its operating expense. Physhield policies are nonassessable. A nonassessable policy is the opposite of one issued by an assessment company.

Noneconomic Damages
Nonpecuniary damages such as pain, suffering, inconvenience, loss of consortium, physical impairment and disfigurement.

Nose Coverage (Retroactive or Prior Acts Coverage)
Claims made liability policies typically include a retroactive date and the policy will not cover claims arising from covered occurrences, acts, or omissions committed prior to that date. If the specified retroactive date is earlier than the inception date of the policy, the period between the inception date and retroactive date is often referred to as nose coverage. It gets its name from its attachment to the "front" of the policy term, as opposed to "tail" coverage provided by an extended reporting period on the end of a claims made policy.

See also Retroactive (Prior Acts) Coverage.

O

Occurrence Insurance
A type of policy in which the insured is covered for any incident that occurs while the policy is in force, regardless of when the incident is reported or becomes a claim. Occurrence insurance for medical liability coverage is rarely offered today because of the difficulty of projecting long-term claims costs under this type of policy.

P

Paid Losses
The amount paid in losses during a specified time period.

Policy
The contract between the insurer and the insured. The policy defines what the insurer agrees to cover, the policy term and the responsibilities of the insured.

Policy Term
The length of time for which a policy is written.

Premium
The amount of money a subscriber (policyholder or owner) pays for the insurance coverage described in the policy.

Premium Credits
A credit included in the calculation of the premium based on a reduction in hazard that makes the subscriber (policyholder or owner) a better risk.

Premium-to-surplus Ratio (P/S)
The ratio of net written premium to surplus reflects a company's financial strength and future solvency. A minimum ratio is normally dictated by insurance regulators.

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 less losses, expenses, and taxes. Interinsurance or reciprocal exchanges are not-for-profit companies that do not generate profits. Excess income in reciprocal such as Physhield is either held as surplus or distributed to subscribers.

Punitive Damages
Damages in excess of those required to compensate the plaintiff for the wrong done. Awarded to punish the defendant for wanton or willful conduct. May or may not be covered under insurance policies depending on state regulations and type of coverage. Also called "exemplary damages."

See also Exemplary Damages.

R

Rate Maturation (Mature Rate)
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.

Reinsurance
An agreement between insurers under which one accepts all or part of a risk or loss of the other. The primary insurer insures only a portion of the risk and the remainder of the policy limit is covered by one or more reinsurance carriers.

Reserves
See Claims Reserves.

Reserves-to-surplus Ratio (R/S)
Measures an insurers' ability to pay claims if reserves are inadequate. The payments must come from the insurer's surplus.

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 also Tail Coverage.)

Retrospective Rating
A method used by some programs of adjusting the final premium, with a pre-determined maximum and minimum limit, based on actual loss experience. Physhield doesn't use retrospective rating.

Reunderwriting
The process by which an insurer re-evaluates subscribers (policyholders or owners), whose claims history or other experience presents a pattern that creates an undue liability, and imposes surcharges, deductibles or additional premium for succeeding policy periods or nonrenewal of coverage.

Risk Classification
A risk classification is 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 to reduce or eliminate risk to which a practice might be subject through a combination of safety measures and insurance.

Risk Purchasing Group
A group formed in compliance with the Risk Retention Act of 1986 authorizing a group of insureds engaged in similar businesses or activities to purchase insurance coverage from a commercial insurer. Differs from a risk retention group, which actually bears the group's risk rather than obtaining coverage on behalf of group members.

Risk Retention Group (RRG's)
A group formed in compliance with the Risk Retention Act of 1986 that is owned by its members and organized for the primary purpose of assuming and spreading the liability risk exposures of its group subscribers or owners. RRG's must be chartered and licensed as a liability insurance company in one of the fifty states, or the District of Columbia, which is called its state of domicile. The members must be engaged in a similar business but can be located anywhere in the US. Unlike commercial insurers, once the RRG has obtained a license from its state of domicile, it may operate in all other states without the burden of obtaining additional state licenses.

S

Standard Risk
A group of proposed insureds who represent average risk, within the context of the insurer's underwriting practices, and therefore pay average premiums without surcharges or restrictions.

Substandard Risk
A subscriber (policyholder or owner) who represents a significantly greater than average likelihood of loss and usually is charged higher premiums and/or is subject to special coverage restrictions based on underwriting standards.

Surplus
The remainder after an insurer's liabilities is subtracted from its assets.

Surplus Contributed and Surplus Earned
Surplus contributed is the amount of capital that insureds must provide for a mutual company or reciprocal exchange at of the beginning of the physicians' coverage. Surplus earned represents the earnings of the insurer after losses, expenses, and taxes. As the insurer grows, earned surplus from profits is added to the contributed surplus, and the contributed surplus can be returned to the policyholders who contributed the surplus.

T

Tail Coverage (Extended Reporting Coverage)
Provides coverage against claims that arise from professional services performed while a claims made policy was in force but reported after the policy expires.

U

Unallocated Loss Adjustment Expenses (ULAE)
All external, internal, and administrative claims handling expenses, including determination of coverage, that are not included in allocated loss adjustment expenses (ALAE), i.e. are not directly attributable to specific claims.

Underwriting Results
The profit or loss of the insurer, calculated by subtracting from earned premium those amounts paid out and reserved for losses and expenses. Any residual amount is an underwriting profit. If deductions exceed earned premium, an underwriting loss results. Underwriting results do not include investment income. Profits for interinsurance or reciprocal exchanges are termed Excess Income since these insurers are not-for-profit entities.

Unearned Premium
That portion of a premium that is already received by the insurer in advance of a coverage period. Insureds usually pay premium in advance of an actual coverage period. The entire premium is not earned until the policy period expires.
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V

Vicarious Liability
Liability for the acts of someone else.

W

Written Premium-to-surplus Ratio
See Premium-to-surplus Ratio.