The Malpractice Insurance Dictionary

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Like most industries, the medical malpractice insurance world consists of a lot of acronyms, confusing terms, and other jargon that can make it hard to understand - so we here to simplify things for you. Here are some of the most common terms used in the malpractice industry and their basic definitions.

Accident - an unfortunate incident that happens unexpectedly and unintentionally, typically resulting in damage or injury.

Actuary - business professional who compiles and analyzes statistics and uses them to calculate insurance risks and premiums.

Admitted Company - an insurance company licensed to do business in a state(s), but domiciled elsewhere.

Agent - an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

Aggregate - the maximum dollar amount or total amount of coverage payable for a single loss, or multiple losses, during a given policy period.

Allocated Loss Adjustment Expenses (ALAE) - an estimate of the settlement associated with a claim(s).

Arbitration - a binding dispute resolution tactic whereby a third party (arbitrator) with no interest in the outcome intercedes.

Broker - an individual who receives commissions from the sale and service of insurance policies. These individuals work on behalf of the customer and are not restricted to selling policies for a specific company.

Captive Agent - an individual who sells or services insurance contracts for a specific insurer.

Captive Insurer - an insurance company that is wholly owned and controlled by a parent organization; its primary purpose is to insure the risks of its owner(s).

Certificate of Insurance (COI) - a document used to provide verification of insurance and usually contains information on types and limits of coverage, insurance company, policy number, named insured, and the policy effective dates.

Chartered Property Casualty Underwriter (CPCU) - a professional designation awarded by the American Institute of Property and Casualty Underwriters to persons in the property and liability insurance field who pass a series of exams in insurance, risk management, economics, finance, management, accounting, and law.

Claim - a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Claims-Made Policy - A type of insurance that provides coverage when both the alleged incident and the claim happen during the policy period.

Class Rating - a method of determining rates for all applicants within a given set of characteristics such as personal demographic, specialty, or geographic location.

Combined Ratio - an indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.

Commission - a percentage of premium paid to agents by insurance companies for the sale of policies.

Credit - a discount that reduces the premium based on a favorable experience or other differentiating factor.

Declaration Page (or dec page) - the front page (or pages) of a policy that specifies the named insured, address, policy period, location, policy limits, and other key information.

Direct Writer - an insurance company that sells policies to the insured through salaried representatives or exclusive agents only

Direct Written Premium - total premiums received by an insurance company.

Dividend - a refund of a portion of the premium paid by the insured from insurer surplus.

Domestic Insurer - an insurance company that is domiciled and licensed in the state in which it sells insurance.

Earned Premium - the premium collected by an insurance company for the portion of a policy that has since expired.

Earned But Not Reported (EBNR) - premium amount insurer reasonably expects to receive for which contracts are not yet final and exact amounts are not definite.

Effective Date - date at which an insurance policy goes into force.

Endorsement - an amendment or rider to a policy adjusting the coverages and taking precedence over the original contract.

Expense Ratio - percentage of premium income used to gain and service policies; calculated by subtracting related expenses from incurred losses and dividing by written premiums.

Experience Rating - rating approach where a group is rated entirely on the basis of its own individual claim performance.

Exposure - risk of possible loss.

Guaranty Fund - administered by a U.S. state to protect policyholders in the event that an insurance company defaults on benefit payments or becomes insolvent.

Hard Market - a market characterized by high demand and low supply.

Incurred But Not Reported (IBNR) - claims that have occurred but the insurer has not been notified of them at the reporting date. Estimates are established to book these claims.

Indemnity - a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss.

Independent Agent - an insurance agent that sells insurance policies provided by several different insurance companies, rather than a single insurance company. An independent agent receives commissions for the policies that he or she sells, and is not considered an employee of a specific insurance company.

Independent Contractor - an individual who is not employed for a company but instead works for themselves providing goods or services to clients for a fee.

Insurable Interest - when an insured person derives a financial or other kind of benefit from the continuous existence, without repairment or damage, of the insured object.

Insured - party(ies) covered by an insurance policy.

Insurer - an insurer or reinsurer authorized to write property and/or casualty insurance under the laws of any state.

Joint Underwriting Association (JUA) - a loss-sharing mechanism combining several insurance companies to provide extra capacity due to type or size of exposure; some states have JUAs to offer insurance to high-risk providers.

Lapse - termination of a policy due to failure to pay the required renewal premium.

Liability - the state of being responsible for something, especially by law.

Limits - maximum amount of coverage provided under an insurance policy.

Loss - physical damage to property or bodily injury, Including loss of use or loss of income

Loss Adjustment Expense (LAE) - expected payments for costs to be incurred in connection with the adjustment and recording of losses. Can be separated into (Allocated Loss Adjustment Expense) and (Unallocated Loss Adjustment Expense) for ratemaking purposes.

Loss Frequency - incidence of claims on a policy during a premium period.

Loss Ratio - the percentage of incurred losses to earned premiums.

Loss Reserve - the amount that insurers set aside to cover claims incurred but not yet paid.

Loss Severity - the amount of a loss in financial terms.

Losses Incurred - Includes claims that have been paid and/or have amounts held in reserve for future payment

Malpractice - alleged misconduct or negligence in a professional act resulting in loss or injury.

Medical Malpractice - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence, in rendering or failure to render professional services.

Medical Professional Liability - insurance coverage protecting a licensed health care provider or health care facility against legal liability resulting from the death or injury of any person due to the insured's misconduct, negligence, or incompetence in rendering professional services. Also known as Medical Malpractice.

Minimum Earned Premium - the smallest amount of money an insurance company is willing to accept for writing a business insurance policy.

Mutual Insurance Company - a privately held insurer owned by its policyholders, operated as a non-profit that may or may not be incorporated.

Named Insured - the individual defined as the insured in the policy contract.

Negligence - failure to exercise reasonable consideration resulting in loss or damage to oneself or others.

Non-Admitted Insurer - insurance company not licensed to do business within a given state.

Occurrence Policy - a type of insurance that provides coverage for incidents that “occur” during the policy period, regardless of when the claim is reported to the carrier.

Policy - a written contract ratifying the legality of an insurance agreement.

Policy Period - time period during which insurance coverage is in effect.

Premium - Money charged for the insurance coverage reflecting expectation of loss.

Producer - an individual who sells, services, or negotiates insurance policies either on behalf of a company or independently.

Rate - value of insured losses expressed as a cost per unit of insurance.

Registered Professional Liability Underwriter (RPLU) - a designation from the Professional Liability Underwriting Society (PLUS); considered to be the only professional designation exclusively for people in the professional liability industry. Courses provide a broad, basic understanding of the key professional liability disciplines.

Reinsurance - a transaction between a primary insurer and another licensed (re) insurer where the reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. The assumption is in exchange for a premium. Indemnification is on a proportional or non-proportional basis.

Reinsurer - company assuming reinsurance risk.

Reserve - A portion of the premium retained to pay future claims

Retroactive Date - generally the date from which you have held uninterrupted professional liability insurance coverage; often the inception date of the policy.

Risk - Uncertainty concerning the possibility of loss by a peril for which insurance is pursued.

Risk Retention Group - group-owned insurer organized for the purpose of assuming and spreading the liability risks to its members.

Self-Insurance - type of insurance often used for high frequency low severity risks where risk is not transferred to an insurance company but retained and accounted for internally.

Soft Market - a buyer's market characterized by abundant supply of insurance driving premiums down.

Stock Insurance Company - business owned by stockholders.

Substandard Risk - (impaired risk) risks deemed undesirable due to a variety of factors, i.e. claim activity, high-risk procedures, licensure issues, or other concerns.

Surplus Line - specialized property or liability coverage available via non-admitted insurers where coverage is not available through an admitted insurer, licensed to sell that particular coverage in the state.

Term - period of time for which policy is in effect.

Unallocated Loss Adjustment Expense (ULAE) - loss adjustment expenses that cannot be specifically tied to a claim.

Underwriter - person who identifies, examines and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and, if so, at what rate.

Underwriting - the process by which an insurance company examines risk and determines whether the insurer will accept the risk or not, classifies those accepted and determines the appropriate rate for coverage provided.

Unearned Premium - amount of premium for which payment has been made by the policyholder but coverage has not yet been provided.

Vicarious Liability - a party is held responsible not for its own negligence, but for the negligence of another.