Accident-year basis—The annual accounting period in which loss events occurred, regardless of when the losses are actually reported, booked or paid.
Actuary—One who uses statistical analysis to compute insurance risks and premiums, and to develop financial forecasts. Such forecasts are based on claims experience, price, utilization trends, product competition and other societal and marketplace conditions that affect the company's financial condition.
Admitted carrier/company—An insurance company authorized to do business in a certain state. Just because a company is admitted in a state does not mean that it is allowed to write business in that state. In order to write business, the company must also file rates and have them approved by that state's Department of Insurance. Once a company has a license in a state, the license remains in effect as long as the company pays a fee every year to renew it. Synonym: licensed carrier/company.
Adverse selection—An applicant who is a greater-than-average risk; occurs when policy premium does not cover cost.
Application—A written statement by a prospective insured that provides information about the applicant to be used in determining insurability.
Arbitration—An alternative to a court trial for resolution of a dispute or claim between two or more parties. In arbitration, a case is heard and resolved by an arbitrator or a panel of arbitrators. Arbitration may be entered into by agreement or may be mandated by statute, and the decision may be binding or nonbinding. A binding decision cannot be retried in the courts.
Assessability —A characteristic of some insurance policies in which policyholders are obliged to pay money, in addition to premiums, if the insurer experiences losses.
Assets—All the property and financial resources owned by an insurance company. 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.
Assumed premium —Consideration or payment an insurance company receives for providing reinsurance for another company.
Bodily injury—Defined in the SCPIE policy as "death, physical injury, sickness or disease sustained by a person."
Broker—A person or company that finds the best insurance deal for a client and then sells a policy to him or her, usually for a percentage of the premium. SCPIE deals with numerous brokers.
Bundling—The practice of grouping several individual procedures or services together for the purpose of paying for them as one package.
Capitation—A fixed periodic fee paid to a healthcare provider by a healthcare carrier for each covered member eligible to receive healthcare services under the terms of an HMO-type plan, regardless of how many times the member uses the service.
Captive insurance company—A wholly owned subsidiary of an association or group, organized for the purpose of insuring the risks of the association or group.
Carrier—A synonym for an insurance company.
Claim—A written or oral notice, demand, cross-claim or lawsuit (including an arbitration proceeding) received by the insured as a result of an occurrence (see definition). A claim is "reported" when an insured provides written notice of a claim to SCPIE.
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 SCPIE 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.
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. SCPIE was one of the first companies to offer claims-made coverage, and continues to do so because premiums are generally less costly than with other coverage types. Tail coverage, or a Reporting Endorsement, provides coverage for claims that occur during the coverage period but are reported after the policy terminates.
Combined Ratio—The sum of the loss ratio and the expense ratio expressed as a percentage. Generally, a combined ratio below 100% indicates an underwriting profit, above 100% an underwriting loss.
Commercial carrier—A for-profit insurance company, also known as a traditional or traditional line company. It is regulated by state laws and must qualify financially to do business in a state.
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. One example of SCPIE's applying a composite rate is that of a doctor who changes his or her practice from full-time to part-time status. SCPIE offers a 50% discount on premiums for eligible part-time physicians. However, the full discount does not take effect immediately upon conducting reduced practice hours. Initially, the part-time discounted premium is a composite rate based on the likelihood of claims not yet reported, but that stems from both past and present risk exposures. This composite rate is based on both the length of time that the physician practiced full time and the length of time spent in part-time practice. In claims-made coverage, composite rating is necessary to ensure that sufficient premiums are reserved for the higher full-time (past) exposure as well as for the part-time exposure (current). The composite rate will continue for five years, with a gradually larger discount each year, until the full 50% part-time discount is reached. Composite rates are also applicable in cases of change of specialty and practice location.
Cost containment—Programs designed to help control healthcare costs by encouraging the use of the most cost-effective medical services and by discouraging unnecessary medical services.
Coverage exclusions—Each coverage in a policy has an exclusion section that describes the circumstances under which coverage of the physician, entity or other insured, will not be applicable. For example, all SCPIE policies contain coverage exclusions for criminal acts and fee disputes.
Credentialing—The granting of medical staff membership and specific privileges to a physician by a hospital governing body and medical staff.
Declarations insert—Also referred to as a "face sheet" or "dec page," this is a prominent part of the policy. The declarations insert is provided with a SCPIE policy as the top or cover page to the policy booklet. This "dec page" specifies the name or names of insured members, describes the covered activity or activities and lists the following:
1. the policy number
2. coverage limits
3. policy period — dates when the policy becomes effective and when it terminates
4. a retroactive date if coverage became effective prior to the current policy period
5. the policyholder's premium paid or due
6. any nonstandard coverages provided, such as excess personal liability or any special policy endorsements.
Deductible—The amount of the loss the insured is responsible to pay before benefits from the insurance company are payable.
Definitions section—A section in a SCPIE policy booklet defining specific words and phrases used in the policy. For example, in the SCPIE policy for individual physicians, the definitions section is the first section in the policy booklet.
Direct writer—An insurer that sells policies through salaried employees instead of through independent agents or brokers.
Discovery—Pretrial procedures to learn of evidence in the possession of, or known to, an opposing party or witnesses. Discovery is designed primarily to minimize the element of surprise at the time of trial.
Earned premium—The portion of a premium that has paid for (earned) coverage, as opposed to the portion of a premium that will pay for (unearned) coverage. A quarterly premium paid in January will have two months of earned premium on February 28, and one month of unearned premium still remaining.
Expense Ratio —Incurred expenses (e.g., policy acquisition costs and other underwriting expenses) divided by written premiums, expressed as a percentage.
Experience rating—Used by virtually all carriers, this is the practice of basing insurance premiums on the past loss history of individual insureds or entities.
Frequency of claims—Refers to the number of claims that are filed. Frequency and average severity of claims are the fundamental variables used in determining insurance premiums.
Fronting company—A company whose name is on the face of an insurance certificate. Different from the intermediary company that is actually writing the policy and taking on the risk.
Gatekeeper—The HMO's method of controlling patient referral(s). A patient must first see a primary care physician (PCP), who will then refer to a specialist if necessary. The term gatekeeper is considered derogatory by many.
Health maintenance organization (HMO)—A legal corporation that offers health insurance and medical care. HMOs require their subscriber members (patients), except in a medical emergency, to use the services of designated physicians, hospitals or other providers of medical care. HMOs typically use a capitation payment system that rewards providers for cost-effective management of patients.
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). Courts may modify or refuse to uphold such agreements if they are deemed harmful to the public or the parties are perceived to have unequal bargaining power.
Incident—An incident is an event with the potential to result in a claim through injury or property damage, a worsening of an injury or condition and in the worst-case scenario, a patient death. The following are some of the most common types of incidents that can result in claims: departures from established medical procedure or policy, an event resulting in an injury to a patient, an unfavorable delay in treatment, a premature discharge of a hospital patient and a failure to give informed consent.
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 nontechnical terms.
Injury—A legal term that consists of two types. The first, more obvious, definition refers to bodily or physical injury. The second is broader in nature and includes claims resulting from false arrest, detention, imprisonment, wrongful entry or eviction, malicious prosecution, libel, slander, a violation of an individual's right to privacy, assault or battery, and includes mental anguish, mental shock or hallucination.
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.
Insurance policy—The document that defines contractual responsibilities between a physician and an insurance company is an insurance policy. The purpose of an insurance policy is to provide for the transfer of risk of financial loss from the physician to the insurance company within the financial limits defined by the policy. This contractual transfer generally occurs when a physician provides payment (a premium) to the carrier in exchange for the carrier's promise to defend and/or pay covered claims against the insured.
Insured premises—As defined in the definitions section of the SCPIE policy (important to office premises liability coverage) for individual physicians and their solo medical corporations: "Insured Premises means the premises used by the named insured physician as a professional medical office at the address listed in item two (2) of the declarations insert and at any additional location named in an endorsement to this policy, and includes the ways immediately adjoining such premises on land." In other words, the primary place where the insured regularly sees patients and practices medicine.
Limits of coverage—The maximum professional liability amount that can be paid under the terms of a policy. Professional liability policies typically specify limits per claim and a cumulative limit for all claims incurred during the term of the contract, which in SCPIE's case is during the calendar year. The SCPIE policy provides per-claim and aggregate per-calendar-year limits of coverage options of $500,000/$1.5 million, $1 million/$3 million and $5 million/$5 million. With some carriers, defense costs are counted against the policy limit, whereas with SCPIE, defense costs do not offset limits—policy limits are entirely available for paying indemnity only.
Litigation—The process of resolving a dispute in a court of law to determine factual and legal issues, as well as the rights and duties between the parties to the controversy, and to award damages or other relief.
Not all claims received by SCPIE ever make it to the litigation stage, and only a small percentage of cases in litigation ever go to trial.
Locum tenens—A substitute physician who temporarily takes the place of a named insured policyholder or physician member of a medical group. Under the terms of the SCPIE policy, this coverage is contingent upon the SCPIE policyholder or member physician not practicing during the period in which the Locum Tenens coverage is in effect.
Loss ratio—SCPIE has two types of loss ratios: paid loss ratio and incurred loss ratio. A paid loss ratio is the amount of premium a policyholder has paid to SCPIE through the years versus the amount SCPIE has paid out on his or her behalf for defense and indemnity. For instance, a paid loss ratio of 50% means SCPIE has paid out 50% of what we've received in premium from a particular policyholder. A paid loss ratio of 100% means we've taken in the same amount as we've paid out—broken even. Anything more than 100% is not good—it means we're paying out more than we're taking in.
An incurred loss ratio is the amount we have paid out (defense and indemnity) plus the amount we expect to pay out (reserves) for a particular policyholder versus the amount of premium a policyholder has paid to SCPIE throughout the years. A policyholder who has never filed a claim has a 0% incurred loss ratio.
Mature premium—SCPIE uses a step rating system to set premiums for its claims-made policies. The mature premium is the fee a policyholder will pay during the sixth year of coverage.
The first level premium is substantially lower than a mature premium. It is designed for policyholders who 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. Legislation passed by the California Legislature in an emergency session in response to a medical liability insurance crisis that resulted in proposed skyrocketing increases in physician medical liability insurance premiums of between 300% and 500%. MICRA places a $250,000 cap on noneconomic damages (pain and suffering), limits attorney contingency fees and allows periodic payments of future damages in excess of $50,000. MICRA created the Board of Medical Quality Assurance (now the Medical Board of California).
Nose coverage—Nose coverage covers claims first made against the physician after the effective date of coverage on the SCPIE policy. To be covered, such claims must arise out of the physician's acts or omissions prior to the SCPIE policy's effective date and after its retroactive date. (Both dates are shown on the declarations page of the policy.) A final note: Nose coverage is also known as retroactive coverage or prior acts coverage.
Occurrence—This term refers to an accident, or a single act or omission, which results in injury or property damage to any person or corporation. An occurrence may include any continuous or repeated exposures to conditions that result in injuries or property damage. Covered injuries are only those that are accidental, meaning unexpected and unintentional on the part of an insured. For the purpose of determining liability, SCPIE considers all injuries to a person that result from an act or omission, or a series or related acts or omissions, and all bodily injuries and property damage that arise from continuous or repeated exposure to substantially the same general conditions, as constituting a single occurrence.
Occurrence coverage—A policyholder is covered for any event that occurs during the term of the policy, regardless of when the claim arising from the event is reported. This coverage was formerly the most prevalent professional liability insurance, but today it is generally not available due to its higher cost.
Periodic payments—synonym: structured settlements. Damages paid over a period of time instead of in a lump sum. Periodic payments may be mandated when damages exceed a certain amount. Some periodic payment awards cease upon the death of the plaintiff.
Policy endorsement—Also called "riders," "policy changes" and "amendments," they alter basic policy provisions by adding, excluding or modifying coverages. As defined within the SCPIE policy (for individual physicians), "endorsement means a document that modifies the coverage or other provisions set forth in the policy. If the terms of any endorsement are inconsistent with the terms of this policy, the terms of the endorsement supersede the policy." SCPIE often uses endorsements to tailor a policy to individual practice situations.
Primary insurance—Insurance that covers an insured from the first dollar of loss, after any deductible or self-insured retention (as distinguished from umbrella or excess insurance).
Prior acts (nose) coverage—This is a supplement to a claims-made policy; it is purchased from the new carrier when a healthcare provider changes claims-made insurers. Prior acts coverage, also known as "nose" coverage, protects physicians from liability associated with incidents that occurred prior to the beginning of their new claims-made policy with a new insurance company, but that have not yet been brought as a claim against the physicians. Such coverage is an alternative to an "extended reporting endorsement," or tail coverage (discussed in its definition) that is purchased from the original carrier when a change in carriers is made.
Professional liability coverage—Liability coverage for professionals such as physicians for acts or omissions that cause injury during the performance of their professional duties. When an insured is liable for injury or damage due to professional negligence, a carrier pays the injured party on behalf of, and with the consent of, the insured.
Punitive damages—Also known as exemplary damages. Awarded to the plaintiff in cases of intentional tort or gross negligence to punish the defendant or act as a deterrent to others.
Reinsurance—A contractual arrangement in which one insurance company buys insurance from another company to transfer part of the risk that the first company has insured. The company transferring the risk exposures is called the primary insurer, and the company accepting the exposure is the reinsurer. The amount of risk transferred varies from one company to another. SCPIE uses reinsurance for spreading out its risk exposures and reducing the effects of large losses to ensure financial stability.
Reserves—Money set aside and invested by an insurance company to pay estimated future losses. A company's claims department typically specifies a reserve amount for every claim that is filed, which may be modified as the claim proceeds in the courts.
Retroactive date—The date on which a policy's coverage begins. The retroactive date may be the same as or earlier than a policy's effective date.
Reunderwriting—The process by which the company reevaluates policyholders and, as necessary, imposes surcharges, deductibles or nonrenewal in cases where the policyholder's claims history or other experience presents a consistent pattern that creates an undue liability risk.
Risk purchasing group (RPG)—A group of similarly situated persons or entities that are permitted under federal law to organize across state lines to buy insurance. The carrier that sells insurance to the group must be licensed in at least one state but need not be licensed in every state where a member of the group resides.
Risk retention group (RRG)—A group of similarly situated persons or entities that are permitted under federal law to organize across state lines for the purpose of pooling their liability risk and self-insuring. If the group is licensed in one state, it is permitted to solicit business and sell insurance nationwide without fulfilling each state's licensure requirements.
Standard of care—A term used in the legal definition of medical malpractice. A physician is required to adhere to the standards of practice of reasonably competent physicians, in the same or similar circumstances, with comparable training and experience.
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.
Surcharge—An extra charge applied to an account. At SCPIE, surcharges for individual physicians are determined by SCPIE's Physicians Underwriting Committee. Surcharges may be applied to policyholders with a high frequency of claims and/or settlements, or those whose claims receive negative medical expert review.
Surplus—The amount by which an insurer's assets exceed its liabilities.
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. Generally needed at the time of retirement, upon the decision to change claims-made carriers, or due to death or total disability of the member, tail coverage is purchased from an insured's previous claims-made carrier.
Utilization review (UR)—Evaluation of the level, frequency and necessity of medical care. Helps ensure proper use of healthcare resources by providing for the regular review of such areas as admission of patients, length of stay, services performed and referrals.
Monday, July 26, 2010
Glossary of insurance Terms TCAIS
Actual Cash Value: Actual Cost Value (ACV) is a method used by insurance companies to assign value to a piece of property at the time it is damaged or destroyed. ACV is estimated by taking the cost of replacing the property minus the depreciation from age or "wear and tear." For example, the ACV of a 20-yr. old roof would be less than the ACV for a 2-yr. old version of the same roof. (contrast with Replacement Cost)
Actuary: An actuary is an expert in statistical insurance information. Actuaries are responsible for reviewing and evaluating the potential for future claims costs and using this information to determine rates and rating methods.
Admitted Company: An admitted company is a company that has been authorized by a particular state to sell insurance in that state.
Allocated Loss Adjustment Expenses (ALAE): ALAE are loss adjustment expenses that can be attributed to a specific claim. (see Loss Adjustment Expenses, Unallocated Loss Expenses)
Assigned Risk Plans: Assigned risk plans are designed to give insurance to high-risk drivers who are unable to find insurance in the regular market. Under assigned risk plans, the state requires auto insurance companies to cover a number of drivers that is proportional to the total number of policies they sell in the state. In Texas, the assigned risk plan is called the Texas Automobile Insurance Plan Association (TAIPA.)
Beach and Windstorm Plans: Beach and Windstorm plans are usually offered in states where high numbers of hurricanes make it impossible for coastal property-owners to find insurance in the regular market. Under this system, the state organizes a pool of funds from all the insurers licensed in that state. The state then uses the pool to provide insurance for coastal properties. Texas is one of seven states to offer a state sponsored windstorm plan.
Blanket Coverage: Blanket coverage is insurance that covers more than one piece of property in one location or multiple pieces of property in multiple locations.
Captive Agent: A captive agent sells policies for only one company. Captive agents have an agreement with their company that they will not submit business to any other company unless it is first rejected by their primary company. (similar to Exclusive Agent)
Chartered Property Casualty Underwriter (CPCU): CPCU is a designation given by the American Institute for Property and Liability Underwriters. In order to receive the designation, an underwriter must have at least three years experience and pass an exam.
Collision Coverage: Collision coverage covers the cost of fixing or replacing your car after an accident, regardless of who was driving and who was at fault. The coverage is limited to the actual cash value of your car minus your deductible.
Competition: In this system rates are controlled by competition between companies instead of by governmental controls. Insurance companies may raise or lower rates without the approval of the state-regulating agency. Usually, the state-regulating agency will reserve the right to disallow rates only if it finds them to be unreasonable or discriminatory.
Comprehensive Coverage: Comprehensive coverage pays for the repair of damages not caused by collisions, i.e. hail-damage, vandalism, and fire. It also pays for the replacement of a car in the case of theft.
Compulsory Auto Insurance: Compulsory auto insurance is the minimum amount of auto insurance required by law. In Texas, drivers are required by law to have liability insurance that covers the policyholder for $20,000 in medical expenses for each injured person, up to a maximum of $40,000 and $15,000 in property damage.
County Mutual: County mutuals are a special type of mutual insurance company that was originally designed to provide insurance for buildings and livestock in remote rural communities. In 1955, county mutuals also began to sell auto insurance statewide.
Declaration: The declaration is the part of the written insurance policy that states all the policy's specifics, including the name of the policyholder, the type of property insured, the premiums, and the term limits for the coverage.
Deductible: The deductible is the amount of a claim that the policyholder must pay him or herself. Policies with bigger deductibles have lower premiums.
Demutualization: Demutualization is the conversion of an insurance company from a mutual company that is owned by its policyholders to a publicly traded company that is owned by stockholders.
Deregulation: Deregulation is the process of reducing the regulatory control that states have over insurance rates and forms.
Direct Writers: Direct writers are insurance companies that sell their products directly to the public through exclusive agents, their own employees, the mail, by phone or via the Internet.
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Endorsement: An endorsement is a specific addition to a policy that alters the coverage and therefore the price of that policy. Endorsements can either add or remove specific types of coverage. In many cases, consumers can buy a basic policy and then custom-tailor it to their needs through specific endorsements.
Exclusion: An exclusion is a provision in an insurance policy that removes coverage for certain risks, people, property, or locations. Exclusions can make policies more affordable by eliminating coverage for unnecessary risks.
Exclusive Agent: An exclusive agent is an agent that sells policies for only one company. Exclusive agents have an agreement with their company that they will not submit business to any other company unless it is first rejected by the primary company. (similar to Captive Agent)
Experience (also Loss Experience): Experience is the history of losses for an individual policyholder.
Exposure (also Loss Exposure): Exposure is the likelihood that a policyholder will suffer a loss.
Fair Access to Insurance Requirements Plans (FAIR Plans): FAIR plans are insurance pools that sell coverage to high-risk property owners who cannot buy in the regular market. FAIR plans require all insurers licensed in a state to contribute a pool of funds that offers property insurance for these high-risk properties.
Federal Insurance Administration (FIA): The Federal Insurance Administration is a federal organization that administers the national Flood Insurance program. Aside from flood insurance, the FIA has no control over insurance regulation.
File-and-Use: Under a file-and-use system, companies must submit rate changes to the state regulating agency but they do not have to wait for approval to put the new rates into effect. If state insurance regulators do not approve of the rate changes, they can then force companies to repeal the changes and return to the original rates.
Financial Responsibility Law: A state law that requires drivers to have a minimum amount of liability coverage in order to show they have the means to pay for damages if they are involved in an accident.
Form (also Policy Form): The "form" of a policy dictates what types of damages a policy covers and the dollar amounts of the coverage. Historically, Texas law has required insurers to offer a limited number of forms forms, primarily the HO-A and the HO-B. Recently, however, companies have been authorized tp begin offering new forms.
Fraud: Fraud is any intentional lying or misrepresentation by policyholders or claims adjusters in order to inflate a claims payment or receive a claims payment that would otherwise not be paid.
Guaranty Fund: A guaranty fund is used when insolvent insurance companies cannot pay their claims. The fund is managed by the state and is created with money collected from insurance companies licensed in that state.
Guaranty Replacement Cost Coverage: Guaranteed replacement cost coverage is coverage that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.
HO-A: HO-A is one of the policies that insurers in Texas have been required to sell. Historically, HO-A has not been a popular policy because it offered very limited coverage. Recently, insurers have been allowed to offer versions of HO-A that offer more extensive coverage and the policy has gained popularity.
HO-B: HO-B is one of the policies that insurers in Texas have been required to sell. HO-B has been the most popular policy in Texas, mainly because it offered more coverage than HO-A. HO-B offers very extensive coverage and therefore tends to be less affordable.
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Independent Agent: An independent agent is a self-employed agent who represents multiple insurance companies.
Independent Adjuster: An independent adjuster is an adjuster who works as an independent contractor with insurance companies or other organizations to investigate and settle claims. Independent adjusters are required to be licensed by the state. Compare to Public Adjuster. (contrast with Public Adjuster)
Insurance Credit Score: An insurance credit score is a number that is determined by looking at certain aspects of an individual's credit history. This number is provided to insurance companies by a credit evaluation service. Insurance companies then use this number as one of many factors that determine the rates a policyholder is charged. Statistics have shown that insurance scores are an accurate tool to help predict the amount of claims that a policyholder will file.
Insolvency: In the case of insurance, insolvency means that companies do not have sufficient funds in their reserves to pay claims. If a company appears to be at risk for insolvency, the Texas Department of Insurance (TDI) will advise the company to take measures to increase their reserve funds. These measures can include such things as raising rates, adjusting the company's investment portfolio, and soliciting investment in the company. If the company fails to improve its situation, the TDI can intervene by court order and take control of that company's operations. If all else fails, the final step is liquidation. Using this last resort, the TDI will dissolve the company and sell off all of its assets to pay the claims.
Insurance Pool: An insurance pool is a group of insurance companies that pool their assets in order to share the loss potential of insuring large risks such as nuclear power stations. Some pools are mandated by the state to cover risks that cannot obtain coverage in the regular market, such as coastal properties that are prone to hurricane risks. (See Beach and Windstorm Plans; Joint Underwriting Association / JUA)
Joint Underwriting Association/JUA: A joint underwriting association consists of insurers who band together to provide coverage for a specific type of risk or exposure. They are only used when it is difficult to obtain a certain type of insurance in the regular market. Companies in JUA's share in the profits and the losses of the association.
Liability Insurance: Liability coverage pays for expenses from damages or injuries to other people that are caused by the policyholder.
Lloyd's Companies: Lloyd's companies are modeled after the Lloyd's of London insurance syndicate. In Texas, Lloyd's companies deal primarily with homeowners insurance. Under Texas law, auto insurance issued by Lloyd's companies is subject to rate-regulation but homeowners insurance is not.
Loss: In insurance terms, loss means an unintentional decrease in the value of a piece of property as the result of some event.
Loss Adjustment Expenses (LAE): LAE are expenses incurred while determining the value of a claim, over and above the cost of the claim. These can include fees from doctors, trial lawyers, and adjusters. Loss adjustment expenses are divided into two categories, Allocated Loss Adjustment Expenses (ALAE) and Unallocated Loss Adjustment Expenses (ULAE).
Loss Ratio: Loss ratio is the percentage of each premium dollar that an insurer spends on claims. For example, a company with a 90% loss ratio will spend 90 cents on claims for every dollar they collect as premium.
Loss Reserve (also Reserve): A loss reserve is a figure that represents an insurance company's best estimate of what future losses will be, it is not an actual reserve of money. An insurance company must set its rates according to its loss reserve estimate so that it will be able to pay future claims.
McCarran-Ferguson Act: The McCarran-Ferguson Act is a federal law signed in 1945 that gives states the full authority to regulate the insurance business. The law places insurance companies under the authority of state anti-trust laws instead of Federal anti-trust laws.
Mold Remediator: Mold remediators are contractors who specialize in removing mold from homes. Mold remediators are not required to be licensed or certified.
Mutual: The term mutual denotes a company that is owned by its policyholders instead of by stockholders. These companies return part of their profits to policyholders as dividends.
NAIC: The National Association of Insurance Commissioners (NAIC) was founded in 1871 to help promote uniformity in the regulation of insurance among the different states. The NAIC is composed of representatives from every US state and territory as well as the District of Columbia. The NAIC also monitors financial viability of national companies to prevent insolvencies.
NCOIL: The National Conference of Insurance Legislators (NCOIL) is an organization of state legislators who focus on issues of insurance regulation. NCOIL works to educate state legislators about insurance issues and to increase communication between legislators in different states.
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Personal Lines: Personal lines are property/casualty insurance products intended for individual consumers as opposed to commercial customers.
Policy: A policy is a written contract for insurance between an insurance company and policyholder that states the details of the coverage.
Prior Approval: When insurance companies wish to change their rates in a prior approval system, they must gain approval of their rate changes from the state regulating agency, (i.e. Department of Insurance,) before they can put the new rates into effect.
Rate Regulation: The process by which state insurance agencies either set insurance rates or monitor any rate changes that insurance companies make. Some examples of rate regulation are file-and-use systems, prior approval systems, and the Texas Benchmark Rating System.
Reciprocal Exchanges: In a reciprocal exchange company, policyholders "insure each other" through a common attorney who manages the premium funds. In Texas most reciprocal exchanges deal with homeowners insurance. homeowners rates are not regulated for reciprocal exchange insurance policies.
Replacement Cost: Replacement cost is a method that assigns value to a piece of property by considering the cost of repairing or replacing the property without taking into account depreciation. (contrast with Actual Cash Value)
Residual Market: The residual market consists of facilities to provide coverage for consumers or businesses that cannot purchase insurance in the regular market. Some examples of residual market facilities are Assigned Risk Plans, Joint Underwriting Agreements, and FAIR plans.
Solvency: Solvency is the ability of an insurance company to pay future claims. In order to remain solvent, insurance companies must always keep an adequate surplus of funds in case an unforeseen increase in claims occurs.
Surplus Lines: Surplus lines denotes coverage that must be purchased from a company that is not licensed by the state because it is not available through licensed companies. For example, surplus lines might be used when unusual coverage is needed but state-licensed companies cannot offer the coverage because the state either restricts them from offering such coverage or restricts them from charging the rates that such coverage would cost.
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Texas Automobile Insurance Plan Association (TAIPA): TAIPA is the association that manages Texas' assigned risk plan. It was designed to provide insurance for high-risk drivers. (see Assigned Risk Plan)
Texas Benchmark Rating System: The benchmark rating system is the system by which all regulated home and auto insurance rates are determined. The Texas Insurance Commissioner sets a benchmark rate and insurance companies must set their rates within a 30% parameter of the benchmark.
Texas Department of Insurance (TDI): The TDI is the state regulatory office that oversees insurance in Texas. The TDI is responsible for :
* Licensing all companies and individuals that sell insurance within the state of Texas;
* Issuing the rules and regulations to which all Texas insurance companies must adhere and enforcing these rules;
* Investigating the financial condition of insurance companies to ensure that they have sufficient funds to pay their claims;
* Setting the range in which rate-regulated companies may sell home or auto insurance; and
* Investigating possible cases of insurance fraud, license violation, misrepresentation in advertising, or discrimination in service and rates.
Tort: A wrongful act which results in injury or damage and on which a civil action may be based.
Tort Reform: An effort by state lawmakers to change legal procedures in order to prevent lawsuit abuse and make liability insurance more affordable. Tort reform includes revising the laws that determine responsibility for damages, reducing the amount of punitive damages that civil actions can seek. In the 1980's, 45 states enacted tort reform legislation.
Umbrella Policy: A separate policy that offers coverage for costs over and above the dollar limits of an underlying policy.
Unallocated Loss Adjustment Expenses (ULAE): ULAE are adjustment expenses that result from a broad array of claims or that result from the general process of determining the amount of claims payments. (See Loss Adjustment Expenses & Allocated Loss Adjustment Expenses)
Underwriting: Underwriting is the process of examining the risks of potential policyholders and then accepting or rejecting those risks. Underwriting also includes placing limits on the coverage that policies offer and categorizing policies so that the appropriate premium is charged.
Underinsured/Uninsured Motorists Coverage (UM/UIM): UM/UIM coverage pays for losses from an accident caused by an uninsured motorist or a hit-and-run driver. It also covers any remainder of expenses that the driver at fault did not have sufficient insurance to cover.
Actuary: An actuary is an expert in statistical insurance information. Actuaries are responsible for reviewing and evaluating the potential for future claims costs and using this information to determine rates and rating methods.
Admitted Company: An admitted company is a company that has been authorized by a particular state to sell insurance in that state.
Allocated Loss Adjustment Expenses (ALAE): ALAE are loss adjustment expenses that can be attributed to a specific claim. (see Loss Adjustment Expenses, Unallocated Loss Expenses)
Assigned Risk Plans: Assigned risk plans are designed to give insurance to high-risk drivers who are unable to find insurance in the regular market. Under assigned risk plans, the state requires auto insurance companies to cover a number of drivers that is proportional to the total number of policies they sell in the state. In Texas, the assigned risk plan is called the Texas Automobile Insurance Plan Association (TAIPA.)
Beach and Windstorm Plans: Beach and Windstorm plans are usually offered in states where high numbers of hurricanes make it impossible for coastal property-owners to find insurance in the regular market. Under this system, the state organizes a pool of funds from all the insurers licensed in that state. The state then uses the pool to provide insurance for coastal properties. Texas is one of seven states to offer a state sponsored windstorm plan.
Blanket Coverage: Blanket coverage is insurance that covers more than one piece of property in one location or multiple pieces of property in multiple locations.
Captive Agent: A captive agent sells policies for only one company. Captive agents have an agreement with their company that they will not submit business to any other company unless it is first rejected by their primary company. (similar to Exclusive Agent)
Chartered Property Casualty Underwriter (CPCU): CPCU is a designation given by the American Institute for Property and Liability Underwriters. In order to receive the designation, an underwriter must have at least three years experience and pass an exam.
Collision Coverage: Collision coverage covers the cost of fixing or replacing your car after an accident, regardless of who was driving and who was at fault. The coverage is limited to the actual cash value of your car minus your deductible.
Competition: In this system rates are controlled by competition between companies instead of by governmental controls. Insurance companies may raise or lower rates without the approval of the state-regulating agency. Usually, the state-regulating agency will reserve the right to disallow rates only if it finds them to be unreasonable or discriminatory.
Comprehensive Coverage: Comprehensive coverage pays for the repair of damages not caused by collisions, i.e. hail-damage, vandalism, and fire. It also pays for the replacement of a car in the case of theft.
Compulsory Auto Insurance: Compulsory auto insurance is the minimum amount of auto insurance required by law. In Texas, drivers are required by law to have liability insurance that covers the policyholder for $20,000 in medical expenses for each injured person, up to a maximum of $40,000 and $15,000 in property damage.
County Mutual: County mutuals are a special type of mutual insurance company that was originally designed to provide insurance for buildings and livestock in remote rural communities. In 1955, county mutuals also began to sell auto insurance statewide.
Declaration: The declaration is the part of the written insurance policy that states all the policy's specifics, including the name of the policyholder, the type of property insured, the premiums, and the term limits for the coverage.
Deductible: The deductible is the amount of a claim that the policyholder must pay him or herself. Policies with bigger deductibles have lower premiums.
Demutualization: Demutualization is the conversion of an insurance company from a mutual company that is owned by its policyholders to a publicly traded company that is owned by stockholders.
Deregulation: Deregulation is the process of reducing the regulatory control that states have over insurance rates and forms.
Direct Writers: Direct writers are insurance companies that sell their products directly to the public through exclusive agents, their own employees, the mail, by phone or via the Internet.
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Endorsement: An endorsement is a specific addition to a policy that alters the coverage and therefore the price of that policy. Endorsements can either add or remove specific types of coverage. In many cases, consumers can buy a basic policy and then custom-tailor it to their needs through specific endorsements.
Exclusion: An exclusion is a provision in an insurance policy that removes coverage for certain risks, people, property, or locations. Exclusions can make policies more affordable by eliminating coverage for unnecessary risks.
Exclusive Agent: An exclusive agent is an agent that sells policies for only one company. Exclusive agents have an agreement with their company that they will not submit business to any other company unless it is first rejected by the primary company. (similar to Captive Agent)
Experience (also Loss Experience): Experience is the history of losses for an individual policyholder.
Exposure (also Loss Exposure): Exposure is the likelihood that a policyholder will suffer a loss.
Fair Access to Insurance Requirements Plans (FAIR Plans): FAIR plans are insurance pools that sell coverage to high-risk property owners who cannot buy in the regular market. FAIR plans require all insurers licensed in a state to contribute a pool of funds that offers property insurance for these high-risk properties.
Federal Insurance Administration (FIA): The Federal Insurance Administration is a federal organization that administers the national Flood Insurance program. Aside from flood insurance, the FIA has no control over insurance regulation.
File-and-Use: Under a file-and-use system, companies must submit rate changes to the state regulating agency but they do not have to wait for approval to put the new rates into effect. If state insurance regulators do not approve of the rate changes, they can then force companies to repeal the changes and return to the original rates.
Financial Responsibility Law: A state law that requires drivers to have a minimum amount of liability coverage in order to show they have the means to pay for damages if they are involved in an accident.
Form (also Policy Form): The "form" of a policy dictates what types of damages a policy covers and the dollar amounts of the coverage. Historically, Texas law has required insurers to offer a limited number of forms forms, primarily the HO-A and the HO-B. Recently, however, companies have been authorized tp begin offering new forms.
Fraud: Fraud is any intentional lying or misrepresentation by policyholders or claims adjusters in order to inflate a claims payment or receive a claims payment that would otherwise not be paid.
Guaranty Fund: A guaranty fund is used when insolvent insurance companies cannot pay their claims. The fund is managed by the state and is created with money collected from insurance companies licensed in that state.
Guaranty Replacement Cost Coverage: Guaranteed replacement cost coverage is coverage that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit.
HO-A: HO-A is one of the policies that insurers in Texas have been required to sell. Historically, HO-A has not been a popular policy because it offered very limited coverage. Recently, insurers have been allowed to offer versions of HO-A that offer more extensive coverage and the policy has gained popularity.
HO-B: HO-B is one of the policies that insurers in Texas have been required to sell. HO-B has been the most popular policy in Texas, mainly because it offered more coverage than HO-A. HO-B offers very extensive coverage and therefore tends to be less affordable.
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Independent Agent: An independent agent is a self-employed agent who represents multiple insurance companies.
Independent Adjuster: An independent adjuster is an adjuster who works as an independent contractor with insurance companies or other organizations to investigate and settle claims. Independent adjusters are required to be licensed by the state. Compare to Public Adjuster. (contrast with Public Adjuster)
Insurance Credit Score: An insurance credit score is a number that is determined by looking at certain aspects of an individual's credit history. This number is provided to insurance companies by a credit evaluation service. Insurance companies then use this number as one of many factors that determine the rates a policyholder is charged. Statistics have shown that insurance scores are an accurate tool to help predict the amount of claims that a policyholder will file.
Insolvency: In the case of insurance, insolvency means that companies do not have sufficient funds in their reserves to pay claims. If a company appears to be at risk for insolvency, the Texas Department of Insurance (TDI) will advise the company to take measures to increase their reserve funds. These measures can include such things as raising rates, adjusting the company's investment portfolio, and soliciting investment in the company. If the company fails to improve its situation, the TDI can intervene by court order and take control of that company's operations. If all else fails, the final step is liquidation. Using this last resort, the TDI will dissolve the company and sell off all of its assets to pay the claims.
Insurance Pool: An insurance pool is a group of insurance companies that pool their assets in order to share the loss potential of insuring large risks such as nuclear power stations. Some pools are mandated by the state to cover risks that cannot obtain coverage in the regular market, such as coastal properties that are prone to hurricane risks. (See Beach and Windstorm Plans; Joint Underwriting Association / JUA)
Joint Underwriting Association/JUA: A joint underwriting association consists of insurers who band together to provide coverage for a specific type of risk or exposure. They are only used when it is difficult to obtain a certain type of insurance in the regular market. Companies in JUA's share in the profits and the losses of the association.
Liability Insurance: Liability coverage pays for expenses from damages or injuries to other people that are caused by the policyholder.
Lloyd's Companies: Lloyd's companies are modeled after the Lloyd's of London insurance syndicate. In Texas, Lloyd's companies deal primarily with homeowners insurance. Under Texas law, auto insurance issued by Lloyd's companies is subject to rate-regulation but homeowners insurance is not.
Loss: In insurance terms, loss means an unintentional decrease in the value of a piece of property as the result of some event.
Loss Adjustment Expenses (LAE): LAE are expenses incurred while determining the value of a claim, over and above the cost of the claim. These can include fees from doctors, trial lawyers, and adjusters. Loss adjustment expenses are divided into two categories, Allocated Loss Adjustment Expenses (ALAE) and Unallocated Loss Adjustment Expenses (ULAE).
Loss Ratio: Loss ratio is the percentage of each premium dollar that an insurer spends on claims. For example, a company with a 90% loss ratio will spend 90 cents on claims for every dollar they collect as premium.
Loss Reserve (also Reserve): A loss reserve is a figure that represents an insurance company's best estimate of what future losses will be, it is not an actual reserve of money. An insurance company must set its rates according to its loss reserve estimate so that it will be able to pay future claims.
McCarran-Ferguson Act: The McCarran-Ferguson Act is a federal law signed in 1945 that gives states the full authority to regulate the insurance business. The law places insurance companies under the authority of state anti-trust laws instead of Federal anti-trust laws.
Mold Remediator: Mold remediators are contractors who specialize in removing mold from homes. Mold remediators are not required to be licensed or certified.
Mutual: The term mutual denotes a company that is owned by its policyholders instead of by stockholders. These companies return part of their profits to policyholders as dividends.
NAIC: The National Association of Insurance Commissioners (NAIC) was founded in 1871 to help promote uniformity in the regulation of insurance among the different states. The NAIC is composed of representatives from every US state and territory as well as the District of Columbia. The NAIC also monitors financial viability of national companies to prevent insolvencies.
NCOIL: The National Conference of Insurance Legislators (NCOIL) is an organization of state legislators who focus on issues of insurance regulation. NCOIL works to educate state legislators about insurance issues and to increase communication between legislators in different states.
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Personal Lines: Personal lines are property/casualty insurance products intended for individual consumers as opposed to commercial customers.
Policy: A policy is a written contract for insurance between an insurance company and policyholder that states the details of the coverage.
Prior Approval: When insurance companies wish to change their rates in a prior approval system, they must gain approval of their rate changes from the state regulating agency, (i.e. Department of Insurance,) before they can put the new rates into effect.
Rate Regulation: The process by which state insurance agencies either set insurance rates or monitor any rate changes that insurance companies make. Some examples of rate regulation are file-and-use systems, prior approval systems, and the Texas Benchmark Rating System.
Reciprocal Exchanges: In a reciprocal exchange company, policyholders "insure each other" through a common attorney who manages the premium funds. In Texas most reciprocal exchanges deal with homeowners insurance. homeowners rates are not regulated for reciprocal exchange insurance policies.
Replacement Cost: Replacement cost is a method that assigns value to a piece of property by considering the cost of repairing or replacing the property without taking into account depreciation. (contrast with Actual Cash Value)
Residual Market: The residual market consists of facilities to provide coverage for consumers or businesses that cannot purchase insurance in the regular market. Some examples of residual market facilities are Assigned Risk Plans, Joint Underwriting Agreements, and FAIR plans.
Solvency: Solvency is the ability of an insurance company to pay future claims. In order to remain solvent, insurance companies must always keep an adequate surplus of funds in case an unforeseen increase in claims occurs.
Surplus Lines: Surplus lines denotes coverage that must be purchased from a company that is not licensed by the state because it is not available through licensed companies. For example, surplus lines might be used when unusual coverage is needed but state-licensed companies cannot offer the coverage because the state either restricts them from offering such coverage or restricts them from charging the rates that such coverage would cost.
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Texas Automobile Insurance Plan Association (TAIPA): TAIPA is the association that manages Texas' assigned risk plan. It was designed to provide insurance for high-risk drivers. (see Assigned Risk Plan)
Texas Benchmark Rating System: The benchmark rating system is the system by which all regulated home and auto insurance rates are determined. The Texas Insurance Commissioner sets a benchmark rate and insurance companies must set their rates within a 30% parameter of the benchmark.
Texas Department of Insurance (TDI): The TDI is the state regulatory office that oversees insurance in Texas. The TDI is responsible for :
* Licensing all companies and individuals that sell insurance within the state of Texas;
* Issuing the rules and regulations to which all Texas insurance companies must adhere and enforcing these rules;
* Investigating the financial condition of insurance companies to ensure that they have sufficient funds to pay their claims;
* Setting the range in which rate-regulated companies may sell home or auto insurance; and
* Investigating possible cases of insurance fraud, license violation, misrepresentation in advertising, or discrimination in service and rates.
Tort: A wrongful act which results in injury or damage and on which a civil action may be based.
Tort Reform: An effort by state lawmakers to change legal procedures in order to prevent lawsuit abuse and make liability insurance more affordable. Tort reform includes revising the laws that determine responsibility for damages, reducing the amount of punitive damages that civil actions can seek. In the 1980's, 45 states enacted tort reform legislation.
Umbrella Policy: A separate policy that offers coverage for costs over and above the dollar limits of an underlying policy.
Unallocated Loss Adjustment Expenses (ULAE): ULAE are adjustment expenses that result from a broad array of claims or that result from the general process of determining the amount of claims payments. (See Loss Adjustment Expenses & Allocated Loss Adjustment Expenses)
Underwriting: Underwriting is the process of examining the risks of potential policyholders and then accepting or rejecting those risks. Underwriting also includes placing limits on the coverage that policies offer and categorizing policies so that the appropriate premium is charged.
Underinsured/Uninsured Motorists Coverage (UM/UIM): UM/UIM coverage pays for losses from an accident caused by an uninsured motorist or a hit-and-run driver. It also covers any remainder of expenses that the driver at fault did not have sufficient insurance to cover.
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