Glossary

Inside This Section

Glossary

Content provided below is informational and is not intended to provide legal or financial advice.

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 policy year.

Assessability
Some insurance policies may be assessable. This means an obligation exists for policyholders to pay additional money, in excess of premium amounts, to cover past company losses for which reserves have proven to be inadequate.

Assets
The property and financial resources owned by an insurance company. Admitted assets are those that can be liquidated to raise cash to pay claims. Nonadmitted assets, such as real estate (other than home office), furniture, and other equipment, are assets that are not recognized for solvency purposes by state insurance laws or insurance department regulations.

AM Best Rating
A rating given to insurance companies by the A.M. Best Company, an independent analyst of the insurance industry. The rating is an independent opinion of an insurer’s financial strength and its ability to meet its ongoing insurance policy and contract obligations.

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

Coinsurance
The percentage of health care allowable charges you must pay after you have met your deductible.

Coordination of Benefits (COB)
Method of integrating benefits payable under more than one health insurance plan so that the insured's benefits from all sources do not exceed 100 percent of allowable medical expenses.

Copayment
A specific charge you pay for a specific medical service. For example, you may pay $10 for an office visit or $5 for a prescription and the health plan covers the rest of the medical charges.

Cost Sharing
Policy provisions that require individuals to pay, through copayments, deductibles and coinsurance, a portion of their health care expenses.

Date of Medical Incident
On a claims-made policy, the date on which a situation of alleged malpractice took place.

Date of Reporting
The date on which an incident was reported to the insurance company.

Declaration
Also called Declarations Page, this portion of an insurance policy states information such as the name and address of the insured, the policy period, the amount of insurance coverage, premiums due for the policy period, and any coverage restrictions.

Deductible
Professional Liability: An applicable deductible means that the insured will pay an amount of the “first dollars” of a claim payment and in return pay a lower premium for assuming the risk. In most instances, professional liability policies do not contain a deductible. However, when deductibles are used, they may apply to both indemnity and defense costs. When the deductible applies in both areas, the insured pays up to the total amount of the deductible for claims in which defense costs (such as legal fees) have been incurred – even if no indemnity is paid. If the deductible applies to indemnity only, the insured pays only if indemnity is paid.
or
Health: This is the amount of money you must pay, generally annually, to cover your medical care expenses before your insurance policy or HMO plan starts paying.

Dividend
A return to the policyholder of surplus earnings based on the company's experience and costs in a given year. Policyholder dividends are not guaranteed but depend on claim experience, investment earnings, expenses and other factors. Dividends are paid at the discretion of the company.

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.

Eligible Expenses
Expenses defined in the health plan as being eligible for coverage. This could involve specified health services, fees or "usual, customary and reasonable charges."

Elimination Period
A specified number of days at the beginning of each period of disability (in disability income policies) or hospital confinement (in hospital confinement indemnity policies), during which no benefits are paid.

Endorsement
An amendment, sometimes referred to as a rider, added in writing to an insurance contract or policy.

Enrollee
An individual who is enrolled in an MCHIP.

Evidence of Coverage (EOC)
Document that summarizes the provisions and benefits of a managed care health insurance plan.

Evidence of Insurability
For health insurance, a statement or proof of physical condition and/or other information affecting a person's eligibility for insurance.

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

Exclusions
Specific conditions or circumstances for which the policy or plan will not provide benefits.

Explanation of Benefits (EOB)
The statement sent to a participant in a health policy or managed care plan listing services, amounts paid by the plan, and total amount billed to the patient.

Extended Reporting Endorsement
See “Tail Coverage”.

Fee-For-Service
A payment system for health care where the provider is paid for each service rendered rather than a pre-negotiated amount for each patient.

Formulary
List of prescription medications covered by a health insurance company.

Fully Insured Plan
Employer-purchased health insurance coverage from a licensed insurance company, wherein the insurance company assumes the risk.

Gatekeeper
Role of the primary care physician or PCP in HMOs and other forms of MCHIPs. The Gatekeeper coordinates care and makes referrals to specialists.

Grace Period
Specified time (usually 31 days) following the premium due date during which insurance remains in force and a policyholder may pay the premium without penalty.

Grievance Procedure
A procedure which allows a member of a health plan or a provider of benefits to express complaints, protest a decision, and seek remedies.

Group Certificate
The document provided to each member of a group health plan. It describes the benefits provided under the group plan.

Guaranteed Renewable Contract
Contract under which an insured has the right, commonly up to a certain age, to continue the policy by the timely payment of premiums. Under guaranteed renewable contracts, the insurer reserves the right to change premium rates by policy class.

Health Maintenance Organization (HMO)
Prepaid managed care health insurance plans in which you pay a premium and the HMO covers your cost of care to see doctors, hospitals and other providers within the HMO’s network, at prenegotiated rates, subject also to your payment of a specified amount as services are delivered. You generally must choose a PCP who coordinates all of your care and makes referrals to any specialists you might need.

Incident
An occurrence that the plaintiff claims has led to culpable injury.

Incurred Losses
These losses include both paid and unpaid (reserved) losses.

Indemnity
An insurance company’s payment to a plaintiff in settlement or adjudication of a claim.

Indemnity Plan
Traditional health insurance that usually covers a percentage of the cost of care (often 80%) after the consumer pays an annual deductible. Patients with an indemnity plan can choose any doctor or hospital for their care.

Indemnity Reserves
Claims reserves that are set aside to pay the portion of claims costs paid directly to claimants

Individual Health Insurance
A policy that provides protection to a policyholder and may extend coverage to his or her family; sometimes called personal insurance, as distinct from group insurance.

Lifetime Maximum
The total amount of benefits that a health care plan will pay over a policyholder’s lifetime.

Limits of Liability
The maximum amount paid under the terms of the policy. A professional liability “claims-made” policy usually has two limits, a “per medical incident” limit and an “annual aggregate” limit. The “per medical incident” limit is the most the insurance company will pay for all claims arising out of any one medical incident. The annual aggregate is the most the insurance company will pay for the sum of all damages in any one policy period (usually one year) regardless of the number of incidents or claims.

Loss Ratio
The result of losses incurred (indemnity and ALAE) divided by net earned premium.

Loss Reserves
The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

Maximum Out-of-Pocket Costs
The most a member will pay considering copayments, coinsurance, deductibles, etc., usually on a calendar year or policy year basis.

Medicaid
A joint state and federal public assistance program that pays for health care services for low income or disabled persons.

Medical Malpractice (Physician's Professional Liability)
Professional negligence – the failure by a health care provider 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.

Medicare
A federally administered health insurance program that covers the cost of hospitalization, medical care, and some related services for most people over age 65, people receiving Social Security Disability Insurance payments, and people with End Stage Renal Disease (ESRD).

Medicare Supplement Insurance
Insurance coverage sold on an individual or group basis which helps to fill the gaps in the protection provided by the Medicare program. This insurance is also called "Medigap program."

Multiple Employer Welfare Arrangement (MEWA)
An arrangement by which two or more employers form a coalition to offer a health plan to their employees.

Nonassessable
A condition under which an insurance company is sufficiently sound to free policyholders of any obligation to pay additional money for past losses for which reserves are inadequate.

Noncancelable
A health insurance policy that the insured has a right to continue in force by payment of premiums, as set forth in the contract, for a period of time as set forth in the contract. During that period of time, the insurer may not make any change in any provision of the contract, including the premium.

Nose Coverage
See “Prior Acts Coverage”

Occurrence Coverage
This policy form type covers claims that occur during its policy period, regardless of when the incident is reported or when the claim is made. Occurrence insurance policies for medical liability coverage are offered rarely today because of the difficulty of projecting long-term claim costs under this type of policy.

Out-of-Network Care
Medical services obtained by managed care health insurance plan members from non-participating or non-preferred providers. In many plans, such care will not be reimbursed unless previous authorization for such care was obtained.

Out-of-Pocket Costs
Health care costs the covered person must pay out of his or her own pocket, including such things as coinsurance, copayments, deductibles, etc.

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

Policy
The contract between an insurance company and its insured. The policy defines what the company agrees to cover for what period of time, and it describes the obligations and responsibilities of the insured.

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

Pre-Admission or Pre-Certification Authorization
A requirement that the health care plan must approve, in advance, certain hospital admissions or certain procedures.

Pre-existing Condition Exclusion
Generally, a limitation or exclusion of health benefits based on the fact that a physical or mental condition was present before the first day of coverage. HIPAA and some state laws limit the extent to which a health plan or issuer can apply a preexisting condition exclusion in certain instances.

Preferred Provider Organization (PPO)
A network of health care providers that have agreed to provide medical services to a health plan's members at discounted costs. The cost to use physicians within the PPO network is generally less than using a non-network provider.

Premium
The amount of money a policyholder pays for insurance protection. The premium is the amount deemed necessary to pay current losses, to set aside reserves for anticipated losses, and to pay expenses and taxes necessary to operate the company during the time period for which the policies are in force. Premiums allow the company to generate a reasonable profit that reinforces future solvency and contributes to the company’s growth.

Premium Credits
A credit included in the premium computation that recognizes a reduction in hazard, which makes the account a better risk.

Prior Acts Coverage or Retroactive Coverage (sometimes referred to as "Nose" coverage)
Prior Acts coverage is when a claims made policy looks back in time to cover medical incidents that happened in the past. Prior Acts coverage is determined by the “retroactive date” identified on the policy. If the medical incident took place after the retroactive date (or prior acts date) identified on the policy, and the claim is made during an in-force policy (and is not otherwise excluded), the claims-made policy will respond.

Primary Care Physician (PCP)
Under many MCHIPs, the physician (often a physician, internist, or pediatrician) who manages your healthcare. With some exceptions, you must first consult with your PCP for healthcare needs. A PCP makes referrals to specialists if necessary.

Provider
Any person or institution that provides medical care.

Punitive Damages
These damages may be excluded or optionally covered. A few states require that punitive damages be covered. Other state laws prohibit insurance companies from covering punitive damages because such damages are intended to punish the defendant for willful, fraudulent, oppressive, malicious, or otherwise outrageous behavior that should not be covered by insurance.

Rate Maturation also known as Step Rate Increases
When a physician enters onto their first claims-made professional liability policy, the rate will rise annually from a “first-year” claims-made rate until it reaches what is considered a “mature” claims-made rate, typically at year five. Rates are low in the first year because the policy is only covering one year of exposure. The premium increases as the number of exposure years increases because the longer the physician is insured, the greater the potential for a claim. This is due to the time delay between when an incident occurs and the time a patient files a claim for past incidents.

Referral
The process under which an HMO member receives authorization (generally from his or her PCP) to receive or obtain care from a specialist or hospital.

Reinsurance
An agreement between insurance companies under which the reinsurance company accepts all or part of the risk or loss of the primary company. Most primary companies insure only part of the risk on any given policy. The amount retained by the primary company varies among companies. The reminder of the policy limit is covered by a reinsurance entity or entities. The less risk that a primary company retains, the more premium it has to pay to the reinsurer to cover the remaining policy limit.

Rescind
To nullify or make void a policy or coverage. If and when and if a company rescinds a policy, premiums may be refunded.

Retroactive Coverage
See “Prior Acts Coverage”

Retroactive Date
Usually found on the declarations page of a claims-made policy. Each physician and the legal entity will have their own date. Only incidents that occurred after this date and are reported during the in-force policy period (and otherwise not excluded) are covered. (Not to be confused with the effective and expiration dates of the policy itself).

Risk Classifications
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 reduce or eliminate the possibility of an unfavorable deviation from the expected outcome of medical treatment and thus prevent the injury of patients as a result of negligence and the loss of financial assets resulting from such injury.

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

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

Surplus
The amount by which a company’s assets exceed its liabilities. A company’s surplus allows it to take on risk and serves as a cushion in the event that the losses from that risk exceed the premiums intended to cover the risk. Stated another way, surplus can be used to make up for deficiencies in loss reserves that were set aside from earned premiums. Surplus thus serves to provide strength and to maintain fiscal integrity in the face of adverse loss experience that was not actuarially anticipated.

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

Underwriting
Process by which an insurer determines whether or not, and on what basis, it will accept and classify the risks associated with an application for coverage.

Underwriting Results
The profit or loss of the insurance company, calculated by subtracting from earned premium those amounts paid out and reserved for losses and expenses. Any residual amount is called an underwriting profit. If deductions exceed earned premium, it is called an underwriting loss. Underwriting results do not include investment income.

Unearned Premium
That portion of a premium that is paid in advance of a coverage period. Insureds usually pay a calendar quarter or more in advance of an actual coverage period; the advance payment is initially unearned and starts to become earned on the first day of the coverage period and incrementally thereafter during the ensuing coverage period.

Vicarious Liability
Liability for the acts of someone else because of a relationship. For example: an employer could be held vicariously liable for the acts of an employee.

Some of the definitions provided above have been provided by and with the consent of the Virginia State Corporation Commission Bureau of Insurance.

From:
Email:
To:
Email:
Subject:
Message: