Glossary of Insurance Terms

Actuary
A mathematician who uses statistics to compute insurance risks and premiums.

Claim
A notice of claim letter from any patient or attorney or any oral or written threats of legal action as a result of treatment. In Texas, any person or attorney asserting a professional liability claim is required to provide written notice by certified mail at least 60 days before filing a suit.

Claims frequency
The number of claims filed per 100 policyholders

Claims severity
The amount of indemnity paid per claim filed.

Experience Rating
the practice of basing insurance premiums on a policyholder’s past loss history.

General Liability Insurance
A type of liability insurance other than automobile, worker's compensation or employer's liability that covers damage or bodily injury. In a health care setting, general liability would cover such incidents as a visitor slipping on a wet floor of a hospital or office or the theft of a patient's belongings.

Indemnify
A total shifting of the economic loss to the party directly responsible for that loss. To indemnify is to compensate for damage, loss or injury.

Indemnity payment
Compensation for damage, loss or injury.

Indemnity Agreement
An agreement in which one party attempts to shift responsibility for economic loss or potential liability.

Lawsuits
Any papers served by an officer of the court in which you are a named defendant. These documents include response deadlines that must be met.

Limits of Coverage
The maximum amount that will be paid out on behalf of a policyholder under the terms of a policy. Professional liability policies typically specify a limit per claim and cumulative limit for all claims during the contract term. For example, $1 million/$3 million means $1 million per claim subject to $3 million total for the year.

Loss ratio
The proportion of losses incurred to earned premiums. Loss ratio is expressed as a percentage.

Premium
The amount of money a policyholder pays for an insurance policy. The premium is calculated by underwriters to bring in enough money to establish reserves for future losses, pay current losses, and cover the company's operating expenses, including the cost of defending claims.

Rate
A term reflecting the basis or classification upon which the premium is based, often used as a synonym for premium.

Reinsurance
A contract whereby an insurance company will itself buy insurance from a second company (the reinsurer) to cover part of the risk the first company has insured. The amount of risk a company will reinsure varies from carrier to carrier.

Reserve
Money set aside and invested by insurance companies to pay estimated future losses. A company's claim department typically specifies a reserve amount for every claim filed, which may be modified as the claim proceeds.

Risk Classification
Refers to a classification based on the actual and predicted number and size of losses that can be expected from the physician's specialty, procedures performed and geographic location. This is used to determine the premium.

Risk management
Activities which will assist in the avoidance, reduction and defense of liability claims. In reference to medical liability, such activities include attending an educational seminar or participating in an on-site practice review.

Surplus
Surplus is critical to the financial stability of an insurance company, as it indicates whether or not a company has enough money to pay future claims. Surplus provides the cushion required to handle the inherent variability in estimating claims losses.

Tort reform
Legislation that makes changes to a state's civil justice system. Common tort reform measures include mandatory caps on awards for punitive or non-economic damages, adjustment of the statute of limitations, etc.

Trust
In reference to TMLT, a not-for-profit medical liability claim trust owned by physician policyholders. Trusts are not regulated by state insurance departments, but a trust like TMLT complies voluntarily with the rules and regulations for commercial insurance companies.

Underwriting
The process by which a company evaluates and classifies risks and measures and calculates the cost of protection, within the framework of the rules, rates and coverage forms that are permitted by law in a particular state.

Vicarious Liability
Means liability on the part of the policyholder with respect to any professional service, act or omission rendered by someone else for whose conduct the policyholder is legally responsible.