Risk Management

General Insurance Information

Q. What is a claims made and reported policy?

A.A claims made and reported policy is a form of insurance that provides coverage to an insured only if the policy is in force on the dates the claim is first made against the insured and reported to the carrier.  In addition, the incident on which the claim is based must have occurred on or after the  retroactive date stated in the policy.  OMIC writes only claims made and reported policies for professional liability.

Q. What is an occurrence policy?

A. An occurrence policy is a form of insurance that provides coverage for all claims arising from incidents that occur while the policy is in force, regardless of when the claim is ultimately reported. “Tail” coverage is not needed upon cancellation.

Q. Are there benefits to a claims made and reported policy?

A. Yes. First, claims made and reported policies are generally less expensive than occurrence policies because claims made carriers can more accurately predict the frequency and severity of claims that will be reported during the policy period. Occurrence carriers, on the other hand, must predict not only how many claims will arise from services rendered this year and how severe they’ll be, but also when they’ll be reported and whether inflation will increase the cost of such claims. Second, claims made and reported policies are step-rated so there is an additional cost savings during the first few years of claims made and reported coverage. Third, occurrence policies are not always readily available; many carriers that once offered them are now insolvent and many others have discontinued offering occurrence policies. Finally, there is essentially no difference between the kinds of injuries and damages that are covered by occurrence and claims made and reported policies; both offer the same type of protection.

As long as you remain continuously insured under your claims made and reported policy, you will be covered for new claims arising from services rendered since your retroactive date. And, because of the availability of “tail” coverage, you may continue to be insured for them long after you cancel your policy — just like you would under an occurrence policy.

Q. What is a retroactive date?

A.The retroactive date is the date on or after which incidents must first occur to be covered by the policy (subject to the terms and conditions of your policy).

Q. Is the retroactive date the date I join OMIC?

A. Not always. If your policy includes prior acts coverage, the retroactive date will be the date you joined your prior carrier (or the date of your prior acts coverage with that carrier). If you were previously insured under an occurrence policy, purchased “tail” coverage from your previous carrier, or are new to practice, you may not need prior acts coverage. In that case, your retroactive date will be the date you join OMIC.

Q. What is prior acts coverage?

A. Prior acts coverage, also referred to as “nose” coverage, is an extension of coverage in which your new carrier agrees to insure you for new, unreported claims arising from services you rendered while you were insured with your previous claims made carrier. By purchasing prior acts coverage from your new carrier (OMIC), you eliminate the need to purchase an extended reporting period endorsement from your previous carrier. Because all requests for prior acts coverage are subject to underwriting review, you should never decline your option to purchase “tail” coverage from your previous carrier until you have received confirmation that your request for prior acts coverage from your new carrier has been approved.

Q. What is an extended reporting period endorsement (“tail”)?

A. “Tail” coverage, or an extended reporting period endorsement, extends the time period after your termination effective date during which you are allowed to report claims that arise from incidents occurring while the policy was in force.  With OMIC, as with many carriers, the time period may be extended to perpetuity.  (Refer to Section VII, Extended Reporting Period [“Tail”] for more information.)

Q. How do I decide whether to purchase prior acts from OMIC or a “tail” from my present carrier?

A. If your prior coverage was claims made, you have two options when you leave your old company:  you can purchase a tail to preserve the coverage you had with that company or you may be eligible to purchase prior acts coverage from OMIC.  Although, dollar for dollar, tail coverage and prior acts coverage usually cost about the same over a period of time, you will generally benefit by purchasing the prior acts coverage from your new carrier, when available, to avoid the burden of the large, out-of-pocket expense of tail coverage.  In addition, insureds often prefer their current carrier to handle all new clams made against them regardless of when the incident occurred.

Q. What is a step rate?

A. As previously explained, claims made and reported policies insure you only if you’re insured both on the date the claim is first made against you and on the date you report it to your carrier and the incident upon which the claim is based occurs on or after your retroactive date. Usually, there is a delay between when the incident happens and when it is ultimately discovered and reported.  This delay typically is at least one year, sometimes many years.  For this reason, you are at less risk of reporting a claim to a carrier during your early years of coverage with that carrier (if your retroactive date is the same as your policy inception date). This is why your premiums are much lower during that time.  During the first year, you are insured only for those cases that occur and are reported during your first year of coverage.  Since the likelihood of your having such a claim is minimal, your premium is at the lowest level during this first year.  In the second year, your exposure is greater and your premium higher because coverage is for claims reported in the second year for incidents occurring during either the first or second year. This progression continues until you reach the mature rate.

Q. What is meant by a “mature” rate?

A. At some point in time, all potential claims arising from services rendered during the first year of coverage should (theoretically) be reported already.  This point in time is referred to as the mature year.  Because the exposure levels off, premiums level off as well.   OMIC policies reach maturity in five years.  (Note that premiums may also increase or decrease due to OMIC’s overall loss experience.)

Q. Will I start out at a first year step the first year I join OMIC?

A.Not necessarily.  Your step rate is determined by your retroactive date.  If you are beginning practice for the first time, transferring from an occurrence policy, or purchasing a tail from your prior carrier, you will join OMIC at a first year step.  However, if you obtain prior acts coverage from OMIC, your policy will be rated at whatever step you would be at had you been insured with us all along. If you have been insured under a claims made policy for more than four years and purchase prior acts coverage from OMIC, you will most likely be rated at the “mature” (fifth year) rate.

Q. What is the difference between a rate increase and a step increase?

A. A rate increase is an increase in the base premium needed to offset increases in the frequency or severity of loss trends. (Similarly, decreases in the frequency or severity of loss trends may result in rate decreases.) It is OMIC’s objective to maintain rate stability over the long term and to implement increases only when necessary.

Step increases, as explained earlier, are increases in premium due to the accumulation of exposures to loss over a given time period and are a natural progression of the claims made and reported policy. Step increases are based on the normal reporting patterns of claims and occur regardless of the severity or frequency of claims. It is possible that you may experience a rate increase or decrease in the same year that you experience a step increase.

Q. What is meant by “liability limits”?

A.Liability limits are the maximum dollar amount of damages (“indemnity”) an insurance carrier will pay on your behalf.  Limits are broken down into two categories: the per claim limit and the aggregate limit.  For each claim, the carrier will pay for all damages up to a maximum of the amount listed as your “per claim” limit.  The “aggregate” limit applies to all claims reported during the policy year or extended reporting period.  For example, if your limits are $1,000,000 per claim/$3,000,000 aggregate, your carrier will pay up to $1,000,000 in settlement or award for each professional liability claim and up to $3,000,000 for all claims reported that year.  With OMIC, as with most carriers, reasonable defense costs are paid in full and are not included within the liability limits.

Q. What should I consider in deciding the limits I should carry?

A. To help you determine which limits are most appropriate for your practice, OMIC account representatives can provide you with statistics regarding the limits of liability carried by most insureds, OMIC’s average indemnity payment, OMIC’s highest indemnity payment, and your state’s risk relativity in relation to other states. The most commonly carried professional liability limit is $1,000,000 per claim/$3,000,000 aggregate, but OMIC offers an array of limits, from $500,000 per claim/$1,500,000 aggregate to $5,000,000 per claim/$10,000,000 aggregate.  Lower limits of $100,000/$300,000, $200,000/$600,000, $250,000/$750,000, and $500,000/$1,000,000 are available to physicians who participate in their state’s patient compensation or excess liability funds (Louisiana; Kansas and South Carolina; Indiana; and  Nebraska, respectively).

You may generally request an increase or decrease in your limits of liability at any time during the policy period.  All requests for limit changes are subject to underwriting review and approval.

Q. If I practice in New York, will I qualify for free excess coverage?

A. Licensed New York physicians may qualify for a free million-dollar excess policy from the hospital of their primary affiliation via the New York State Hospital Excess Liability Pool, but only if they are insured through carriers that are licensed and admitted in New York. Although Risk Retention Groups are authorized by the Federal Risk Retention Act to do business in New York, the Excess Liability Pool does not recognize Risk Retention Groups as valid primary carriers for the excess liability program. While OMIC insureds are ineligible to participate in the New York State Hospital Excess Liability pool, they may purchase limits of up to $5,000,000 directly from OMIC.