Admitted v. Authorized Carrier Status
By Betsy Kelley
OMIC Underwriting Manager
[Digest, Winter 2001]
There are many factors to consider when selecting an insurance carrier. Price, coverage features, loss experience, and claims-handling philosophy are critical issues. So are a company’s integrity and financial stability. But what about its admitted status? Does it matter whether a carrier is admitted or authorized?
The Federal Risk Retention Act of 1986 created a new class of insurance company – the risk retention group (RRG) – and removed the regulatory impediments to obtaining licensure in each state of business that previously made it cost-prohibitive for carriers to offer coverage in a wide range of territories. Under the Act, a risk retention group is required to meet the financial and filing requirements in its selected state of domicile and to register with and file a business plan and other financial information in any other state in which it operates.
A major change created by the Act is the distinction between whether a carrier is registered or licensed to legally engage in the business of insurance in a particular state. A risk retention group need be licensed and admitted only in its state of domicile, where it is subject to the regulatory requirements and financial status reviews of that state’s insurance department. At the same time, the RRG can be registered in other states by annually filing in each of those states the necessary financial statements and other required information. Each state has control over registered companies and has the right under the Act to investigate the company’s financial status in the same manner it can investigate the financial status of any licensed insurance carrier operating within the state. Individual states retain authority over consumer protection issues and may investigate complaints against an authorized RRG just as they would against a licensed and admitted carrier. As an added protection, consumers may file complaints with the RRG’s state of domicile.
Unlike licensed and admitted carriers, risk retention groups do not participate in state guarantee funds and are, in fact, prevented from doing so by the Risk Retention Act. This does not mean that they are any more risky, however, and while a few RRGs did become insolvent during their first few years of formation, the vast majority of insurance company failures involve licensed and admitted carriers.
Furthermore, participation in a state fund does not guarantee that aggrieved policyholders will be made “financially whole.” Most funds do not adhere to the rigid actuarial standards that strong carriers such as OMIC follow in establishing reserves. When claims are covered through a guarantee fund, it is possible that payments will run only pennies on the dollar, and in some cases, may not be covered at all.
Instead of relying on a guarantee fund to provide security in the event of insolvency, a carrier should prevent insolvency by maintaining strong financial reserves, collecting actuarially sound premiums, purchasing reinsurance from a reputable source with a reasonable retention, properly underwriting applicants, and handling claims efficiently and effectively. If a carrier is following sound financial principles and operating legally, it should not matter whether it is admitted or authorized.
About OMIC
When OMIC was formed nearly 15 years ago, the founders believed a risk retention group would be the most cost-effective and beneficial form of organization in which to operate a nationwide insurance program for ophthalmologists. It would have been expensive and administratively cumbersome to become licensed and admitted in each of the 50 states in which OMIC does business. A risk retention group remains the most effective form of organization in which to operate and allows OMIC to keep premiums affordable.
OMIC is domiciled and licensed in the state of Vermont, a strong regulatory jurisdiction known for its excellent reputation and record and accredited by the National Association of Insurance Commissioners. OMIC’s independent financial ratings are superior to many licensed and admitted carriers. OMIC maintains an A- (Excellent) rating with A.M. Best. OMIC’s solid financial condition and strong ratings are due in part to loss experience that is 30% better than the expected industry standard for ophthalmology nationwide as well as to its comprehensive underwriting guidelines, particularly with respect to refractive surgery.
OMIC has three sources of funding for the payment of claims. First, OMIC collects premiums that are actuarially developed to cover anticipated losses. Then, OMIC purchases reinsurance from respected companies to help support large losses. Finally, OMIC maintains adequate surplus in the unlikely event that premium and reinsurance are insufficient to cover actual losses.
OMIC enjoys the support and exclusive sponsorship of the American Academy of Ophthalmology and is recognized as an approved carrier by 11 ophthalmic subspecialty and state societies. OMIC is a member of the Physician Insurers Association of America.
If you have questions about OMIC’s carrier status, please contact Betsy Kelley at (800) 562-6642, ext. 630 or bkelley@omic.com.
Underwriting Life, Health & Disability
| By Geri Layne Craddock, CLU Vice President at Marsh Affinity Group Services, a service of Seabury & Smith |
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[Digest, Winter, 2002] Insurance companies rely on experienced reviewers, called underwriters, to evaluate and classify risk. When a life, health, or disability underwriter receives an application, he or she verifies the application information, collects omitted data, and gathers additional input. If a medical exam or test is required to evaluate health risks, the underwriter will arrange for it and review the results. The underwriter might contact the applicant’s doctor to check medical records, call to verify employment status, or review motor vehicle records. In some cases, insurance companies turn to a third party verification service, such as the Medical Information Bureau (MIB). The Medical Information Bureau MIB reports may include, among other things, data on height, weight, lab tests and blood pressure readings, but only if these factors are considered to be significant to an applicant’s longevity or health. Some nonmedical information, such as an adverse driving record, participation in a dangerous sport, or how often someone has applied to other member insurance companies for coverage, also may be reported by the MIB through its insurance activity index. All of this information is highly confidential and tightly controlled. Entire medical records are not on MIB reports. Rather, conditions (“risk factors”) that show up on medical records, not specific numbers, are coded on MIB reports. These codes serve as “flags” to underwriters, who can pursue further investigation if they deem it necessary. According to industry standards, an underwriter cannot base a decision solely on MIB data. Insurance companies must conduct their own investigations, using MIB reports only as verification. The Applicant’s Role After receiving a life, health, or disability application, the underwriter may call the applicant to collect more data. The sooner the applicant provides the information, the faster the process will go. The insurance company may return an application if additional information is needed. Once all the necessary information is collected, the underwriter evaluates this information against the insurance company’s accepted underwriting policies. These confidential guidelines vary, but generally include age, income, morbidity rates (likelihood of becoming ill), occupation, and height and weight charts. It can take from several weeks up to a few months to underwrite an application, depending on the company, the type of insurance sought, the complexity of the applicant’s medical history, and the response time to the underwriter’s requests for information. Unfortunately, insurance companies sometimes have to decline applications. In cases where the applicant believes he or she has been declined mistakenly, the insurance company usually allows the applicant to appeal the denial. Some companies allow reapplication for coverage after a certain amount of time has elapsed. In instances where a policy expires, the insured may have to repeat the underwriting process, depending on the clauses of the policy. Some policies allow insureds to automatically renew their coverage without repeating underwriting, even if conditions (such as health) have changed. Other policies require insureds to reapply for insurance and undergo what is known as post-selection underwriting in which the carrier decides whether or not to grant continued coverage. Members of the American Academy of Ophthalmology can participate in high quality, reasonably priced, members-only insurance plans, including life, disability, and office overhead expense coverage.2 For more information, please call (888) 424-2308. Notes:
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Options for Long Term Care
| By Diane Brown Long Term Care Researcher for Seabury & Smith, Inc. |
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| [Digest, Winter, 2003]
Finding the right long term care insurance policy now could mean substantial savings for you and your family later. But what’s the right long term care insurance plan? Everyone’s needs differ. That’s why it’s important to understand long term care insurance and what different policies offer. Long term care is designed to help a person perform routine daily activities, such as eating, bathing, and dressing, in a nursing home, assisted living facility, Alzheimer’s facility, or at home. Traditionally, long term care was provided in the home by a family member. Today’s families tend to be smaller and family members often live hundreds or thousands of miles apart, making it more important than ever to plan for your own long term care needs as well as those of your spouse, parents, and parents-in-law. Chances are relatives will not be available to help provide long term care and you will find it necessary to hire professional in home or facility care. Plan Ahead Recent studies show the national average cost of a year in a nursing home is $54,900, while the average cost of home health care is $36,000 a year.1 Medicare and private health insurance do not fully cover these costs. According to the Health Care Financing Administration, Medicare pays limited benefits for long term care: only the first 20 days in a skilled nursing facility. For the next 80 days, Medicare requires a daily copayment of more than $100. What’s worse, Medicare doesn’t cover custodial care at all, yet it’s the kind of care most people in nursing facilities need. That means individuals are left to pay the remaining costs. In fact, approximately 30% of elderly long term care expenses are paid out-of-pocket.2 Regardless of whether the coverage is for you, your spouse, parents, or parents-in-law, planning ahead makes a substantial difference in cost and availability. The longer you wait to purchase long term care insurance, the higher your premium will be. Also, your likelihood of developing a health problem increases, hurting your chances of being approved for long term care protection. Choose Carefully Keep these key long term care features in mind as you shop and compare:
The American Academy of Ophthalmology offers comprehensive long term care plans for active members and their spouses, parents, and parents-in-law ages 40-84. Academy plans pay 100% of the maximum daily home health care benefit and 100% of the maximum daily facility care benefit. There is a choice of benefit and waiting periods as well as optional simple and compound inflation protection. In addition, members may qualify for rate discounts of 10% to 25%. To learn more about these plans, call (800) 906-7607 and request ## 014905-1-1-1 for a confidential review of your long term care needs. A licensed, noncommissioned Long Term Care Insurance Representative will customize a plan to fit your lifestyle, budget, and individual needs. Notes
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Limits of Liability
By Kimberly Wittchow, JD, OMIC Staff Attorney
Digest, Spring 2004
Press coverage of the industrywide rise in medical malpractice claims frequency and severity is abundant. This has many insureds questioning whether their current limits of liability are adequate for the increasingly litigious environment in which they practice. To help insureds assess their coverage limits and needs, this article will address what is meant by limits of liability, how to select limits, and how changing limits affects coverage if a claim arises.
Your limits of liability are the maximum dollar amounts of indemnity OMIC will pay on your behalf as a result of covered claims. Indemnity is the amount of damages awarded in a lawsuit or agreed to in a settlement between the parties. OMIC will pay your reasonable defense costs in addition to your liability limits.
All OMIC insureds have two separate limits: the per claim, or “medical incident,” limit and the aggregate limit. The per claim limit is the maximum amount of indemnity OMIC will pay per insured for all damages caused by any one medical incident, or by any series of related medical incidents involving any one patient, regardless of the number of injuries, claimants or litigants, or the number of claims (notices, demands, lawsuits) that result. The aggregate limit, on the other hand, is the maximum amount OMIC will pay per insured for all claims made and reported during the policy period.
How to Select Limits
There are several factors to consider when selecting limits of liability. The limits you require may vary with changes in your state’s malpractice liability climate, the procedures you perform, and the makeup of your practice. Therefore, you should continually assess your current needs and corresponding coverage.
First, review the claims statistics for ophthalmologists. For example, as of February 2004, OMIC’s average indemnity payment was $130,166 and its largest indemnity payment was $1.8 million.
Second, consider your state’s risk relativity. When OMIC looks at risk relativity, it compares the number of insureds, the number of total claims, and the average indemnity paid per claim in each state. Under this analysis, due to the fact that OMIC has a large number of insureds in these states, OMIC’s highest claims activity is currently in California, Texas, and Illinois. For selecting limits, however, a better way to look at risk relativity might be to compare the average rate of claims per insured per state. OMIC insureds in Louisiana and Michigan currently experience the highest claims frequency.
Third, find out what liability limits your peers are carrying. The majority of OMIC insureds (65%) carry $1 million per claim/$3 million aggregate limits. Higher limits of $2 million per claim/and either $4 million or $6 million aggregate limits are selected by 21% of insureds. OMIC’s lowest offered limits of $500,000/$1.5 million are carried by 6% of insureds, while 4% select the highest limits OMIC offers, $5 million/$10 million. The remaining 4% of insureds carry other combinations of limits, including lower limits available exclusively to physicians who participate in their state’s patient compensation fund.
Fourth, consider the risks related specifically to your practice. Is your subspecialty one in which there is high claims frequency (e.g., cataract surgery) or large damage awards (e.g., neonatal care)? Do you share your coverage and limits with any ancillary employees or your sole shareholder corporation? On the other hand, have you ceased performing most surgical procedures or limited your practice to part time?
Fifth, assess your level of risk aversion. Would higher limits make you feel more secure because of the large indemnity cushion or less secure because of the “deep pockets” potentially discoverable by the plaintiff?
Finally, check with your hospital and state licensing board because they may specify the minimum amount of coverage you must carry. Also note that OMIC generally requires all OMIC-insured physiciansin practice together to carry the same liability limits. The practice’s legal entity cannot be insured at higher limits than those of the physicians.
Which Limits Apply to a Claim?
You should consider how changing your limits will affect the amount of indemnity available to you if a claim should arise. The limits of liability that apply to a claim are those limits that are in effect as of the date the claim is first made against you and first reported in writing to OMIC. In other words, if you increase or decrease your coverage after you’ve reported a claim made against you to OMIC, the limits that you carried when you reported the claim, not the new limits, will be applied to the claim.
Subject to underwriting review and approval, you may increase or decrease your limits of liability at any time during the policy period (although OMIC typically does not consider requests to change policy limits while a claim is pending). If you are in group practice, discuss this desired change with your practice administrator and partners. Your OMIC underwriter can provide you with the most recent OMIC data to help you determine which limits are appropriate for you. However, OMIC representatives are not in a position to offer you advice. If you need further assistance, please consult your personal attorney.
When Should You Call The Claims Department?
By Paul Weber, JD
OMIC Risk Manager
Digest, Winter 2002
The OMIC Claims Department frequently receives questions from insureds about when it is necessary to report a claims-related matter and what impact such a report will have on their policy, particularly if the patient does not demand damages. Another area of concern for insureds is the need to report claims to regulatory agencies and hospitals.
Q Why should I report a claims-related matter to OMIC if I have not been served with a summons and complaint?
A When you call OMIC immediately after an incident occurs, we may be able to advise you of steps you can take to keep the situation under control. OMIC’s claims and risk management staff have handled hundreds of ophthalmic claims and are available to assist you and answer questions regarding any matter that you think might have the potential of arising into a claim.
Q What matters must I report to OMIC?
A Your OMIC policy states that you shall report any claim. A claim is defined in the policy as a written notice, demand, cross-claim, or lawsuit (including an arbitration proceeding) which the insured receives resulting from a medical incident. Your OMIC policy is claims made, meaning you are covered only if the policy is in force both on the date the incident causing the claim occurs and on the date the claim is first reported. Therefore, you should report any matter to OMIC as soon as possible to protect your insurance coverage.
Q Should I report an incident if there is no lawsuit or other written notice or demand from the patient?
A Your OMIC insurance policy also states that you shall report, as soon as practicable, any medical incident that may reasonably be expected to result in a claim. A medical incident is defined as any act or omission in the furnishing of professional services. A report of a medical incident will be deemed notice of a claim and will trigger your insurance coverage for this event. Again, by reporting a medical incident, you are protecting your OMIC insurance coverage.
Q If I report an incident before it becomes a claim, will it affect my record and cause my premium to go up?
A No. Reporting a patient problem or incident (an occurrence with the potential of developing into a claim) that does not develop into a claim will have no effect on your premium. Early notice of an incident shows that you are proactive and risk management conscious.
Q How does OMIC categorize reports from insureds?
A Each matter is unique and how a file is set up, with the exception of a lawsuit, will depend on the nature of the incident or medical event. The status of a file may change over time, and a matter set up as an incident may later become a lawsuit if the insured is served with court papers. It bears repeating that regardless of how a file is set up, insurance coverage is extended only if the policy is in force both on the date the incident causing the claim occurs and on the date the claim is first reported.
Q What duty does OMIC have to report claims to regulatory agencies such as the National Practitioner Data Bank (NPDB), state medical board, and state insurance department?
A OMIC must report a claim to the NPDB if an indemnity payment is paid on an insured’s behalf. When such a report is made to the NPDB, a copy must be sent to the appropriate state medical board. In addition, a very few state medical boards and insurance departments (e.g., Texas) require that all claims be reported regardless of whether an indemnity is paid. By definition, matters set up by OMIC as incident or miscellaneous files need not be reported to these agencies. OMIC staff will advise and consult with an insured before a report is made to any agency.
Q What matters are reported to hospitals and HMOs for credentialing?
A Because OMIC encourages policyholders to report all potential incidents on a precautionary basis, OMIC reports loss history only if a case closed with an indemnity payment or an actual lawsuit was filed. The insured must give written authorization before OMIC sends a loss history report to a hospital or HMO.
This article is for informational purposes only and is not intended as a modification of the terms and conditions of your OMIC insurance policy. Please contact the Claims Department at (800) 562-6642, ext. 629 or claims@omic.com if you have other questions about reporting a claims-related matter to OMIC.
