Caption Corner Part 9 – The 4 M’s of Insurance
As licensed practitioners, there is no doubt that you should have a professional liability insurance policy to cover you for malpractice, a cyber or data breach insurance policy to insure you for HIPAA violations arising from third party information breach, and a general liability insurance policy covering your office, fire perils, bodily injury, and third party property.
This month we will continue to discuss some of the most important liability insurance terms that you need to know.
In Part 1 published in December 2016, we discussed the following:
Insurance Agent or Insurance Agency; Hazards and Perils; Limits and Sub-limits; and Insurance Claim.
In Part 2 published in January 2017, we discussed the four D’s of insurance:
Declarations; Deductibles; Direct Writer; and Dynamic Risk.
In Part 3 published in February 2017 issue, we discussed the four E’s of insurance:
Endorsements; Exclusions; Effective Date; and Extended Reporting Period.
In Part 4 published in March 2017 issue, we discussed the four F’s of insurance:
Form, Fraud, First-Party Risk, and First-Named.
In Part 5 published in April 2017 issue, we discussed the three G’s of insurance:
General Liability, Group-Owned Captive, and Guaranty Fund.
In Part 6 published in May 2017 issue, we discussed the three H’s of insurance:
Hazards, Hold Harmless Agreement, and Hard Market.
In Part 7 published in June 2017 issue, we discussed the three I’s of insurance:
Insurable Interest, Insured and Insuring Clause.
In Part 8, published in July 2017 issue, we discussed the three L’s of insurance: Liability – Joint and Several, Limit and Limitation of Risk, and Line of Business.
Managing General Agent (MGA)
An MGA is a licensed insurance individual or company. Both act as an agent of the insurance carrier to whom the insurance carrier has delegated some or all authority and responsibility.
Such responsibility is to underwrite a potential policyholder’s application for insurance coverage, apply the premium rates, and usually issue the insurance certificate, policy fulfillment, and bill and collect the premium. Often times insureds confuse the MGA or producer agent (the person who sells the policy), as being the actual insurance company. This is not the case, is why you must be careful.
MGAs, insurance agencies and insurance agent producers are merely sales people working on straight commission. They do not take any insurance risk as does the insurance carrier.
Therefore, as the policy purchaser, you need to take extra care to make sure that these sales oriented intermediaries tell the truth and represent the coverage accurately. Unfortunately, too many insurance purchasers are misled, and left with inadequate coverage… and they do not even know it.
Also, they tend to pay more for coverage because of this intermediary taking a sales commission, and not looking out for your needs. It is always best to buy your insurance coverage from a mutual insurance company like the NASW Risk Retention Group because you are buying directly from the manufacturer (carrier), and coverage representations are guaranteed to be accurate.
Maturity has two connotations in the insurance industry.
One is the date at which the face amount of a life insurance policy becomes payable either through death or other contract stipulation. For example, if the insured on a whole life insurance policy lives to 100 which is the defined maturity date of the policy, then the policy either pays the cash value defined in the policy or the death benefit.
The other is maturity in the insurance industry risk management side that refers to the age of a claim. Actuarially, it is used to measure the development of a group of claims incurred in the occurrence year; (the policy year during which the claim was first made or filed). This then becomes the basis to reconcile the plan’s ultimate loss ratio in order to remain compliant with the insurance regulators and to make sure reserves are adequate to pay claims.
Relating to this, the insurance industry uses a 5-level maturity model with fraud mitigation progression starting at level 1 and advancing up each level depending on the claim severity and fraud potential. The higher the level, the more intense the scrutiny model used which involves analytical tools to detect soft and hard fraud, predictive modeling, industry lookups, text mining, and similar legal case contexts to establish fact patterns.
“Mono” as a numerical prefix meaning one, or anything single. So too with insurance. A monoline insurer is licensed to write only one type of insurance risk or product line, commonly with some surety or financial guarantee insurance backing.
For example, the NASW Risk Retention Group is a monoline insurance carrier backed by Lloyd’s London and SwissRE as reinsurers. Risk Retention Groups are by law, only allowed to write liability insurance policies as its product line. So the NASW Risk Retention Group writes Professional Liability malpractice, General Liability, and a suite of Cyber liability insurance policies.
The advantage of being a monoline insurance carrier is that the NASW Risk Retention Group has specialized skills and expertise that go far beyond what can usually be expected from insurance companies with lines of business spread across many different areas.
This translates into more precisely designed insurance policy coverage with better and more comprehensive benefits, lower premiums, and better customer service. The Risk Retention Group’s knowledge of the market needs, combined with its experience in claims management, greatly helps in the development of the best policies available, and at the lowest price to the policyholders. Operating costs are also better controlled which benefits the policyholders since they own the Risk Retention Group.
This brings us to you. These mutual insurers are also referred to as “stock captives”.
They are special purpose insurers that raise capital from policyholders who own and control the captive. As a policyholder of the NASW Risk Retention Group, the Board Directors are voted into office by the policyholders and many are social workers, so the Board governance is determined by social workers. As a policyholder and insured of the NASW Risk Retention Group, you own the Risk Retention Group.
Therefore, you benefit directly from lower premiums, better and more comprehensive coverage, and more liberal claims adjudication. Another big benefit from this model is that Wall Street stock traders and investors are not involved. There is no quarterly pressure to deliver a “quarterly earnings per share number”, which encourages short sided thinking, and compromises many enterprises over the long term.
Published August 2017