The Three–Ring Special…Insurance Interrelationships
The social work profession is noble and founded on service, integrity, and clinical expertise. It can be a stressful and dangerous occupation. The nation is grateful for what you do, AND SO ARE WE! Thank you!
During the 1930s Depression, when every penny counted, my ancestors devised a cost-saving holiday alert procedure to avoid long-distance telephone toll calls. When departing their home for the long drive to the holiday host family members’ house, they would call the host family, let the phone ring three times, and hang up. That time marker determined when the host family would put the turkey or ham in the oven because they already knew the travel driving time of the visiting family. They called this the “Three-Ring Special.”
Now, picture a three-ring circle Venn diagram–named for the logician named John Venn in 1880 from the article “On the Diagrammatic and Mechanical Representation of Propositions and Reasonings” published in the Journal of Science and Philosophical Magazine. (see” klaxon.com)
The Venn diagram illustrates the relationships in a finite collection of information sets. It is all about the relationship between the information sets and how they interrelate. The overlapping region of the circles only contains elements that are members of the sets of circles. The same approach is applied to insurance risk when calculating the statistical probability of incidents within the scope of defined policy-covered peril that becomes claims losses.
In the context of insurance risk, using the power of three, there are three types of insurance risk:
- Personal Risks such as life, health, and physical well-being risks;
- Property Risks such as loss or damage to your home or possessions.
- Liability Risks include threats from others to your financial health, blaming you for loss, injury, death, professional liability, patient data breach, and general liability risks claiming injury.
Risk and exposure are two words used interchangeably. Exposure is the possibility of a loss of some sort and is a measure of being unprotected. The cause of the loss is called the peril, and this risk or exposure shifts to the insurance carrier through the policy contract and the premium paid to the Insurance carrier by the insured. That is the gap that insurance fills.
Using the power of three in the granular context of risk, consider these three elements:
- Risks of your profession: the modality, type of treatment that you provide, and how you give the professional services;
- Insurance policy contract: the actual insurance policy contract that covers your modality and professional services and includes specified exclusions, covered perils,
limits, sub-limits, deductibles, and other stipulations; and
- Insurance premium: the money the insured pays for the insurance coverage.
Insurance carriers in the professional liability sector react to the granular risk elements by increasing premiums, excluding perils, creating or increasing deductibles, and lowering sub-limits. These cost-control tactics deal with direct Insurance risks. Frictional costs that the insurance carriers still have to contend with include:
- Claims adjudication
- Legal fee hourly rates
- Administration costs
- Employee benefits associated with staff and internal infrastructure systems
Increased exposure and frictional cost increase premiums and water down insurance policies.
There are two parts of claims exposure. Legal expenses are directly associated with the defense of a claim (sometimes referred to as allocated loss adjustment expenses), and indemnity is a settlement paid for a court verdict and judgment against the insured defendant. Also baked into the total cost to the insurance carriers are overhead company costs, as mentioned previously.
To mitigate these costs since 2018, insurance carriers, particularly in the professional liability sector, have increased premiums by 25% to three-fold. Some insurance carriers have grouped behavioral health practitioners into the higher-risk medical malpractice segment, which includes invasive therapies. Moreover, jury verdicts and judgments have increased exponentially regarding lawsuit litigation and shall continue this trend.
The other concurrent strategy that insurance carriers do to improve profitability is to decrease or eliminate certain coverages and benefits. So read your policy thoroughly. Understand the per-occurrence limit and the aggregate limit. An example and frequent professional liability policy limit is a $1 million limit per occurrence and a $3 million aggregate limit for the entire policy year.
Next, review the definitions in the policy contract. Some insurance carriers bury the definitions in the policy contract text, which is more difficult to understand. Policy forms with a definitions section are much easier to follow.
Then examine the actual perils or risks that are covered or excluded and, if covered, their benefits and sub-limits. Carriers know the frequency and severity of each peril. They intentionally exclude coverage for a particular peril(s), limit the coverage with a very low sublimit, or charge a high endorsement premium to add that specific peril coverage to the policy. One of the most critical and costly examples in professional liability policies is divorce litigation coverage.
Except for the Preferra Insurance Company Risk Retention Group, all carriers exclude coverage for this peril or charge a $1,000 endorsement premium, and many have deductibles. In other words, you have no legal defense coverage if you are sued while working with spouses undergoing a divorce–a frequent claim.
Sub-limits are another element to consider. All carriers have sub-limits, but they vary in amount and vary by peril. The most frequent perils, such as licensing board perils, have low sub-limits, and in many cases, insurance carriers limit the number of licensing board perils per policy year. Only the Preferra Insurance Company Risk Retention Group has no sub-limits for fire liability in its general liability insurance policy, which includes $1,000,000 coverage and no limit on the frequency of fire claim incidents. All other insurance carriers have fire sub-limits under $350,000, and only one fire claim is allowed per policy year.
Deductibles are another tactic that insurance carriers use to minimize claims losses. They vary by insurance carrier and also can vary by peril. Only the Preferra Insurance Company Risk Retention Group has no deductibles.
Sexual Misconduct is a severe claim loss, so some insurance carriers specifically exclude coverage for this peril in their professional liability policy contract. That also means that even if you, as the insured, did not commit sexual misconduct but your contractor or employee did, you are still liable and will not be covered. Moreover, in the event of a sexual misconduct claim, some insurance carriers only pay for legal fees and expenses to defend you but immediately cease coverage if any admission of guilt or judgment occurs.
They automatically exclude any indemnity payments, no matter what happens. Indemnity payments refer to damages brought in the lawsuit against you for what you did or did not do through negligence or what your employee(s) and contractor(s) did in connection with the sexual misconduct.
There are still other insurance carriers that set a firm limit of $200,000 for any claims arising from sexual misconduct, which include negligence claims. Many insurance carriers set a deductible, such as paying the first $5,000 to $10,000 of the claim.
You should know the RRG covers sexual misconduct claims with no deductible. When filing related negligence claims in the lawsuit, the RRG defends these claims up to the policy per occurrence limit, which can be $1,000,000 to $3,000,000, depending on the level of coverage purchased–regardless of guilt by you, the insured, your employee(s), and your contractor(s).
There are many aspects to your career as a practitioner. In the three-ring Venn diagram where you intersect each data set, there is your professional risk, the insurance policy contract that shifts certain risks from you as the insured to the insurance carrier, and the premium you pay for moving risks to your insurance carrier.
Preferra Insurance Company Risk Retention Group will continue to insure its policyholders in the employee wellness category for Professional Liability, General Liability, and Cyber Liability insurance risks and perils. You can count on us to protect you!