Caption Corner Part 14 – Two Important S’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.
In this issue, we will discuss some of the most important liability insurance terms that you need to know: Settlement Lag and Specific Loss Limit.
Settlement lag is the length of time between the first report of a claim and the date that the claim is closed, or fully paid. This is also referred to as the settlement date. The settlement lag time frame does not begin when the incident is reported because the reported incident must be assessed through claims adjudication to determine its eligibility to be considered as a covered claim under the insurance policy contract.
Liability insurance claims involve expenses (legal fees), and indemnity (damages) categories for example. These are the broad general categories. Typically, the more severe the claim, the longer the settlement lag, and the more expensive the claim is. The longest settlement lags are generally two to five years in duration, or longer, that arise from a wrongful death. The shortest settlement lags tend to be in the categories of an expert witness, deposition, trial testimony, a subpoena for records, or simply medical records requests where legal advice is required.
These claims are usually handled and settled within a month or two. State Licensing Board inquiries, which are claims requiring some, but minimal legal advice, typically require 10 months to settle. This is not because these claims matters are severe or complex, but because the states have bureaucracies and delayed sequential processes that prolong claim settlement lag times.
So what does this all mean to you the practitioner?
When shopping for Professional Liability, General Liability, or any other insurance coverage, make sure that you ask about the claims adjudication capabilities of your insurance carrier and how the insurance carrier’s claims adjudication processes work. Also, ask about settlement lag time by claims category so you understand how responsive your potential insurance carrier really is across a range of claims matters.
Rapid claims adjudication and short settlement lag times relieve you of distractions, worry, the loss of billable time, the general nuisance of continuously answering questions on claims matters, and your time tracking the status of claims against you. The goal is to put the claims matters behind you promptly so you can move on practicing.
Specific Loss Limit
Specific loss limit is the amount of risk that an insured retains through a deductible, and/or that the insurance carrier retains on a per-occurrence basis.
Risk Retention Groups, (certainly in the NASW Risk Retention Group’s regulated insurance jurisdiction), are precluded from deductibles in their insurance policies. So deductibles do not apply to this discussion.
Turning to the loss limit, the insurance carrier can look to reinsurance for loss limit and risk mitigation as discussed in Part 13 of this series. This reduces, or “limits” the insurance carrier’s risk retention ability. In other words, the insurance carrier’s risk retention ability is the amount of aggregate incurred claims losses that it can retain in any single financial reporting period without creating an adverse impact on its financial condition and on its required compliance maintenance of insurance regulatory metrics.
Related to risk retention mitigation is the insurance policy sub-limit. The sub-limit is part of the insurance policy aggregate limit and is not in addition to the insurance policy aggregate limit. A sub-limit places a maximum on the amount available to pay for that specifically defined loss, rather than providing additional coverage for that category of loss.
An example is a sub-limit maximum of $5,000 in policy coverage benefits for each deposition claim during the policy period, and it is perhaps linked to a maximum frequency of seven deposition claims permitted during the policy period. All of these sub-limits, combinations of perils, and their respective claims incident frequencies vary across insurance carriers’ policies.
When shopping for insurance coverage, pay attention to the policy sub-limits, including what they are and what perils they actually cover. Also, understand the frequency of perils governed by each sub-limit in a policy period.
Published January 2018