What is the difference between a "Claims-made" policy and an "Occurrence-Type" policy?
An "occurrence-type" policy is the most traditional insurance policy. Essentially, you are covered against any person who sues you for medical malpractice, as long as the incident that gave rise to the lawsuit "occurred" while you were insured by the insurance carrier.
In a “claims-made” policy, you are only covered against a person who sues you for medical malpractice if two conditions are met: (1) The incident that gave rise to the lawsuit occurred while you were insured with the insurance carrier; and (2) at the time that the person brings forth the lawsuit, you are still insured with the carrier. However, you are only protected for claims reported after you leave the insurer if you purchase a supplemental or additional endorsement called the Extended Reporting Period Endorsement (ERP), often referred to as the “tail,” which may cost up to two or three times your last year's premium.
Why is the Claims-made policy less expensive than the Occurrence-Type policy in the first five years?
The reason a claims-made policy is less costly in the initial five years is that as the policyholder, you do not represent a large exposure to the insurer in the beginning years of the claims-made policy. When you are in your first year of coverage, it is unlikely that the insurer would have to cover a claim filed against you for an act that occurred during your first year. In the second year, it is more likely that someone may file a claim against you for an incident that occurred in the first year of coverage. That is why in your second year, your insurance premium will be generally 50-65% of your mature rate; third year, it will likely increase to 70-85% of your mature rate; and in the fourth year, it amounts to 85-95% of your mature rate. In your fifth year, your exposure mimics that of an occurrence-type policy, as the insurer is now covering any claims filed against you for an incident that may have occurred over the initial five years.
What is the Surplus Contribution?
"Surplus" is the excess capital that insurance carriers must keep as a precaution in case the premiums are not enough to cover losses. In general, think of "surplus" as an insurance carrier's savings account. This amount is set aside only if our predictions are incorrect, and we need to pay claims or expenses that we didn't anticipate. Every insurance carrier is required to maintain a certain level of surplus in order to operate. Most "for-profit" insurance companies get the surplus in two ways: (1) through the accumulation of years of profits obtained from its policyholders; or (2) from selling stock on the stock market. However, because NJ PURE bases its rates upon what we predict will be needed to cover the costs of claims and expenses, there is no profit load included.
In addition, because we do not sell our stock on the stock market, we must generate that surplus from our subscribers themselves. As each member joins the Exchange, a surplus contribution is required. These surplus contributions are 10% of the cost of your premium for years one through four and a maximum of 10% each year after.
Is the Surplus Contribution refundable?
Yes, it is refundable. However, in order for you to receive this surplus back, three things must occur (as stated in paragraph 3 of our Power of Attorney).
1. You must have left the Exchange – that is you must no longer receive insurance through NJ PURE
2. You must receive the approval from the Department of Banking and Insurance, the Insurance Commissioner and the Attorney-in-Fact; and
3. The claim year in which you left NJ PURE must be closed and the surplus adequacy must have been approved by the Department of Banking and Insurance and the Insurance Commissioner.
How many doctors does NJ PURE insure?
NJ PURE has insured nearly 1,000 physicians/medical professionals as of year-end 2010. If you wish to have a list of physicians in your area who are insured with us, please contact us and we will seek their consent to release their information. We are proud to boast an over 93% renewal rate for our physicians for each year we have been in business.
Why will NJ PURE succeed in the long-term?
We have experience managing an insurance carrier in a hostile insurance market. In fact, this is the third reciprocal exchange that Mr. Sheeran and Dr. Chang have co founded. As of January 2014, NJ PURE is reinsured by Liberty Mutual Group, rated A (Excellent) by A.M. Best Co. This partnership includes a 50% quota share agreement, meaning Liberty Mutual Group assumes 50% of NJ PURE's claim risks. In addition, the following steps will ensure that NJ PURE continues to succeed over the long term:
1. We do not use agents and brokers - saving an average of 10% in expenses.
2. We insure only responsible doctors and proactively help our physicians prevent lawsuits. This approach helps us reduce claims, in addition to helping us make claims more defensible.
3. We are capped at the number of high-risk specialties we insure by our reinsurers, which allows us to diversify our risk portfolio.