INSURANCE BASICS

TERMS

Insurance Claim is the actual application for benefits provided by an insurance company. Policy
holders must first file an insurance claim before any money can be disbursed to the insured. The
insurance company may or may not approve the claim, based on their assessment of the
circumstances. There can be multiple claims on one policy.

Symbol - is each person or component involved in the claim. Each symbol gets assigned a
major class code (MJC)

Major Class Code – is a two or three digit code that gets assigned to each symbol based on the
type of damage or injury.

Third Party Administrator (TPA) - refers to a situation where the processing of claims is
outsourced to another company ( ie: insurance agent) but the risk of loss remains with the insurer
or the employer. If the insured uses a TPA, the insured would forward its losses to the TPA. In
return the TPA pays the insured, and then the TPA looks to the insurer for reimbursement.

Loss experience – the insurance history of a potential insured which affects the type of policy
the insured may qualify for and/or amount of the potential premium.

Loss sensitive – premiums are adjusted based on the amount of losses the insured has
suffered.

LOB – Line of business or type of insurance. Some examples include: worker’s compensation
(WC), auto liability (AL), general liability (GL).

AIGVS – AIG Vendor Services – handle all the primary excess claims for AIG.

AIGCS – AIG Claim Services – is the internal TPA.

Total incurred on a claim = Indemnity + Medical + Expenses + Reserves – Recoveries

Total paid on a claim = Indemnity + Medical + Expenses – Recoveries

Aggregate – these are done at the contract level. Once total losses reach whatever the
aggregate amount is the insured begins to get an aggregate credit as opposed to an invoice.
Aggregate attachment point – this is the predetermined limit of insured responsibility on
the policy.
Aggregate stop limit – once the total losses reach a predetermined amount the insured
begins to get invoices again and is again responsible for a portion of the losses based on
the agreement

Closeout – these are usually done towards the end of a program. The insured agrees to pay a
predetermined amount to close out all claim which means any losses incurred after the closeout
date are not the insured responsibility. This save the insured from having and AP and the insurer
from having an AR.

Symbols roll up to a claim; Claims roll up to a policy; Policies roll up to a contract number;
Contract numbers roll up to a client code or billing entity.

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COVERAGE TYPES

D Deductible coverage policy – the insured pays a premium and has a deductible
associated with the policy. Insured gets billed for everything until they reach their
deductible. After they reach their deductible they are no longer responsible for medical &
indemnity claims filed against the policy. Also, they may not be responsible for expenses
associated with this policy depending on the expense type (more on that later)

F Full Coverage Retention policy – this is similar to a deductible policy except for the way
this type of policy gets booked. With a deductible coverage policy the insurance
company can only collect premium on the amount for which the insured is ultimately
responsible. Whereas with a full coverage retention policy the insurance company can
collect premium on the entire amount of the loss experience, meaning they can estimate
the excess and figure that into the premium calculation.

E Excess of SIR (self insured retention) policy – insured acts as its own TPA (third party
administrator) and absorbs the losses up to the retention. The insurance company does
not get involved unless there is a deductible above the retention. If there is a deductible
above the SIR and bills them for the retention above the SIR. Only certain states allow
this type of policy.

P Excess of Primary – this is a policy sold to cover the excess layer. It does not get billed.

G Guaranteed Cost – insured pays a fixed premium. Invoices are never generated.
Insured gets a bill for their premium only. The insurance company assumes all losses.

TYPES OF PAYMENT PLANS

This determines how often we bill the insured.

1 Prepaid Installment – Cash Collateral – the insured sets up an account as collateral

against any losses.

2 Prepaid Installment – Incurred Loss Retro – compares actual to history once policy
expires and insured an either get a bill or a refund.

3 Monthly Loss Billing – deductible recovered thru monthly billing.

4 Quarterly Loss Billing – deductible recovered thru quarterly billing.

5 Zero Balance – account set up in which insurer deducts money from the account as
losses are uncured.

6 Not Applicable – usually applies to Guaranteed Cost since we do not collect anything
other than a premium.

7 Direct Bill – this is handled monthly by the insurer does not do the billing. The billing is
handled by the TPA.

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EXPENSE TYPES

ALAE – Allocated loss adjusting expense

Generally, when looking at expenses the retention/deductible is applied to indemnity, medical and
recovery amounts first. Depending on the expense type below it then can apply to the expenses
as well.

1 ALAE within retention – insured is billed until the retention is met. Retention applies to
indemnity, medical, recoveries and expenses. Retroactive adjustments can be made
with this expense types as claims come in to take the money out of the expenses and
apply it to the medical, indemnity and recoveries.

2 ALAE 100% reimbursement – retention only applies to indemnity, medical and

recoveries. Expenses are the insured responsibility.

3 ALAE pro rata – insured is responsible for a portion of the expenses based on a pro rata
calculation which is the ratio of the insured’s responsibility (based on retention paid)
divided by the total indemnity (this includes medical, indemnity and recoveries) paid.
That ratio (or percentage) multiplied by the amount of expenses paid will give you the
insured’s portion of the expenses. Additionally, if the insured has the pro rata expense
type they can have an excess expense percentage associated with this policy.
Excess Expense Amount – is the additional amount of expenses that is the insured’s
responsibility. This percentage is usually 0%, 50% or 100%.
With the pro rata expense type the insured has to reach its retention in order for the
insured to be responsible for any expenses.

4 ALAE not reimbursable – insured is not responsible for any of the expenses.

Indemnity or Bodily Injury (IN_BI) – relates to lost wages associated with a worker’s comp claims,
auto bodily injury etc.
Medical or Property Damage (MD_PD) – relates to medical payments associated with worker’s
comp claims and general liability.
Expenses (XPNS) – related to additional expenses associated with claims. It is primarily related
to legal expenses.
Recoveries (RCVRY) – money recovered from a claim. Recoveries are applied against indemnity
and/or medical only. They never get applied to expenses.

Total incurred = Indemnity + Medical + Expenses + Reserves – Recoveries

Total paid = Indemnity + Medical + Expenses – Recoveries
To get the total paid current month amounts look at PCM columns.
To get the total paid to date amounts look at the PTD columns.
To get the total outstanding amounts look at the OS columns.

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 LOSS PROCESSING

TPA Pre- Coverage Split Booking

Data processin Validation Loss Billing (in CRS
g edit TPAIR)

General Sub-
Ledger ledger
Financial AIG
Statements Corp
Acct

LOSS PROCESSING EXPLANATIONS

TPA Data is the information that comes from the TPA

Pre-processing edit is the validation that the data from the TPA goes thru to ensure that it
has all the necessary fields are present in the file in order to flow thru the loss process. If
it does not, it gets kicked out into a suspense account.

Coverage Validation – verifies that the claims coming in match where they need to go.

Split Loss divides the policy losses between the insured layer and the excess layer. Based
on split loss you should be able to deduce how much the insured gets billed, AIGVS gets
billed, etc.

Billing takes the information from split loss and bills the insured the portion they are
responsible for and AIGVS their portion.

Booking takes the information from split loss and books the amounts to the Corporate
Reporting System (CRS).

CRS is the corporate reporting system which feeds the general ledger as well as sub-
ledgers.

Sub-ledgers give details of accounts receivable broken out by customer’s account.

General Ledger is where all the accounting transactions are made and stored. The
general ledger ultimately feeds the financial statements that corporate accounting uses to
analyze the business and management uses to make its decisions.