A system, method, and device for indemnifying an insured party in
a claims paid insurance policy. A premium allocation module determines
a claims paid insurance premium for the insured party and a database
module charges the premium to the account of the insured party.
A policy operations module obligates the insured party to pay the
assessed premium without an opportunity to cancel the policy after
assessment. Although the insurer defends a claim against the insured
party, the insurer is not responsible for the indemnity liability
until the claim is resolved.
What is claimed is:
1. A method for insuring a property or casualty loss of a party
with a claims paid insurance policy, the method comprising: determining
a claims paid insurance premium for the insured party; charging
the premium to the insured party; obligating the insured party to
pay the premium without an opportunity to cancel the policy; receiving
payment of the premium from the insured party; and assuming liability
for a claim against the insured party responsive to the claim being
2. The method of claim 1, wherein determining a claims paid insurance
premium further comprises: evaluating a cost object model to forecast
expenditures based on claims asserted against a group of insured
parties; calculating an overall premium for the group of insured
parties from the forecasted expenditures; and allocating a portion
of the overall premium to the insured party.
3. The method of claim 2, wherein allocating a portion of the overall
premium further comprises: applying, to the allocated portion, an
adjustment factor based at least upon risk relativity, risk maturity,
geographic, or policy-specific risk experience.
4. The method of claim 1, further comprising: receiving, from the
insured party, a request for renewal of the claims paid insurance
policy; and granting the request for renewal subject to the determining
of the claims paid insurance premium.
5. The method of claim 1, further comprising: performing a risk
review of the insured party; canceling the claims paid insurance
policy of the insured party responsive to the risk review; and providing
tail coverage to the insured party for an open claim.
6. The method of claim 1, further comprising: defending the claim
against the insured party.
7. The method of claim 1, wherein the insured party is indemnified
for a loss due to at least one of professional liability, medical
professional liability, property liability, and casualty liability.
8. A method for providing a claims paid insurance product, the
method comprising: evaluating a risk pool object model to identify
collective risk for a group of entities; evaluating a cost object
model to forecast expenditures based on claims asserted against
the group of entities; and generating a risk analysis for evaluating
a reserve funding amount based on the risk pool object model and
the cost object model.
9. A system for insuring a property or casualty loss of a party
with a claims paid insurance policy, the system comprising: a premium
allocation module configured to determine a claims paid insurance
premium for the insured party; a database module configured to charge
the premium to the insured party; and a policy operations module
operatively coupled to the database module and configured to obligate
the insured party to pay the premium without an opportunity to cancel
the policy, and configured to receive payment of the premium from
the insured party, and further configured to assume liability for
a claim against the insured party responsive to the claim being
10. The system of claim 9, further comprising: a cost module configured
to evaluate a cost object model to forecast expenditures based on
claims asserted against a group of insured parties; and a risk pool
module configured to calculate an overall premium for the group
of insured parties from the forecasted expenditures; wherein the
premium allocation module is further configured to allocate a portion
of the overall premium to the insured party.
11. The system of claim 10, wherein the premium allocation module
is further configured to apply, to the allocated portion, an adjustment
factor based at least upon risk relativity, risk maturity, geographic,
or policy-specific risk experience.
12. The system of claim 9, wherein the policy operations module
is further configured to receive, from the insured party, a request
for renewal of the claims paid insurance policy and to grant the
request for renewal subject to the determining of the claims paid
13. The system of claim 9, wherein the policy operations module
is further configured to perform a risk review of the insured party,
cancel the claims paid insurance policy of the insured party responsive
to the risk review, and provide tail coverage to the insured party
for an open claim.
14. The system of claim 9, wherein the insured party is indemnified
for a loss due to at least one of professional liability, medical
professional liability, property liability, and casualty liability.
15. A computing device for modeling a claims paid insurance product,
the computing device comprising: a risk pool module configured to
identify collective risk for a group of entities; a cost module
configured to forecast expenditures based on claims asserted against
the group of entities; and a risk analysis module operatively coupled
to the risk pool module and the cost module and configured to evaluate
a reserve funding amount.
 This application is a continuation-in-part of U.S. patent
application Ser. No. 10/140,434, filed on May 8, 2002, entitled
"Property/Casualty Insurance and Techniques," which claims
the benefit under 35 U.S.C. .sctn. 119(e) of U.S. Provisional Patent
Application No. 60/289,127 filed on May 8, 2001, entitled "Professional
Liability Insurance Techniques," both of which are incorporated
by reference herein in their entireties.
 This disclosure relates generally to property or casualty
insurance, and more particularly, to a novel claims-paid insurance
product, implementation and methodology.
 The Property and Casualty (P&C) insurance industry is
a global industry which transfers the specific economic risks of
individuals and businesses onto the society at large through the
mechanism of insurance which is provided in exchange for a premium.
The premiums charged reflect the perceived and historical record
of risk of a particular loss from insured exposure and may protect
the insured from either frequency of loss and/or severity of loss
arising from natural perils such as windstorm, hail, flood, freeze
or earthquake or from liability to third parties for negligent acts
or omissions or for statutorily mandated coverages for employees
work related injuries.
 From its inception in the Lloyds Coffee House in 1688, where
the risks of voyages were shared, "insured", a major concern
for the risk bearer(s) has been the recognition and estimation of
losses sustained under any policy of insurance. Without knowledge
of the losses sustained under a policy of insurance, it is impossible
to establish an economic premium for either the insured or the insurer.
The premium charged must adequately provide for the anticipated
losses under the policy, the expenses of policy origination (such
as agent's commission, taxes and other fees imposed by the state),
general and administrative expenses of the insurer and the insurer's
margin of profit.
 From the earliest days of insurance, the losses which took
place, "occurred", during the period of the policy that
gave rise to a claim as of the date of the loss occurrence. For
certain types of claims, such as losses from fire or earthquake,
the date of loss would be easily ascertainable. For other type of
losses, such as third party liability arising from a defective product,
the loss occurrence may not be recognized or known for a period
of years after the date of the loss occurrence, thus this delay
in recognition of a loss creates the necessity to establish reserves
for liabilities. For example, the value of the building may be reasonably
determined as of the date of loss, but the cost to replace it may
not be known until well into the course of reconstruction. Thus,
the insurer establishes reserves based on estimates of the cost
to fulfill the obligation under the policy. The amount reserved
can be too large or too small in any given case.
 For policies where the losses are not yet known and have
yet to be reported to the insurer, the insurer makes an estimate
of these future liabilities based on past experience and the prior
history of the length of time it has taken for losses for a particular
class of insured to emerge and be reported. Thus, the insurer establishes
reserves for known claims and for claims that are unknown and not
yet reported, referred to in the industry as "Incurred But
Not Reported" or "IBNR". If the insurer fails to
include these estimates of liability, the profit of the company
is overstated and over time the cumulative effect of years of underestimation
of reserves results in the potential financial impairment of the
 To improve the methodology of reserving, actuarial science
developed various quantitative and statistical methods to establish
reserves based on historical and projected outcomes using probability
theory. Because these studies incorporate projections and are based
on assumptions about emergence patterns of claims and interest rates
for example, there can be substantial disagreements over reserve
levels. Arguments over these estimates have created additional torts
that further complicate the insured/insurer relationship. As reserve
levels are incorporated into the rate making process, these estimations
frequently negatively impact the cost to the insureds and result
in an "affordability crisis".
 As our society has become more complex, the nature of the
risks in the insurance industry has grown as well with greater breadth
and scope of coverage required by the insureds. Consequently, the
premium costs have risen and the understanding of what the policy
covers has declined. Both of these issues lead to more conflict
with insureds over policy interpretation and claims settlement.
Similarly, the capital required to support a portfolio of diverse
risks has increased leading to the creation of large well capitalized
insurers created in either stock or mutual company form.
 Concurrent with the increased complexity of risks insured,
was the advancement of new legal theories about negligence and appropriate
compensation levels for injured parties. The new legal theories
have had the effect of reshaping and increasing the potential liability
of policies issued years or even decades earlier. The retroactive
review of policy language and the litigation among carriers and
policyholders consumed funds that could have been spent to compensate
damaged individuals. The divergence in the industry generated a
level of mistrust, waste and harm due to delay and uncertainty.
This increase in claims under occurrence policies created a substantial
mismatch of premiums and ultimate claims for any policy with its
cumulative effect through time. These increased losses lately recognized
by insurers produced losses in the current financial reporting period.
 This problem was especially acute in third party liability
lines of coverage such as general liability, professional liability
including malpractice, and errors and omissions coverages. These
lines of business then experienced substantial increases in premiums
in the best case and withdrawal of insurance capacity at any price
in the worst case; both instances damaged the insured/insurer relationship.
This period of market discontinuity commenced in the middle 1970's
and climaxed in 1986 and 1987 when occurrence coverage forms of
insurance all but vanished from the market place.
 In light of these problems, an alternative coverage form
was created, "claims made". Under a "claims made"
policy, the policy in effect when the claim becomes known and "made"
on the policy is the one responsible for the payment of the claim.
A claim which may have occurred decades prior becomes the responsibility
of the policy then in effect. The claim is thus shifted to a policy
issued in later years. Thus, if the insured does not report claims
during the policy period, the insured is responsible for that claim
unless the insured has a policy in force when the claim is reported
and made. Because the current policy is responsible for the claims
reported in the current period, the establishment of the rate for
the coverage is more predictable as there is not the need for substantial
estimation in the rate making process. The reserving process is
simplified to deal with reported or known claims. This type of rate
making is inherently more stable.
 However, over time the rates for a claims made policy begin
to approach the rate for an occurrence policy on a policy continuously
renewed. The policy attracts losses over the longer period it has
been in force in a manner similar to an occurrence policy. It is
generally believed in the industry that the claims made form offers
the insured greater price and coverage stability as well as a greater
likelihood that the carrier will continue to offer coverage given
the greater certainty of the claims attaching to the policy. However,
as losses to the claims made policy eventually approach the losses
on the occurrence form, the cost of claims made policy increases
resulting in the same issue of premium affordability for the insured.
What is needed is a product that maintains its affordability and
predictability through time and provides the insured with protection
against the risk of non-renewal by the insurance carrier.
 The claims paid policy functions similarly to the claims
made policy with at least one important difference; the insurer
does not become obligated for payment until the claim is settled
and paid on behalf of the insured. The insurer thus does not bear
the risk of adverse development inherent in the loss reserves. The
removal of this risk removes any policy's greatest unknown and unquantifiable
feature for which no charge need be made. Conversely, the insured
retains the risk and responsibility for subsequent claims development
and amount. The policy therefore is a "cash" policy representing
premiums received less claims paid plus expenses paid out. Thus,
the pricing for greater uncertainty is avoided, which enhances the
price attractiveness to the insured. Changes in policy pricing is
driven by the actual claims paid in the policy period not the substantial
estimations necessary in occurrence or claims made policies.
 Additionally, the claims paid policy has the bilateral effect
of obligating insurer and insured to maintain the policy for the
following exemplary reasons:
 1. If the insured cancels, replacement coverage must provide
protection for prior occurrences possibly stretching back years
for both known but unpaid losses and unknown losses which is generally
an expensive coverage.
 2. If the insurer cancels, the policy obligates the insurer
to offer protection for known or unknown claims to the insured,
sometimes referred to as "tail coverage" without payment
of an additional premium.
 3. The insurer is entitled to change a premium which covers
the claims paid in the policy period through the assessment mechanism
of the policy upon the insured, which has previously obligated itself
to such an assessment.
 The claims paid policy provides coverage on an affordable
and adjustable basis, and provides incentive for both parties to
the contract to continue their relationship through time. The alignment
of interests in these policies is superior to that in other products.
 In one aspect, a method for insuring a property or casualty
loss of a party with a claims paid insurance policy includes determining
the claims paid insurance premium and charging the premium to the
insured party. The insured party is obligated to pay the premium
without an opportunity to cancel the policy. The method also includes
receiving payment of the premium from the insured party and assuming
liability for a claim against the insured party responsive to the
claim being resolved.
 In another aspect, a system for insuring a property or casualty
loss of a party with a claims paid insurance policy includes a premium
allocation module, a database module, and a policy operations module.
The premium allocation module determines a claims paid insurance
premium for the insured party. The database module charges the premium
to the insured party. The policy operations module obligates the
insured party to pay the premium without an opportunity to cancel
the policy, receives payment of the premium from the insured party,
and assumes liability for a claim against the insured party responsive
to the claim being resolved.
 In a further aspect, a computing device for modeling a claims
paid insurance product includes a risk pool module, a cost module,
and a risk analysis module. The risk pool module identifies collective
risk for a group of entities. The cost module forecasts expenditures
based on claims asserted against the group of entities. The risk
analysis module evaluates a reserve funding amount.
 Further features of the invention, its nature and various
advantages will be more apparent from the accompanying drawings
and the following detailed description.
BRIEF DESCRIPTION OF THE DRAWINGS
 The accompanying drawings illustrate several embodiments
of the invention and, together with the description, serve to explain
the principles of the invention.
 FIG. 1 is an interaction diagram that illustrates the indemnification
model according to an embodiment of the present invention.
 FIG. 2 illustrates a computing device and object model abstractions
for a claims paid insurance system according to an embodiment of
the present invention.
 FIG. 3 is a block diagram of a computing device according
to an embodiment of the present invention.
 FIG. 4 illustrates program code modules for an embodiment
of the present invention.
DETAILED DESCRIPTION OF THE EMBODIMENTS
 The present invention is now described more fully with reference
to the accompanying figures, in which several embodiments of the
invention are shown. The present invention may be embodied in many
different forms and should not be construed as limited to the embodiments
set forth herein. Rather these embodiments are provided so that
this disclosure will be thorough and complete and will fully convey
the invention to those skilled in the art.
 A. Overview
 In an embodiment of the present invention, an indemnification
model in the form of claims paid insurance is provided. A claims
made or occurrence-based insurance policy transfers indemnity liability
to the insurer before the claim is resolved. Because it may take
many years for a claim to reach resolution, an insurer must reserve
some present funds to pay for these long-term expected losses and
as discussed previously, the accuracy of the reserve funds has been
difficult to ascertain. In a claims paid insurance policy, however,
liability for indemnifying the insured does not become the responsibility
of the insurer until the claim is resolved. At that point, the real
cost is known and is paid by the insurer. This reduces the need
for the insurer to reserve present funds to pay for future long-term
losses; collected premiums are used to cover "short-term"
liabilities only. (Short-term and long-term liabilities for insurance
purposes reflect the maturity date for payment. By definition, a
long-term liability reflects an obligation that has a maturity or
payment date greater than 12 months.) One advantage of this form
of insurance is increased cost effectiveness and accuracy. It gives
the insurers the ability to adapt to severity and frequency changes
of known claims, while encouraging increased safety from the group
or community of insured parties.
 To explain the principles of the present disclosure, the
following description relates to four attributes of a claims paid
insurance methodology, namely: (1) the trigger or timing model for
the transfer of the indemnity risk from insured to the insurer;
(2) the ability to collect additional premium if more funds are
needed to cover the insured risk; (3) the insured's vested right
of renewal; and (4) a non-cancelable obligation of the insured to
pay their insurance bill once the premium has been charged.
 1. Triggering the Transfer of Indemnity Risk
 At its core, P&C insurance is about risk transfer and
defining where that transfer occurs. For an occurrence-based policy,
the risk transfer is at the point or time the loss happens The insured
reports the loss when it is discovered, but the liability shifts
at the time the event occurs. As such, an insurer may not learn
that it has this liability for many years. Occurrence coverage does
not differentiate between known or unknown claims; and thus an insurance
company must reserve for both. Companies are forced to estimate
and study industry trends to deal with a problematic situation.
All insurance used to be on this form, until it became too unwieldy
and expensive for many perils. The claims made form was developed
in response to the operational and accuracy complications arising
from the occurrence form.
 Under claims made, liability transfers to the insurer upon
report of a claim by the insured. Claims made insurance imposes
the burden of reporting on the insured and the insurer is the responsible
for these known losses. With this immediate transfer of liability,
an insurer must collect and hold reserves based on actuarial estimated
costs of these reported claims. Both forms are used for short- and
long-tail risks (even short-tail risks are long-term liabilities).
For both forms, premiums need to be charged and funds held against
the ultimate cost of known claims and the future costs for unknown
claims. At the end of each year, the claims are reevaluated, reserves
are checked for adequacy and adjustments are made in the premium
for the following year (with no assurance of policy renewal). As
part of this process, insurers also look to future trends and developments
in the industry, but the emphasis is on past reserves and premiums
are adjusted to reflect development trends in open claims. For long-tail
liabilities, the average P&C insurer evaluates between 2-6 different
policy years to set premiums for the approaching policy year, because
reserve estimates are made at a claim's earliest most undeveloped
stage and then constantly reviewed and adjusted as losses mature.
If there is a gap in the funding of reserves, future premiums are
charged to address the past shortfalls.
 Delaying the transfer of indemnity liability has several
advantages. First, a claims paid insurer that does not collect reserves
in advance of payment will be able to charge significantly less
premium than a claims-made or occurrence insurer, and that premium
charge will be more accurate and will reflect the losses of the
risk pool that actually caused or suffered the claim. The price
difference between occurrence and claims made coverage for the same
insurance product can range up to 50% and the price difference between
claims paid and claim made may also fall into a similar range. The
price savings and accuracy of the cost are significant Second, an
insured can report a claim to an occurrence or claims made insurer,
change companies and the former insurer remains financially liable
for the cost of this claim. However, if an insured were to report
a claim and then change insurers, the claims paid insurer would
no longer be responsible for the indemnity portion of this claim.
The insured would remain liable for any loss that may arise.
 Third, a claims paid insurer enjoys a higher retention rate
than its fellow claims made or occurrence insurers. Insureds with
open claims would remain insured with a claims paid insurer to preserve
converage for the indemnity liability, while those without open
claims are incentivized to remain with the claims paid insurer because
of the price advantage generated by the difference in forms. Individuals
each have their own tolerance of risk; people still purchase occurrence
coverage, despite the pricing, because they are more risk adverse
than claim made insureds. Claims paid insurance offers a third option
to the overall P&C insurance marketplace.
 Insurance crises occur when perils become more risky due
to court decisions, legislative of regulatory initiatives or changes
in the expectations or practices of the insured. Some of these developments
are rapid and others are evolutionary. Nevertheless, if the frequency
or severity of the risk grows, a insurer has a limited ability to
correct its reserves and therefore often non-renews its policyholder
and exits the business. Claims paid insurance gives the insurer
the ability to respond and remain a provider of coverage in the
market while simultaneously providing economic savings to the insured.
 As described above, in a claims paid policy, the indemnity
claim cost does not become the responsibility of the insurer until
the matter is resolved. At that point, the real cost is known and
paid by the insurer. This delayed transfer could be as little as
one year or as long as 10-15 years depending on type of peril. Because
the liability has not been triggered, the insurer does not have
the obligation and therefore does not have the right or need to
collect for this loss. No indemnity is sought nor held; the insurer
has a contingent obligation to the insured, but it is not liable
for the loss. To succeed, the claims paid insurer must accurately
estimate the funds needed to cover the indemnity losses for the
current year plus other operational and related costs. It grants
the insurer the flexibility to address risk relativity throughout
the claims process without the limitations imposed by the claims
made or occurrence reserving process. The insured benefits because
it is not funding reserves today for expected future claim losses
or inaccuracy of pricing reserves.
 The defense and other allocated costs for claims paid insurance
are treated in the same manner as for claims made insurance. The
liability for these expenses is transferred from the insured to
the insurer upon report and represents a minor portion of the overall
premium expense to the insured. Furthermore, these costs are subject
to less variation when compared with indemnity losses.
 2. Ability to Collect Additional Premiums
 One aspect of claims paid insurance is the ability for the
insurer to assess for additional premiums if the short term calculation
of need proves to be inadequate. Assessability, or the ability to
seek additional premiums, is an accepted policy provision in the
traditional insurance industry. Many new companies use assessability
to provide comfort to insureds and third parties that require insurance
as a condition to operate or participate. Under a claims paid methodology,
assessability is used as a safety measure to insure that there are
sufficient funds to cover the losses for a particular year. Of course,
it is desirable to avoid assessments, and they can be limited in
a variety of manners that are consistent with the insured peril
as well as the particular insurance policy language.
 In an embodiment, there is no set percentage or degree of
risk tied to assessability. It can range from unlimited liability
for future monies to a percentage of the most recent premium charge.
As one skilled in the art will appreciate, assessability may be
adapted to the characteristics surrounding a particular peril or
coverage. Assessability is an established and available component
of occurrence and claims made forms in today's insurance industry.
 3. Insured's Right to Renew
 A component of the claims paid insurance policy is that
renewal rights are granted to the insured. Therefore, if a insured
has an open claim, the insured has the option to continue coverage
with the insurer, at the insurer's price. If the claims paid insurer
retained the non-renewal right, then there is the possibility that
an insurer would simply non-renew any policy that had an open claim
and never be responsible for any claim. This scenario is inherently
unfair and anathema to the purpose and intentions of insurance.
 In the P&C insurance industry, non-renewal is a cudgel
wielded to control size, scope and parameters of a particular line
of business. A insurer has the ability to enter and exit markets
at will because it has the right to non-renew its policies. Under
the claims paid form, the insured has the renewal right. As explain
above, the insured must have this right so that the insurer remains
in place to see the open claim through to resolution.
 Furthermore, a insurer without the power to non-renew must
be certain that it understands and is willing to accept risk from
a potential insured. By empowering the insured, a insurer puts a
premium on its underwriting skills and its risk management department
to understand the universe of perils and to help the insured, once
accepted, to avoid claims. As one skilled in the art will appreciate,
claims paid insurers will not only carefully select its insured,
but also impose risk management regimes on these entities so that
losses can be reduced or avoided. Insureds, seeking this insurance
and the pricing advantage, are more likely to comply with programs
that improve safety. By granting the power of policy renewal to
the insured, a virtuous cycle may be created: the fundamental and
traditional elements of insurance--underwriting, risk management,
claims handling, and member service--are reemphasized, which leads
to fewer losses for the benefit of the insured and the community,
which can lead to lower premiums and more risk management to prevent
future losses. Claims paid can create a system of heightened safety
and cost savings, both arguable unattainable in the P&C industry.
 This potential result differs from the claims made situation.
Growth is calculated in terms of premium volume because an insurer
is secure that it can exit a risk at a time of its choosing. The
traditional elements of insurance are subjugated to premium growth
and can lead to pricing protections that lead to cross-subsidization
among various lines of insurance. When the results deteriorate,
insurers non-renew insureds, capacity for this risk shrinks and
individuals are left without insurance. The consequence of this
chain of events negatively impacts all parties: society has less
coverage for a growing risk, insureds are uncovered through no fault
of their own and insurers have changed their business because they
have no other ability to remedy their poor results. Under claims
paid insurance, a insurer cannot exit the line, must charge the
appropriate price for the risk, and is incentivized to help its
insured to avoid losses.
 In an embodiment, the insured's renewal right however is
not absolute. Under claims paid, if the risk of a particular insured
is so great as to the imperil other insureds, the insurer may review
and eject this risk by terminating the policy. However, upon cancellation,
the claims paid insurer provides full claims made tail coverage
for all open claims, even if the policyholder has become an unacceptable
risk. The effect of this provision is to impose a significant economic
penalty on the insurer and to put the cancelled insured in the same
if not better economic situation as if it were non-renewed from
a claims made insurer.
 4. Non-Cancellation by the Insured
 In an embodiment, the insured is obligated to pay the charged
or assessed premiums and does not have the right to cancel the policy
during the term of coverage. Claims paid insurance relies on the
ability to collect funds from a predetermined number of insureds
to pay for the expected losses received for a fixed period of time.
The insurer must collect the premium from each insured to cover
the losses resolved during the policy period. Without this ability
to rely on payment, the claims paid insurer would need to revert
to claims made practices in order to meet its obligations to all
of the other insureds.
 A claims made insurer has already reserved for future losses;
the funds were set aside when the claim was reported. In one scenario,
if the insured cancels, the claims made insurer should have already
collected sufficient funds to meet any obligation already incurred.
It is charging higher premiums to grant this cancellation right
to its insured. A claims paid insurer has a collection risk, but
this element is mitigated by the limitations of the insured's obligation
to pay what is built into the policy form. Of course, this right
to collection extends to any assessability charges that may also
 B. Indemnification Model
 FIG. 1 is an interaction diagram that illustrates the indemnification
model according to an embodiment of the present invention. The diagram
includes three entities: an insurer 102, an insured 104, and a third
party 106. The insurer 102 charges a premium 110 to the insured
104. As described in an embodiment above, the insured 104 has an
obligation to pay 115 the policy premium once it has been charged.
The insurer 102 is also capable of making an additional assessment
120 to supplement the reserve fund for the current policy year.
Accordingly, the insured 104 pays the assessment 125. The assessment
120 and corresponding payment 125 are illustrated in dotted lines,
which represent that these events are optional, and in an embodiment
of the invention, rarely made.
 At some point in time, the third party 106 asserts a claim
130 against the insured 104. As described above in an embodiment
of claims paid insurance, the liability for loss 135 stays with
the insured 104 until the claim is resolved.
 During the time period that the claim is open and pending
against the insured 104, other interactions may take place between
the insurer 102 and the insured 104. For example, a policy renewal
event is illustrated. Subject to a risk review by the insurer 104,
the insured 104 has a right to renew the policy. The insurer 104
charges 150 a premium to the insured 104. The insured 104 renews
by payment of the premium 155. After the premium has been calculated
and charged, the insured 104 has an obligation to pay the premium.
 When the claim by the third party 106 is resolved 160, the
liability for indemnifying the insured 104 transfers 165 to the
insurer 102 as a short-term obligation. The insurer 102 then pays
170 the resolved value of the claim to the third party 106.
 C. Economic Model
 Claims paid insurance offers the benefits of lower pricing,
insured fairness, increased safety and economic efficiency. These
advantages are achieved through an integrated policy that reverses
certain practices of the traditional insurance carriers. More importantly,
these alterations have economic value that are achieved through
the use of computer modeling/trending as well as through a pricing
exercise that advances the current state of the P&C insurance.
An object model abstraction for a claims paid insurance system is
described in further detail below and with reference to FIG. 2.
Claims paid may not be appropriate for all insurable risks; however,
it provides another risk financing product that addresses certain
needs of insureds and insurers.
 Each insurance peril has a different claim maturation curve;
the claims-paid form focuses upon the next 12 months of this process
and its success in the marketplace depends on the ability to price
the risk properly. Effective pricing is dependent on effective modeling
and the incorporation of multiple points of data. It is an exercise
that is completed in a compressed time period and requires unusual
accuracy. Claims development is fluid and can vary greatly between
accident years. The ability to harness computing power that will
give insurers the comfort to rely on a claims-paid format is critical.
Regulators understand that traditional reserves have a margin for
error that is corrected in subsequent years. Since technology will
allow an insurer to demonstrate that most, if not all, potential
developments have been contemplated in the claims-paid calculation,
a regulator will understand that the balance of risks has been properly
considered and that consumers can purchase a claims-paid product
with the assurance that a particular risk has been analyzed appropriately.
 In general, claims-paid insurance is a more current process
that looks forward rather than dwelling on past reserves to estimate
the future cost of claims. Traditional P&C insurance insurers
determine current year pricing by seeking to correct for error in
past reserves. For a claims paid insurer, the focus is a look forward
to the next 12 months to determine what claims should be resolved
and what will be the expected indemnity losses. The following is
a description of the pricing modeling process for a claims paid
insurer. Like the policy provision description above, there will
be some similarities between the claims paid form and the claims
made and occurrence forms. However, in an embodiment of the present
invention certain usual and customary practices are reversed to
generate a more accurate product that benefits all parties in the
 FIG. 2 illustrates a computing device and object model abstractions
for a claims paid insurance system according to an embodiment of
the present invention. The illustrated embodiment includes a computing
device 210, a risk pool object 220, and a cost object 240. The risk
pool object 220 and the cost object 240 are operatively coupled
to the computing device 210. Although the objects 220, 240 are illustrated
as separate entities that are coupled to the computing device 210,
one skilled in the art will recognize that the objects 220, 240
represent data abstractions that may reside in the computing device
210. That is, the objects 220, 240 may be manipulated by and persistently
stored by the computing device 210. The computing device 210 also
receives as input a premium collection 260 and produces outputs
of risk analysis 280 and premium allocation 285.
 1. Risk Pool Object 220
 The first step in creating an insurance line is the determination
of the risk pool. For all insurance products, there needs to be
a sufficient grouping of similarly-situated risks that can collectively
shared the burden of the expected losses. For claims paid, the decision
to enter a business line has long-term consequences; entrance means
that the insurer will remain committed to this business for the
long-term and is willing to dedicate resources on an upfront basis
in underwriting and risk management to generate future success.
In the context of the present invention, the risk pool object 220
is evaluated in terms of one or more of the following factors: policy
limits 222, policy exclusions 226, geographic and environment elements
228, and characteristics of the target insured. The prospective
insurer studies and evaluates past loss experience 224 with a focus
on severity and frequency trends. A growth calculation should also
be included since new insureds will incur additional costs. All
types of insurer should and many do study new markets to this extent,
however, the barrier to entry is higher for claims paid insurer
due to its limited ability to exit. The advancement of more powerful
analytical tools allows a insurer to evaluate more information in
a more careful manner than has previously been available.
 2. Cost Object 240
 Identifying a risk pool is a simple and straight-forward
step that is familiar to all insurers. Where a claims paid insurer
diverges from claims made and occurrence is in modeling practices
in the determination of indemnity paid 242 for a current insurance
year. At its most basic level, the claims paid insurer makes this
calculation while the traditional insurers do not. They make different
cost estimates which a claims paid company does not need to determine.
Under the claims paid operations, the insurer looks at the indemnity
losses that are expected to be triggered in the coming policy year.
These claims were reported in earlier years, and have been managed
judiciously by the claims operation. The claims payments expected
to be made in the coming are totalled up and compared against the
projected ultimate losses by exposure year. This actuarial exercise
is important because it helps to determine how the insurer's risks
are performing against each other and the marketplace. Armed with
these reports, the claims that expected to be triggered are also
compared against historical patterns to help shape and evaluate
risk relativity within the insurer's risk pool and compare it against
industry averages. With this analysis, a insurer can determine the
total monies needed for indemnity in the current year and adjust
risk relativity to reflect book and industry changes.
 Any claims paid insurer, each internal risk class, assuming
sufficient size, should have a similar if not identical loss ratio.
Under the claims paid format, it is inherently unfair for one class
should not have an advantage over another risk class. While not
required for this invention, internal risk balance is favored and
helps assure insureds of the overall impartiality of the pricing
practice, and generates a more accurate cost allocation.
 Once the total indemnity need is determined as well as the
internal risk relativity, various model assumptions and potential
scenarios are tested and analyzed to insure stability for the insurance
product. Growth projections can be included in these assumptions
and scenarios. Subject to these results, the projected indemnity
paid component is adjusted and becomes a component for policy year
 The claims made and occurrence insurers do not make this
same indemnity calculation. Rather, they review past reserves and
adjust the reserves, if necessary, for all claims, regardless of
whether these claims are to be paid within the next year. These
insurers then evaluate the success of the reserving process, make
any necessary adjustments and then estimate the results for the
claims that will be reported in the coming year. For the occurrence
insurer, there will be a reserve for the unknown claims that will
come due in future years. Sometimes other factors such as investment
returns and taxes determine the timing of reserve adjustments, rather
than performance of the reported claims.
 The calculation of the ultimate loss adjustment expense
(ULAE) component 244 is similar for all three forms of insurance.
ULAE is the calculation for the expenses a company will incur during
the claims management process. The various factors include determining
the exposure period, modeling of loss cost trends and potential
outcomes, and reviewing payout patterns and prior periods' development.
While all three forms require a similar estimation, there is an
important difference--for which claims are the current premiums
to pay. For a claims paid insurer, even though it accepts the costs
of defense upon report, there is still a greater emphasis on claims
to be triggered within the next twelve months, while claims made
and occurrence insurers look to the whole cost of all claims will
or could be reported in the next year. As a result, claims management
may be a larger percentage component of the overall premium for
a claims paid rate than in a claims made or occurrence situation.
 The calculation of the general and accounting expenses 246,
risk management or underwriting expenses 248, information systems
and other expenses (collectively administrative expenses 250) are
similar for all types of insurers. Claims paid insurers have the
same components as traditional insurers. However, the difference
lies on the different funding horizons for each policy form and
the importance these elements play in operations of the company.
For claims made and occurrence companies, the ability to exit a
product line is always available. These types of insurers have the
luxury of making short-term forays into a product line. A claims
paid company has no such freedom and therefore, additional stress
and reliance is placed on the usual and customary insurance practices
represented by this cost component. Expect claims paid insurers
spend a greater percentage of their collected premium on underwriting,
risk management and policy service than the traditional claims made
or occurrence insurer.
 Risk Unit Charge for a Policy Year: Once the risk pool has
been determined and the indemnity, ULAE and Administrative costs
have been tested and calculated, all facts are combined to develop
the overall premium for the coming year. Adjustments are made for
investment income and the premium distribution is tested and modeled
on a variety of factors maturity, risk unit, regional, class specialties
and other policy specific risk parameters. Ultimately, a total premium
is determined and allocated within the risk class. This premium
covers a cost that is dissimilar to the claims made and occurrence
form in two significant manners. First, it will be less expensive
on a risk basis than a properly-priced claims made or occurrence
form by a factor ranging from 25-50%. Second, the vast majority
of the dollars collect by a claims paid insurer will be spent in
the immediate policy year, while the majority of the revenues collected
by claims made or occurrence insurers will be held in reserves,
while other reserves will be released to cover the insurance of
the traditional insurers. Investment income remains a more important
elements for the traditional insurers, while the claims paid de-emphasizes
this source of revenue and rather seek lower premiums.
 A claims paid pricing determination model can be outlined
as follows in accordance with an embodiment of the present invention.
 I. Risk Pool Determination
 1. Determine insurance components and nature of risks to
be underwritten including but not limited to the following
 i. policy limits,
 ii. exclusions,
 iii. geographic/environment elements,
 iv. size of insured and/or
 v. Past loss experience (frequency and severity components
inherent to the peril).
 vi. Exposure Period (prior acts)
 2. Aggregate similarly-situated perils into identifiable
insurable risk categories.
 3. Incorporate trending and other actuarial methodologies
for future expectations
 II. Determine Indemnity Paid component for current policy
 1. Determine projected current policy year indemnity exposures
based upon expected triggered indemnity losses (actuarial/analytical).
 2. Review projected ultimate losses by exposure year (actuarial).
 3. Apply historical payout patterns to each exposure year
 4. Calculate current policy year projected Indemnity Paid
component utilizing payout patterns and exposure years (computer).
 5. Model assumption and analyze potential scenarios. Select
most likely and appropriate outcome, which includes comparisons
to known industry practices/experiences.
 6. Adjust projected Indemnity Paid component by known resolved
claims and other experience factors to determine Expected Indemnity
Paid amount (computer/analytical).
 III. Determine ultimate loss adjustment expense component
for current year claims and any adjustments for prior year claims
for current policy year pricing.
 1. Determine projected current policy year exposures (actuarial/analytical).
 2. Review projected ultimate loss expense by exposure year
 3. Review payout patterns and prior years' development for
any adjustment to current policy year pricing (computer/analytical).
 4. Calculate ultimate loss adjustment expense component
for current year (computer/analytical).
 IV. Determine other underwriting, risk management and administrative
expenses for current policy year pricing.
 1. Utilizing a budgeting process, determine expenses for
the year in underwriting/policy services, marketing, risk management,
finance, claims services, information services and administration
 2. Review for any non-cash or capital expenditures and adjust
the underwriting and administrative component appropriately (analytical).
 3. Evaluate for credit quality of insureds
 V. Calculate the per policy charge for the current policy
 1. Combine the Indemnity Paid component, ultimate loss adjustment
expense component, and underwriting and administrative expenses
for current policy year (computer/analytical).
 2. Adjust amount by investment income, other non-operating
charges, retrospective charges (including additional assessments)
and any profit margin (computer/analytical).
 3. Allocate premium total to individual policies based upon
the following factors (computer):
 a. Risk relativity
 b. Risk maturity
 c. Regional or risk specialty adjustments
 d. Policy-specific risk experience adjustments
 D. Computing Device 110
 FIG. 3 is a block diagram of a computing device according
to an embodiment of the present invention. In the illustrated embodiment,
the computing device 210 includes a connection network 310, a processor
315, a memory 320, an input/output device controller 325, an input
device 327, an output device 329, a storage device controller 330,
and a communications interface 335.
 The connection network 310 operatively couples each of the
processor 315, the memory 320, the input/output device controller
325, the storage device controller 330, and the communications interface
335. The connection network 310 can be an electrical bus, switch
fabric, or other suitable interconnection system.
 The processor 315 is a conventional microprocessor. The
processor 315 executes instructions or program code modules from
the memory 320 or the storage device 322. The operation of the computing
device 210 is programmable and configured by the program code modules.
Such instructions may be read into memory 320 from a computer readable
medium, such as a device coupled to the storage device controller
 Execution of the sequences of instructions contained in
the memory 320 cause the processor 315 to perform the method or
functions described herein. In alternative embodiments, hardwired
circuitry may be used in place of or in combination with software
instructions to implement aspects of the disclosure. Thus, embodiments
of the disclosure are not limited to any specific combination of
hardware circuitry and software. The memory 320 can be, for example,
one or more conventional random access memory (RAM) devices, conventional
flash RAM, or electronically erasable programmable read only memory
(EEPROM) devices. The memory 320 may also be used for storing temporary
variables or other intermediate information during execution of
instructions by processor 315.
 The input/output device controller 325 provides an interface
to the input device 327 and the output device 329. The output device
329 can be, for example, a conventional display screen. The display
screen can include associated hardware, software, or other devices
that are needed to generate a screen display. In one embodiment,
the output device 329 is a conventional liquid crystal display (LCD).
The display screen may also include touch screen capabilities. The
illustrated embodiment also includes an input device 327 operatively
coupled to the input/output device controller 325. The input device
327 can be, for example, an external or integrated keyboard or cursor
 The storage device controller 330 can be used to interface
the processor 315 to various memory or storage devices. As one skilled
in the art will appreciate, the storage device 332 can be any suitable
storage medium, such as magnetic, optical, or electrical storage.
Additionally, the storage device 332 or the memory 320 may store
and retrieve information that is used by one or more of the functional
modules described below and with reference to FIG. 4.
 The communications interface 335 provides bidirectional
data communication coupling for the computing device 210. The communications
interface 335 can be functionally coupled to a network (not illustrated).
In one embodiment, the communications interface 335 provides one
or more input/output ports for receiving electrical, radio frequency,
or optical signals and converts signals received on the port(s)
to a format suitable for transmission on the connection network
310. The communications interface 335 can include a radio frequency
modem and other logic associated with sending and receiving wireless
or wireline communications. For example, the communications interface
335 can provide an Ethernet interface, Bluetooth, and/or 802.11
wireless capability for the computing device 210.
 1. Program Code Modules
 FIG. 4 illustrates program code modules for an embodiment
of the present invention. The illustrated embodiment includes an
interface logic 402, a risk pool module 405, a cost module 410,
a risk analysis module 415, a premium allocation module 420, a policy
operations module 425, a database module 430, and an operating system
module 435. The modules 405, 410, 415, 420, 425, 430, 435 are communicatively
coupled to the interface logic 402. In an embodiment, the interface
logic 402 receives memory address data via the connection network
310. The interface logic 402 also provides program instructions
to the processor 315 via the connection network 310.
 The modules 405, 410, 415, 420, 425, 430, 435 include program
instructions that can be executed on, for example, the processor
315 to implement the features or functions of the present disclosure.
The modules 405, 410, 415, 420, 425, 430, 435 are typically stored
in a memory, such as the memory 320. As described above, the program
instructions can be distributed on a computer readable medium, or
storage volume. The computer readable storage volume can be available
via a public network, a private network, or the Internet. Program
instructions can be in any appropriate form, such as source code,
object code, or scripting code. One skilled in the art will recognize
that arrangement of the modules 405, 410, 415, 420, 425, 430, 435
represents one example of how the features or functionality of the
present disclosure can be implemented. The functionality represented
by the modules 405, 410, 415, 420, 425, 430, 435 need not be implemented
on a single computing device or host system. In a distributed computing
environment, for example, the modules 405, 410, 415, 420, 425, 430,
435 may be distributed among many computing devices.
 The cost module 410 includes program instructions to evaluate
the parameters of the cost object model 240 to forecast expenditures
based on claims asserted against a group of insured parties. The
risk pool modules 405 includes program instructions for evaluating
the risk pool object model 220 to calculate an overall premium for
the group of insured parties based on the forecasted expenditures.
 The risk analysis module 415 includes program instructions
for evaluating a reserve funding for a particular policy period
(e.g., one year). The risk analysis module 415 contemplates most,
if not all, potential developments in the cost object 240, such
as the indemnity paid component 242, in order to determine whether
the balance of risks has been properly considered. In one embodiment,
the risk analysis module can generate a risk analysis report 280.
 The premium allocation module 420 determines a claims paid
insurance premium for the insured party. The premium allocation
module 420 operates in conjunction with the risk pool module 405
and the cost module 410 to calculate an overall premium for a group
of insured parties. The premium allocation module 420 also operates
in conjunction with the database module 430 to apply one or more
an adjustment factors, such as risk relativity, risk maturity, geographic
or environmental, and policy-specific risk experience, to the portion
of the overall premium that is allocated to an insured party.
 The policy operations module 425 manages ongoing operations
of a claims paid insurance model. The policy operations module 425
ensures that the insured party is obligated to pay the assessed
premium without an opportunity to cancel the policy after assessment.
The policy operations module 425 also manages the receipt of premium
payments and expenditures (e.g., claim defense costs). The policy
operations module 425 further ensures that the insurer does not
assume liability for a claim against the insured party until the
claim has been resolved.
 The database module 430 provides data storage and retrieval
services for the computing device 210. The database stores information
about the insured parties, including risk assessment information
and billing information (e.g., premiums charged or assessed).
 The operating system module 430 represents a conventional
operating system for a computing device, such as a server. Example
operating systems include the NonStop system software (which is
commercially available from Hewlett-Packard Company of Palo Alto,
Calif.). The operating system module 430 provides an application
programming interface (API) through which the modules 405, 410,
415, 420, 425, 430, 435 or other application programs interact with
the computing device 210. For example, the database module 430 calls
a function of the operating system module 435 in order to communicate
using the communications interface 335.
 Having described embodiments of claims paid insurance (which
are intended to be illustrative and not limiting), it is noted that
modifications and variations can be made by persons skilled in the
art in light of the above teachings. It is therefore to be understood
that changes may be made in the particular embodiments of the invention
disclosed that are within the scope and spirit of the invention
as defined by the appended claims and equivalents.