Accident Year (AY)

The year in which an accident occurred.


Act of God

An event that is caused by the forces of nature, without human intervention, and that could not have been prevented by reasonable care, e.g., flood, earthquake, hurricane, etc.


Actual Cash Value

An amount equal to the current replacement cost of the lost or damaged property at the time of the loss, reduced by an allowance for depreciation, wear and obsolescence.


Adjuster

A person who investigates and settles losses for an insurance carrier.


Admitted Company (Carrier)

An insurance company licensed and authorized to do business in a particular state or jurisdiction.


Advance Premium

A deposit premium paid by the insured which may later be adjusted up or down, following an audit of the insured's records (i.e. payroll, inventory, sales receipts).


Agent

An individual who solicits, negotiates or effects contracts of insurance. Generally refers to a natural person appointed by a licensed insurer as its representative for the purpose of soliciting and selling insurance. An agent's right or the extent of his or her authority to act for the insurer, and the obligations of the agent and the insurer to one another are governed by the specific terms of the contract between them, as well as the laws of the jurisdictions in which they transact insurance.


Agent Balances

The amount of premiums, minus commissions, collected by agents and/or brokers and owed to an insurer.


Allied Lines

Types of insurance associated with property insurance, which may include earthquake, sprinkler leakage, and income and extra expense coverage.


Annual Policy

Insurance policy written for a term of one year or renewed one year at a time.


Annual Statement

A report made by a company at the close of its fiscal year. It is the primary financial report required by the state insurance department to be submitted by insurers annually. Sometimes referred to as the convention statement or convention blank.


Annuitant

The person during whose life an annuity is payable, usually the person to receive the annuity.


Annuity

A contract that provides an income for life or a specified number of years, or a combination of the two.


Application

The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to help decide if it will issue the policy and what premium rate will be charged.


Apportionment

The dividing of a loss proportionately among two or more insurers which cover the same loss.


Appraisal

Determination of the value of property, either to help ascertain the appropriate amount of insurance to be written or to determine the amount of loss to be paid.


Appreciation

Rise in value or price. Increase in worth or value.


Appurtenant Structures

Buildings on the same premises as the main building insured under a property insurance policy.


Arbitration

Determination by impartial experts of the value of property or the extent of damage. Many insurance policies provide for arbitration if the company and the insured cannot agree on the amount or the extent of a loss; may also be used to resolve liability and policy-coverage issues in certain situations.


Assignment

The transfer of one's interest in an insurance contract to another; in many kinds of insurance, valid only with the consent of the insurer; the transfer, after an event insured against, of one's right to collect and amount payable under an insurance contract.


Assumed Premium

The amount charged by an insurance company in exchange for accepting all or part of insurance on a risk or exposure.


Authorized Insurer

An insurer licensed or officially permitted to transact specific classes of insurance business in the state or jurisdiction that issued the licensed or permission.


Basic Form

An insurance policy providing coverage against a limited number of specified perils.


Basic Limits

Certain minimum amounts of liability to be covered by insurance. It is customary to quote premiums in terms of these minimum amounts.


Beneficiary

Any person, institution, trust, etc., named in a life policy to receive the policy benefits upon the death of the insured.


Binder

Temporary insurance contract providing coverage until a permanent policy is issued. In property and casualty insurance, some agents have authority to bind the insurance company to cover until a policy can be issued. For example, the purchaser of an automobile can call the agent, who can then bind the insurance company to temporary coverage.


Blanket Coverage

A blanket form is one under which property is insured under a single amount applying to several different pieces of property rather than a specific amount of insurance on each property.


Block Policy

An inland marine policy covering all property on or off a merchant's premises, including property of others in the care, custody or control of the policyholder.


Bodily Injury

Injury to the body of a person. The term is usually specifically defined in the policy, and these individual definitions have variations.


Bodily Injury Liability Insurance

This coverage protects an insured against legal liability for injury to another person arising from an accident.


Boiler and Machinery Insurance

A form of property coverage for loss arising out of the operation of pressure, mechanical and electrical equipment.


Broad Form

A package policy providing coverage for the same perils covered in the basic form, plus specified additional perils.


Broker

A representative of the buyer of property and liability insurance who deals with either agents or companies in arranging for the coverage required by the customer.


Business Interruption Insurance

Coverage for the loss of earnings in the case the policyholder's business is shut down by fire, windstorm, explosion or other insured peril. It's often added as a rider to a standard business policy and pays for such expenses as the rebuilding of an accounts receivable database, cleaning computers, leasing temporary office space, and similar losses associated with a disaster.


Calendar Year

A 12-month period during which losses are incurred. The calendar year (CY) loss ratio reflects payments and reserve adjustments on all claims during a particular year, including those from prior injury years, divided by premiums earned in that period. Once calculated for a given period, calendar year results do not change.


Cancelable Policy

A policy which may be cancelled by the company at any time by giving advance notice in compliance with state requirements to the insured citing the reasons such insurance is being cancelled and refunding any unearned premium.


Cancellation

The discontinuance of an insurance policy before its normal expiration date, either by the insured or insurance company.


Captive Insurer

An insurance company set up by a company or group of companies to insure their own risks or risks common to the group.


Cargo Insurance

A broad classification of marine insurance providing coverage on cargo, as opposed to hulls, to protect shippers by sea from loss or damage to goods for which they would be unlikely to collect from the carriers themselves. Whether cargoes are insured for a particular voyage or under open policies which are in the nature of reporting-form policies depends upon the volume and regularity with which a shipper uses ocean transit. Cargo insurance also can cover goods transported by train or truck.


Casualty Insurance

Insurance primarily concerned with the legal liability for losses caused by injury to other persons or damage to property of others. Also includes, among other coverage's: automobile liability, workers' compensation, employers' liability, general liability, plate glass, theft and directors' and officers' liability. It excludes life, fire and marine insurance.


Catastrophe

A sudden event causing an extraordinary level of loss; most often associated with natural disasters such as tornados, hurricanes, floods or earthquakes. In insurance, it is applied to an incident or series of related incidents involving an insured loss in excess of $25 million.


Catastrophe Reinsurance

An indemnity contract between a ceding insurer and one or more assuming reinsurers whereby each reinsurer assumes a stated portion of the ceding insurer's liability for loss in excess of a specified amount. Catastrophe reinsurance is used to spread among several insurers the liability in the event of an extraordinary level or concentration of loss sustained in a single occurrence.


Cede

To transfer all of part of a risk written by an insurer (the ceding, or primary company) to a reinsurer (the assuming company).


Ceded Premiums

Premium paid by a primary or ceding insurer to an assuming reinsurer as compensation for assuming all or a stated percentage or portion of liability for losses incurred under one or more insurance policies issued by the primary or ceding insurer.


Chartered Property Casualty Underwriter (CPCU)

A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property and casualty insurance underwriting.


Claim

A demand for payment of a policy benefit because of the occurrence of an insured event.


Claim Adjuster

Someone who performs the field work involved in settling a claim, including investigating, appraising and negotiating a claim.


Claim Frequency

The number of claims occurring under a given coverage divided by the number of earned exposures for the given coverage. It is usually expressed as the number of claims paid per 100 of such exposures.


Claim Severity

The average cost per claim.


Claimant

One who makes a claim under an insurance policy.


Claims-Made Form

A type of liability policy which covers claims which occur and are reported during the policy term.


Combined Ratio (Statutory)

In insurance, combination of the loss ratio and the expense ratio:


Loss Ratio = Incurred Losses + Loss Adjustment Expense / Earned Premiums

Expense Ratio = Incurred Expenses / Written Premiums

The combined ratio is important to an insurance company since it indicates whether or not the company is earning a profit on the business is it writing, not taking into account investment returns on the premiums received. A combined ratio under 100% indicates underwriting profitability; a combined ratio exceeding 100% indicates an underwriting loss.


Combined Single Limit

A liability coverage limit that combines both bodily injury and property damage into one aggregate amount.


Commercial Blanket Bond

A fidelity bond for operators of commercial establishments, etc. (see fidelity bond).


Commercial Credit Insurance

An insurance contract that insures payment or collection of the accounts receivable for goods shipped or services provided by manufacturers, wholesaler and service organizations.


Commercial General Liability (CGL)

Liability coverage section of a Simplified Commercial Lines Portfolio policy (SCLP). Provides for separate limits of coverage for general liability, fire legal liability, products and completed operations liability, advertising and personal liability, and medical payments. An aggregate limit of liability is in force for the general liability, fire legal liability, advertising and personal liability, and medical payments claims. When total claims for all of these areas exceed a given annual aggregate limit of liability, the policy limits are said to be exhausted and no more claims for the year will be paid under the policy. There is also an aggregate limit of liability in force for products and completed operations liability claims. This form has replaced the Comprehensive General Liability insurance (CGL) form.


Commission

A percentage of an insurance premium paid to an agent or broker for producing and servicing the business.


Commissioner of Insurance

Title of the head of the state insurance department who is responsible for the enforcement of insurance laws and for promulgating regulations dealing with the insurance industry.


Competitive State Fund

State-operated workers' compensation insurer which competes with private insurers for employers' workers' compensation business in certain states.


Consequential Loss

Value of loss resulting from loss of use of property. For example, a fire damages the structure of business premises and the business loses customer income until it can reopen. The loss in income- the consequential loss- can be covered under Business Interruption Insurance. Basic property insurance policies, such as the fire policy, do not cover the consequential or indirect loss.


Consideration

In an insurance contract, usually means money. The money or premium paid by the policyholder for the insurance protection.


Contract Bond

A bond which guarantees faithful performance of a construction contract and payment of all material and labor bills related to that contract. A Performance Bond covers faithful performance only; a Payment Bond guarantees payment of material and labor expenses.


Contractual Liability Insurance

Protects an insured against liability arising under a written or oral contract.


Contributory Negligence

Carelessness of the injured person that helped to cause the accident in which he or she was injured. Some states bar recovery to the plaintiff if the plaintiff was contributorily negligent.


Coverage

The protection provided under a contract of insurance.


Covered/Insured Peril

The risks of loss you are protected against by an insurance policy.


Crop-Hail Insurance

Protection against hail damage to growing crops. Coverage is often afforded under such policies for crop damage due to perils such as fire, windstorm, drought, frost, snow, etc.


Declarations

That part of that policy describing the named insured, address, effective date, term of the policy, line of business, the amount of insurance and the premium.


Deductible

The initial amount of loss that the insured is responsible for paying.


Directors and Officers Liability Insurance

Coverage for directors and officers of firms or organizations against liability claims arising out of alleged errors in judgment, breaches of duty, and wrongful acts related to their organizational activities.


Direct Premiums Written

The gross amount of property and casualty insurance premiums written (less return premiums), before any deductions.


Earned Premium

The part of the total property/casualty policy premium attributable to the expired portion of the policy period.


Employers' Liability Insurance

Covers the liability of employers for occupational injuries sustained by its employees not covered under the applicable state workers' compensation law.


Endorsement

A writing attached to an insurance policy, which amends or supplements certain terms, and becomes a legal part of original insurance contract in accordance with the stated terms.


Errors and Omissions Insurance

A type of liability insurance which indemnifies insured professionals- who include, but are not limited to, lawyers, insurance agents and brokers, accountants, real estate agents, appraisers, abstracters, title insurance agents, architects and engineers, advertising agents, adjusters, directors and trustees, fiduciaries, travel agents and data processing firms- for losses sustained because of their errors or oversights.


Excess Insurance

Property, liability or heath coverage above the primary amount of insurance. For example, the primary coverage is $100,000 and the excess insurance is $1 million. After the losses exceed $100,000, the excess insurance will pay for the losses up to a total of $2 million.


Excess Limits

Limit above the minimum amount of coverage for which the policy can be written according to company or legal restrictions.


Exclusion

Provision in an insurance policy that identifies the conditions and risks that are not covered by the policy. For example, common exclusions are: hazards deemed so catastrophic in nature that they are uninsurable, such as war; normal wear and tear.


Expiration Date

Termination date of coverage as indicated on the insurance policy.


Exposure

Possibility of loss. The most cost efficient way to purchase insurance is to insure an unexpected loss with a low probability of occurrence. Insuring a loss with a high probability of occurrence means swapping dollars with an insurance company, since the premium charge would reflect the expected probability of loss. Expense and profit loadings would also be added by the insurer.


Extended Downcycle

Pricing cycles characterized by intense competition and lower premium rates, termed a "downcycle", followed by periods of reduced competition, reduced underwriting capacity resulting from lower policyholders' surplus, and higher premium rates, known as an "upcycle".


Face Amount

The total amount or principal amount of insurance provided by an insurance policy at death or maturity.


Facultative Reinsurance

Individual risk offered by an insurer for acceptance or rejection by a reinsurer. Both parties are free to act in their own best interest regardless of any prior contractual arrangements. With proportional facultative reinsurance, the reinsurer assumes a proportional share of premiums and losses. On a nonproportional basis, the reinsurer is liable only for losses which exceed the insurer's retention level; premiums vary with loss expectation.


Fidelity Bond

Coverage that guarantees that the insurance company will pay the insured business or individual for money or other property lost because of dishonest acts of its bonded employees, either named or by positions. The bond covers all dishonest acts, such as larceny, theft, embezzlement, forgery, misappropriation, wrongful abstraction, or willful misapplication, whether employees act alone of as a team.


Fire Insurance

Covers property damage or destruction caused by fire and lightening.


Fire Policy Form

Policy known as the 165-line policy because of the standard form used in most states. The policy is not complete, and additional forms and endorsements are added so that it can cover numerous direct and indirect risks. The Standard Fire Policy is Section I - property coverage of most package policies such as the homeowners and special multiperil. It provides the foundation for property insurance coverage's regardless of the form in which they appear. The Standard Fire Policy has four sections:


    Declarations- description and location of property, insured amount, name of insured.

    Insuring Agreements- premium amount, obligations of the insured, actions the insured must take in the event of loss and resultant claim.

    Conditions- described that which suspends or restricts the coverage, such as an increase in the hazard with the knowledge of the insured.

    Exclusions- perils not covered under the policy, such as enemy attack including action taken by military force in resisting actual or immediately   I  impending enemy attack.

    Forms that can be added to a Standard Fire Policy include Dwelling Buildings and Contents Basic Form; Dwelling, Buildings and Contents Broad     Form; General Property Form. Since the Standard Fire Policy insures only against fire and lightening, the Extended Coverage Endorsement can cover the additional perils of windstorm, hail, riot, civil commotion, vehicle and aircraft damage to the insured property, explosion, and smoke damage. A Vandalism and Malicious Mischief Endorsement can also be added.


Flat Cancellation

Cancellation of a policy at or before it becomes effective with the entire premium refunded to the policyholder.


Fleet Policy

Numerous automotive vehicles covered under a common insurance policy.


Floater

Coverage for property that moves from location to location either on a scheduled or unscheduled basis. If the floater covers unscheduled property, all property is covered for the same limits of insurance.


Generally Accepted Accounting Principles (GAAP)

A method of reporting financial results of an insurer in accordance with the going-concern basis used by other businesses. GAAP is promulgated by the AICPA (American Institute of Certified Public Accountants) and the FASB (Financial Accounting Standards Board). GAAP assigns income and disbursements to the proper periods, as distinguished from the more conservative requirements of statutory accounting.


General Agent

Individual responsible for insurance agency operation in a particular area, including sale of life and health insurance, servicing policies already sold, recruiting and training agents, and providing administrative support. General agents are compensated on a commission basis and usually pay all expenses of administering their agencies.


General Liability Insurance

Coverage for an insured when negligent acts and/or omissions result in bodily injury and/or property damage on the premises of a business, when someone is injured as the result of using the product manufactured or distributed by a business or when someone is injured in the general operation of a business.


Gross Premium

In general, original premium amount paid by a policyholder before an agent's deductions for commissions and operating expenses. In life insurance, premium before dividends are subtracted.


Group Insurance

Single policy under which individuals in a natural group (such as employees of a business firm) and their dependents are covered.


Guaranty Fund (Insolvency Fund)

Aggregate sums, in certain states, to pay claims of insolvent insurance companies. These funds are maintained by contributions of companies operating in a particular state in proportion to their business written in the state. A guaranty fund insures the integrity of the insurance business.


Hard Insurance Market

A condition caused by insurance companies lacking sufficient capital to accept new business, sometimes causing a sharp rise in pricing and the diminishing of coverage availability.


Hull Policy

An ocean marine or aviation insurance contract covering damage to or loss of a ship or plane, but not the contents.


Incurred Losses

Losses that have occurred within a stipulated time period whether paid or not.


Indemnity

Compensation for loss. In property and casualty contract, the objective is to restore an insured to the same financial position after the loss that he or she was in prior to the loss.


Independent Adjuster

One who adjusts losses on behalf of companies but is not on their payroll. The independent adjuster is paid by fee for each loss adjusted, as distinguished from a company adjuster who is paid a regular salary by one company.


Independent Agent

Contractor who solicits and sells insurance for a number of insurance companies. The independent agent owns the records of policies sold, is not controlled by any one company, pays agency's expenses out of the commissions earned, and employs an administrative support staff.


Indirect Loss

Loss that is not a direct result of a peril. For example, damage to property of a business firm is a direct loss, but the loss of business earnings because of a fire on its premises is an indirect loss.


Inland Marine Insurance

A broad type of insurance, generally covering articles that may be transported from one place to another as well as bridges, tunnels and other instrumentalities of transportation and communication. It includes goods in transit over land as well as numerous "floater" policies such as personal effects, personal property, jewelry, furs, fine arts and others.


Insurable Interest

Is a kind of property right the value of which may be calculated and compensated in money in the event of a loss.


Insurance Services Office (ISO)

An organization that compiles insurance statistics, provides loss costs, drafts policy forms and coverage provisions, and conducts inspections for rate-makingratemaking purposes.


Insurance to Value

In property coverage, ratio of the amount of insurance to the value of an insured property. This ratio, multiplied by the amount of the loss, determines the indemnification payment.


Insured

Party covered by an insurance policy. The insured persons in property and casualty policies may include residents of the insured's household, such as spouse, relatives of either, and other individuals under their care, custody, and control if under age 21.


Insurer

Company offering protection through the sale of an insurance policy to an insured.


Insuring Agreements

Section describing coverages under a policy. Elsewhere in the policy other sections may restrict or exclude coverages.


Joint Insurable Interest

Two or more parties with a financial interest in a particular item of property.


Legal Expense Insurance

Prepaid legal insurance coverage plan sold on a group basis. Entitles a group member to a schedule of benefits, at a stipulated premium, for adoptions, probates, divorces, and other legal services. This emerging employee benefit has had wide acceptance in some localities but limited acceptance elsewhere. After scheduled befits have been exhausted, subsequent legal fees are usually based on the attorney's customary rate. For example, a prepaid legal insurance plan may provide only three legal consultations a year.


Legal Liability

Obligations and responsibilities subject to evaluation, interpretation, and enforcement in a court of law. Casualty insurance provides coverage for an insured against a civil legal liability suit, not criminal legal liability, intentional torts, or liability for breach of contract.


Level Premium Life Insurance

Insurance for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year to year and is more than the actual cost of protection in the earlier years of the policy and less than the actual cost in the later years. The excess paid in the early years builds up a reserve which helps meet the costs in later years.


Liability

Legal obligation or responsibility imposed by law or private contractual arrangement. Liability insurance may provide coverage for exposure arising from either source.


Liability Insurance

Insurance that pays sums that the insured becomes legally obligated to pay because of specific events or perils insured in the policy. Personal liability policies include Comprehensive Personal Liability (CPL), Homeowners Insurance Policy, Personal Automobile Policy (PAP), Personal Umbrella Liability, and the Uninsured Motorist Endorsement. Business liability polices include Business Automobile Policy (BAP), Business owners Policy, Completed Operations and Products Liability, Commercial General Liability Insurance (CGPL), Employers Liability and Workers Compensation, Manufacturers and Contractors Liability (M&C), Owners, Landlords and Tenants Liability Insurance Policy (OL&T), Physicians, Surgeons and Dentists Professional Liability, Storekeepers Liability Insurance, Umbrella Liability Policy.


Limit

The maximum amount of benefits that an insurer agrees to pay in the event of a loss.


Loss

The amount of compensation payable for an injury or damage resulting from an insured peril.


Loss Adjustment Expenses

Expenses incurred in the course of investigating and settling claims. Loss-adjustment expenses include any legal and adjusters' fee and the costs of paying claims and all related expenses. Referred to as LAE.


Loss Adjustment Expense Ratio

Ratio of the relationship of loss adjustment expenses to earned premium.


Loss Control Representative

Insurance company employees, also called safety engineers, that perform loss control surveys or inspections, and prepare written loss control report that outline their findings.


Loss Control Service

Engineering or inspection service which assists the insured in reducing its exposure to loss.


Loss Costs

The amount of money paid by the insurance company on insured loss, not including expenses of operation.


Loss Expense-Unallocated

Salaries and other expenses incurred in the operation of a claims department of a property and liability insurance carrier which cannot be charged to individual claims. Referred to as ULAE.


Loss Exposure

The possibility that a loss may occur.


Loss Ratio

Relationship of incurred losses plus loss adjustment expense to earned premiums.


Loss Reserve

A dedicated account for payment of known claims due but not paid, known claims not yet due, and provision for incurred but not reported (IBNR) claims. The critical problem facing a casualty insurance company is the amount of reserves necessary for the incurred but not reported loses (IBNR) because many of these claims and their resultant settlements may not manifest themselves until several years in the future. This is known as the tail end distribution liability.


Malpractice Insurance

Professional liability coverage for a practitioner in a given field of expertise. Coverage takes the form of defending the practitioner against liability suits whether or not with foundation, and paying on behalf of the insured, court awarded damages up to the limits of the policy.


Managing General Agents (MGAs)

An agent that under contract is granted the authority by an insurance company to underwrite and issue insurance policies and/or to pay claims on behalf of the insurance company.


Manual Rates

Published cost per unit of insurance, usually the standard rate charged for a standard risk. For example, one company's yearly rate or premium charged per $1000 of standard term life insurance for a male age 26 is $12.02.


Manual Rating

A method for determining the cost of an insurance policy using pre-determined rates, usually obtained from a rate book or manual.


Monoline Policy

An insurance policy that covers only one kind or class of insurance. Title insurance for real estate is probably the most common type of monocline insurance.


Moral Hazard

Circumstance which increases the probability of loss because of an applicant's personal habits or morals; for example, if an applicant is a known criminal.


Multi-Peril Policy

A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies, since the combined perils may be all within one insurance line, such as property.


Multiple-Line Company

A company that writes a variety of basic or traditional lines of insurance known as property and casualty (liability) insurance, such as auto, boat owners, homeowners, commercial, etc.


Multiple-Line Policy

A package policy that provides insurance for more than one kind of insurance.


Mutual Insurance Companies

Insurance companies without capital stock, owned by the policyholders.


Named Perils

Insurance contract under which covered perils are listed. If a loss results from an unlisted peril or event, no benefits are paid.


National Association of Insurance Commissioners (NAIC)

Membership organization of state insurance commissioners. One of its goals is to promote uniformity of state regulation and legislation as it concerns the insurance industry. The NAIC opposes federal regulation of insurance. The organization has achieved considerable national uniformity through the adoption of a uniform blank for insurance companies' annual financial reports, a zone system for the triennial examinations of insurance companies, a standard valuation law for reserves, standard nonforfeiture benefits, and model laws affecting many aspects of the insurance business.


Net Premiums Written

The amount of premiums retained by an insurer.


Non-admitted Insurer

Company not licensed by a particular state to sell and service insurance policies within that state.


Non-Participating Policy

A policy with no provision for payment of dividends to policyholders.


Notice of Loss

Notification to an insurance company by an insured or claimant that a loss has occurred. Written notice may be required, although many companies accept notice by telephone.


Obligee

A person, firm, corporation or government agency protected by a surety bond.


Occupational Disease Coverage

A coverage which pays benefits for diseases arising out of or in the course of employment, as opposed to ordinary diseases to which the general public is exposed.


Occupational Hazard

Condition surrounding a work environment that increases the probability of death, disability, or illness to a worker. This class of hazard is considered when writing Workers Compensation Insurance.


Occurrence

Event that results in bodily injury and/or property damage. Most liability insurance policies stipulates that all bodily injuries and/or property damages resulting from the same general conditions are interpreted as resulting from one occurrence and thus subject to the policy limits per occurrence.


Ocean Marine Insurance

Protection against damage or destruction of a ship's hull and the ship's cargo (freight) as the result of the occurrence of an insured peril.


Open Peril

Insurance policy that protect the insured from losses caused by any peril that is not specifically excluded by the policy.


Other Insurance Condition

Condition found in a policy that sets out how other insurance the insured may have on the same property will affect reimbursement under the policy when a loss occurs.


Package Policy

A combination of two or more classes or kinds of insurance in a single policy. A homeowner's policy, for example, is a package combining property, liability and theft coverages for the homeowner.


Paid Losses

Actual amount of total losses paid by an insurance company during a specified time interval.


Partial Loss

Loss involving less than all of the values insured or calling on the policy to pay less than its maximum amount.


Participating Policy

Policy that pays a dividend to its owner.


Peril

The cause of a possible loss, such as fire, windstorm, theft, explosion or riot.


Persistency

Percentage of life insurance or other insurance policies remaining in force; percentage of policies that have not lapsed. The higher the percentage, the greater the persistency. It is an important measure of a company's retention of its life insurance business.


"Personal Injury" Liability Insurance

Liability insurance that provides coverage for injuries to third parties caused by the insured.


Policies-in-Force

Polices written and recorded on the books of the carrier which are unexpired as of a given date. Usually applies to property and liability insurance.


Policy

Written agreement under which an insurer is contractually bound to reimburse or pay losses to or for an insured.


Policyholder

Individual or other entity that owns an insurance policy.


Policyholder Dividends

Sum returned to a policyowner by an insurance company under a participating policy. Dividends are not deemed as taxable distributions, as the Internal Revenue Service interprets them as a refund of a portion of the premium paid.


Policyholder's Surplus

The sum an insurance company has remaining after all liabilities are deducted from all assets. Sums such as paid-in capital and special voluntary reserves are also included in this term.


Policy Acquisition Costs

Costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts. Also referred to as underwriting expenses.


Policy Loan

The borrowing against a life insurance policy's cash value. The loan may be repaid in whole or part at any time until the policy matures or the interest plus the principal equal or exceed the cash value.


Policy Year

The year during which a policy is effective.


Pool

An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses shared in agreed ratios.


Preferred Risk

Insured, or an applicant for insurance, with lower expectation of incurring a loss than the standard applicant. For example, an applicant for life insurance who does not smoke can usually obtain a reduced premium rate to reflect his or her greater life expectancy.


Premium

The payment charged for an insurance policy. The insurance company will assume the risks of the insured (length of life, state of health, property damage or destruction, or liability exposure) in exchange for a premium payment. Premiums are calculated by combining expectation of loss and expense and profit loadings. Usually, the periodic cost of insurance is computed by multiplying the premium rate per unit of insurance by the number of units purchased.


Premium Auditor

A person who examines a liability insurance policyholder's insurance records (sales, payroll, etc.) at the end of the policy term to determine if the basis for the premium charge has either increased or decreased. If the audited premium is less than originally estimated and paid, the policyholder will receive a refund; if greater, the policyholder will receive a statement for the balance.


Premium Receivable

Premium balances, less commissions payable thereon, due from agents, brokers and insureds.


Producer

Any person directly involved in the sale of insurance.


Prohibited Risk

A risk that a company will not insure.


Proof of Loss

Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy.


Property Damage Liability Insurance

Coverage in the event that the negligent acts or omissions of an insured result in damage or destruction to another's property.


Property Insurance

Provides financial protection against loss or damage to the insured's property, other than automobile, caused by specified perils, such as fire, windstorm, hail, explosion, riot, aircraft, motor vehicle, vandalism, malicious mischief, riot and civil commotion, and smoke.


Property Losses

Losses an individual might suffer which can be characterized as loss of the article itself, loss of income from the use of property, or extra expense incurred due to loss of property.


Pro-Rata Cancellation

Cancellation of a policy before it expires and returning to the policyholder an amount of premium proportional to the unexpired days of the policy.


Protection Amount

The face amount of a life insurance policy, or amount of money that will be paid to a beneficiary upon the death of an insured.


Proximate Cause

The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As an illustration, property damage occurring from fire-fighting activities is covered under the fire policy because fire was the proximate cause of the loss.


Public Liability Insurance

A very broad term for insurance covering liability exposures for individuals and business owners. It provides broad coverage, generally including all exposures for property damage and bodily injury, except exposures that relate to ownership of airplanes and automobiles, and to employees.


Quotation

An estimate of the premium for a given policy.


Rain Insurance

Business interruption insurance in which the insured is indemnified for loss of earnings and payment of expenses resulting from adverse weather conditions. For example, the rain-out of a fair, horse race, or boxing match can cause a substantial loss of money for a promoter who may have spent huge suns in advance of the event for rental, advertising, and site conditioning. The policy does not cover damage to property because of rain.


Rate

A charge per unit in determining insurance premiums.


Rating Bureau

An organization that gathers statistics, develops loss costs, and/or creates policy forms and provides other services for the property and casualty insurers affiliated with the bureau.


Rating Territory

In various property and casualty lines, a geographical grouping within which insureds are likely to share an exposure to similar risks. Grouping of insureds within a territory helps establish equitable rates for the territory.


Rebating

The granting of any form of inducement, favor or advantage in cost or benefit to the purchaser of a policy not available to all under the standard policy terms. Rebating in some states is a penal offense for which both the agent and the person accepting the rebate can be punished by fine or imprisonment. The agent is also subject to revocation of license.


Reinstatement

The restoration of a lapsed life or health insurance policy to its original premium-paying status – usually after evidence of good health has been submitted and past-due premiums have been paid.


Reinsurance

Form of insurance that insurance companies buy for their own protection, "a sharing of insurance." An insurer (the ceding insurer) reduces its possible maximum loss on either an individual risk (facultative reinsurance) or a large number of risks (automatic reinsurance) by paying another insurance company (the reinsurer) to assume a portion of the ceding insurer’s risk.


    Reinsurance enables an insurance company to (1) expand its capacity; (2) stabilize its underwriting results; (3) finance its expanding volume; (4) secure catastrophic protection against shock losses; (5) withdraw from a class or line of business, or a geographical area, within a relatively short time period; and (6) share large risks with other companies.


Reinsurance Facility

(1) A group of reinsurance companies that share reinsurance contracts on a pro rata basis as they are submitted to the pool. (2) Market that operates much like New York Stock Exchange in that reinsurance contracts are bought and sold on a bid and asked basis.


Release

Written acknowledgement stating that all obligations past, present, or future arising out of a particular accident or occurrence have been fulfilled. Signing by the claimant generally relieves the insurance company and insured of further obligation.


Renewal

Automatic reestablishment of an insurance policy's in-force status, usually achieved through payment of the premium due.


Renewal Certificate

Form showing notification that an insurance benefit has been renewed with the same provisions, clauses, and benefits of the previous policy.


Rents or Rental Values Coverage

Endorsement to an existing policy or a separate policy covering loss of rental income to the property owner, caused by the damage or destruction of a building, rendering it unrentable. The coverage applies whether or not the dwelling is rented at the time of the loss. The insured can select a coinsurance requirement of 50%, 80%, or 100%. The higher that coinsurance amount, the lower the premium.


Replacement Cost Property Coverage

Insurance under which the amount payable is the current replacement cost of the property new, rather than the depreciated value. Applies to the building structures (in most cases) and can apply to contents in some policies.


Representations

Statements by an insurance applicant concerning personal health history, family health history, occupation, and hobbies. These statements are required to be substantially correct; that is, applicants must answer questions to the best of their knowledge.


Reserve

An amount representing actual or potential liabilities allocated by an insurer to cover obligations to policyholders and third-party claimants.


Residual Market

A general term describing the total of all consumers who have had difficulty purchasing insurance through normal channels. Automobile Insurance Plans, Fair Access to Insurance Requirements or FAIR Plans, Reinsurance Facilities and Joint Underwriting Associations all service this market.


Retention

The net amount of risk retained by an insurance company for its own account and not reinsured.


Retrospective Rating

Method of establishing rates in which the current year's premium is calculated to reflect the actual current year's loss experience. An initial premium is charged and then adjusted at the end of the policy year to reflect the actual loss experience of the business.


Return on Equity (ROE)

Net income expressed as a percentage of average total equity. This percentage measures profitability by expressing how efficiently invested capital or equity is being utilized.


Return Premium

Amount received by the policyholder if the policy is canceled, benefits are reduced, or the premium is reduced.


Rider

Endorsement to an insurance policy that modifies clauses and provisions of the policy, including or excluding coverage.


Risk

Uncertainty of financial loss; term used to designate an insured or a peril insured against.


Risk Management

Procedure to minimize the adverse affect of a possible financial loss by (1) identifying potential sources of loss; (2) measuring the financial consequences of a loss occurring; and (3) using controls to minimize actual losses or their financial consequences.


Sales Expense

Compensation of agents, advertising expense and other costs related to selling insurance policies.


Salvage

The remaining value of property damaged to the extent that it is not economical to perform repairs.


Schedule

A list describing the property or items insured under the policy and the amount for which they are insured.


Self- Interest

A form of risk financing through which a firm assumes all or a part of its own losses. Self-Insurers may purchase insurance to cover excess losses.


Soft Market

A condition where insurance premiums are lowered and the availability of insurance is high. Opposite of a hard insurance market.


Solicitor

Insurance salesperson who contacts potential customers and handles clerical responsibilities but has no authority to make insurance contacts.


Special Multi-Peril Policy (SMP)

A business policy that combines several kinds of insurance that are normally purchased under several policies. Many options and endorsements are available to tailor it to the policyholder's needs.


Spread of Risk

An insurance theory that states that an insurance company should not insure great numbers of property in concentrated areas. Helps to avoid catastrophic losses.


Standard Provisions

Policy provisions required by law.


Standard Risk

One that is regarded by underwriters as normal and insurable at standard rates. Other classifications of risks are given credits or debits based on their deviation from the standard.


Statutory Accounting Principles (SAP)

Those principles required by statue that must be followed by an insurance company when submitting its financial statements to the various state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP) in some important respects. For example, SAP require that expenses must be recorded immediately and cannot be recorded over the policy term at the same rate as premiums are earned and taken into revenue.


Statutory Underwriting Profit or Loss

The difference between the earned premiums and the losses and expenses of an insurance company.


Stock Company

A company organized and owned by stockholders, as distinguished from the mutual form of company, which is owned by its policyholders.


Stopgap Endorsement

Provides employers' liability coverage for work-related injury arising out of the incidental operations or exposure in states in which the only provider of workers' compensation coverage is the state (also called monopolistic fund states).


Subrogation

An insurer’s contractual right to take legal action against a third party responsible for a loss to an insured for which a claim has been paid. For example, an insurance company pays a claim for $40,000 in damages to an insured storekeeper for losses cause by a negligent contractor working next door. The policy's subrogation clause gives the insurer the right to be subrogated to, or take on as its own, the storekeeper's claim and to sue the contractor for damages.


Surety

Person or organization guaranteeing the actions of another.


Surety Bond

Contract by which an insurer agrees to make good the default or debt of another. Actually, three parties are involved: the principal, who has primary responsibility to perform the obligation (after which the bond becomes void); the surety, the insurer with the secondary responsibility of performing the obligation if the principal fails to perform. (After the surety performs, recourse is against the principal for reimbursement of expenses incurred by the surety in the performance of the obligation, known as surety's rights of exoneration); and the obligee, to whom the right of performance (obligation) is owed.


Suretyship

Contractual relationship in which one party (surety) guarantees another party (obligee) against the default or misperformance of a third party (principal).


Surplus

A stock company's surplus is the amount by which its admitted assets exceed its liabilities and capital stock. In both stock and mutual companies, the term policyholders' surplus means the excess of admitted assets over liabilities.


Surplus Lines

In a regular market, insurance coverage not available from an admitted company in the regular market; a surplus lines broker representing an applicant seeks coverage in the surplus lines market from a non admitted insurer according to the insurance regulations of a particular state.


Syndicate

Group of insurers or reinsurers involved in joint underwriting. Members typically take predetermined shares of premiums, losses, expenses, and profits. Syndicates, more common in reinsurance that in primary insurance, are formed to cover major risks that are beyond the capacity of a single underwriter.


Term

A period of time for which a policy is issued.


Theft Insurance

Coverage against loss as the result of a burglary or theft. Covers loss of merchandise, furniture, equipment, fixtures due to force and violence to the exterior of a business's premises in order to gain entry, and damage to the premises of the building as a result of the burglary. There is a coinsurance requirement that ranges from 40 to 80%.


Third Party

Individual other than the insured or insurer who has incurred a loss or is entitled to receive a benefit payment as the result of the acts or omissions of the insured.


Treaty Reinsurance

A general reinsurance agreement between the ceding or primary company and the reinsurer containing the contractual terms under which a portion or all of the primary company's premium or a particular class is passed on to the reinsurer.


Umbrella Liability Policy

A form of insurance protection against losses in excess of amounts covered by other liability insurance policies; also protects the insured in many situations not covered by the usual liability policies. This policy is available for both personal and commercial lines coverage.


Umpire

Arbitrator who settles disputes over the amount of loss when an insurer and an insured do not agree.


Unauthorized Insurer

Insurer not licensed by a particular state to sell and service insurance policies within that state.


Underwriter

Employee of an insurance company that determines if an applicant is insurable at standard rates, substandard rates, insurable at preferred rates, or is uninsurable.


Underwriting

Process of examining, accepting, or rejecting insurance risks, and classifying those selected, in order to charge the proper premium for each. The purpose of underwriting is to spread the risk among a pool of insureds in a manner that is equitable for the insureds and profitable for the insurer.


Underwriting Discipline

Underwriting discipline means that risks are appropriately and carefully assessed before writing any coverage and priced adequately.


Underwriting Expenses

The sum of salaries, commissions, overhead expenses, memberships in industry associations and bureaus, guaranty association assessments and premium taxes.


Underwriting Profit or Loss

Profit (deficit) that remains after paying claims and expenses. Insurers generate profits from underwriting and from investment income. Their chief business is insuring against risks for a profit, and one measure of success is whether there is any money left after paying claims and expenses. This amount, if any, is their underwriting gain.


Underwriting Ratio

On a statutory basis, it is an expression in terms of a ratio of the relationship of underwriting expenses to net written premiums. On a GAAP basis, it is an expression in terms of a ratio of the relationship of underwriting expenses to net earned premiums.


Unearned Premium

The policyholder pays in advance for insurance, but the insurer does not earn the premium until coverage is provided. For example, if a policy period is one year, one-twelfth of the premium is earned each month. After six months, one-half of the premium is still unearned and belongs to the policyholder if the policy is canceled.


Underwriting Profit/ Loss

The profit derived from insurance exclusive of that derived from investments. Underwriting profit or loss is typically premiums earned minus incurred losses, loss adjustment expenses and underwriting expenses.


Variable Life Insurance

Investment-oriented whole life insurance policy that provides a return linked to an underlying portfolio of securities. The portfolio typically is a group of mutual funds established by the insurer as a separate account, with the policyholder given some investment discretion in choosing the mix of assets among, say, a common stock fund, a bond fund, and a money market fund. Variable life insurance offers fixed premiums and a minimum death benefit. The better the total return on the investment portfolio, the higher the death benefit or surrender value of the variable life policy.


Voluntary Market

The market where a person seeking insurance obtains it with no help from the state, through an insurer of his or her own selection.


Waiver

Relinquishment of a legal right to act.


Warranty

Pledge by an insured in writing, and a part of the actual contract, that a particular condition exits or does not exist. For example, an insured warrants that a sprinkler system works. In exchange, the insurance company charges a reduced premium for fire coverage. Statements by an insured in an application for property insurance are deemed to be warranties, not representations, as is generally the case in life insurance policy applications.


Workers' Compensation

Coverage providing four types of benefits (medical care, death, disability, rehabilitation) for employee job-related injuries or diseases as a matter of right (with-out regard to fault). This insurance is usually purchased by the employer from an insurance company, although in a few states there are monopolistic state funds through which the insurance must be purchased. The premium rate is based on a percentage of the employer's payroll and varies according to the employee's occupation.


Written Premium

Total premiums generated from all policies written by an insurance company within a given period of time.



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