Glossary Of Insurance Terms - Ohio Insurance Institute
Glossary Of Insurance Terms - Ohio Insurance Institute
Glossary Of Insurance Terms - Ohio Insurance Institute
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
<strong>Ohio</strong> <strong>Insurance</strong> <strong>Institute</strong> • 172 E. State St., Suite 201, Columbus, <strong>Ohio</strong> 43215-4321 • Phone: (614) 228-1593 • www.ohioinsurance.org • info@ohioinsurance.org<br />
NOTE:<br />
This glossary provides a comprehensive list of the most commonly used terms in property/casualty insurance. Some life and health insurance terms are<br />
included. This is not an all-conclusive glossary of terms.<br />
A<br />
Accidental Death Benefit (Auto or Health <strong>Insurance</strong>):<br />
Provision for payment of a dollar amount—usually equal to the face amount of insurance—if the insured is killed in an accident. This coverage<br />
is available either as a health insurance policy, or as an auto insurance option with some companies. (Also see Accidental Death Benefit [Life<br />
<strong>Insurance</strong>].)<br />
Accidental Death Benefit (Life <strong>Insurance</strong>):<br />
Provision under a life insurance policy for payment of an additional amount—usually equal to the face amount of insurance—if the insured is<br />
killed in an accident. Popularly known as “double indemnity.” (Also see Accidental Death Benefit [Auto or Health <strong>Insurance</strong>].)<br />
Accident and Health <strong>Insurance</strong>:<br />
See Health <strong>Insurance</strong>.<br />
Account Receivables:<br />
See Receivables.<br />
Act of God (Act of Nature):<br />
Perils that occur naturally such as tornadoes, earthquakes and hurricanes.<br />
Actual Cash Value:<br />
<strong>Insurance</strong> under which the amount payable is the current replacement cost of the property new; reduced by an allowance for depreciation,<br />
wear and obsolescence.<br />
Actuary:<br />
A highly specialized mathematician professionally trained in the risk aspects of insurance, whose functions include the calculations involved in<br />
determining proper insurance rates, evaluating reserves, and in various aspects of insurance research.<br />
Additional Living Expense:<br />
A property coverage which pays for the increased expense of living while the insured’s residence is being rebuilt or repaired after damage<br />
from an insured peril. Examples are the extra cost of housing the insured’s family in a hotel, dining in restaurants, etc.<br />
Adjuster:<br />
A person who investigates and settles losses for an insurance carrier.<br />
Admitted Assets:<br />
Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an<br />
insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only<br />
assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated,<br />
are included in admitted assets. (See Assets.)<br />
Admitted Company (Carrier):<br />
An insurance company licensed and authorized to do business in a particular state.<br />
Adverse Selection:<br />
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging<br />
higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly<br />
through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it.<br />
<strong>Insurance</strong> works best when risk is shared among large numbers of policyholders.<br />
Affinity Sales:<br />
Selling insurance through groups such as professional and business associations.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
A (continued)<br />
Aftermarket Parts:<br />
See Crash Parts; Generic Auto Parts.<br />
Agency Companies:<br />
Companies that market and sell products via independent agents.<br />
Agent:<br />
Laws of all states require all insurance agents to be licensed by the state to sell insurance. Agents may be categorized as: (1) An Exclusive<br />
Agent, who is a sales employee or sales representative of one and only one insurance company or its affiliated group of insurance companies,<br />
and seeks and services business exclusively for that company or group. (See Direct Writer.) (2) An Independent Agent, who usually represents<br />
two or more insurance companies or groups in a sales and service capacity as an independent business person.<br />
Alien <strong>Insurance</strong> Company:<br />
An insurance company incorporated under the laws of a foreign country.<br />
Allied Lines:<br />
Types of insurance associated with property insurance, which may include earthquake, sprinkler leakage, and income and extra expense<br />
coverages.<br />
Alternative Dispute Resolution (ADR):<br />
Alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of an<br />
independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.<br />
Alternative Markets:<br />
Mechanisms used to fund self-insurance. This includes captives, which are insurers owned by one or more non-insurers to provide owners<br />
with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance, are also a form of<br />
self-insurance.<br />
Annual Policy:<br />
<strong>Insurance</strong> policy written for a term of one year or renewed one year at a time.<br />
Annual Statement:<br />
A report made by a company at the close of its fiscal year. It is the primary financial report required by state insurance departments to be<br />
submitted by insurers annually.<br />
Annuitant:<br />
The person during whose life an annuity is payable, usually the person to receive the annuity.<br />
Annuity:<br />
A contract that provides an income for life, a specified number of years, or a combination of the two.<br />
Antitrust Laws:<br />
Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance<br />
industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-<br />
Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.<br />
Application:<br />
The statement of information that a prospective insured gives when applying for an insurance policy and that an insurance company uses to<br />
help decide if it will issue the policy and what premium rate will be charged.<br />
Apportionment:<br />
The dividing of a loss proportionately among two or more insurers that cover the same loss.<br />
Appraisal:<br />
A survey to determine a property’s insurable value, or the amount of a loss.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
A (continued)<br />
Appraiser:<br />
In insurance, a specialist that evaluates the size and cost of an object, such as jewelry or art; or the extent of damage based on a claim.<br />
<strong>Of</strong>ten works with a claims adjuster.<br />
Appurtenant Structures:<br />
Buildings on the same premises as the main building insured under a property insurance policy.<br />
Arbitration:<br />
Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third<br />
party.<br />
Arson:<br />
The deliberate setting of a fire.<br />
Asset-Backed Securities:<br />
Bonds that represent pools of loans of similar types, duration and interest rates. Almost any loan with regular repayments of principal and<br />
interest can be securitized, from auto loans and equipment leases to credit card receivables and mortgages.<br />
Assessment:<br />
The extra premium a mutual or reciprocal insurer’s policyholder may be required to pay in the event the insurer’s losses are greater than<br />
anticipated.<br />
Assets:<br />
(1) All of the property owned by a carrier. (2) The items on the balance sheet of the insurer that show the book value of property owned.<br />
Under state regulations, not all property or other resources can be admitted on the statement of the insurer. This gives rise to the term “nonadmitted<br />
assets.” (Examples would be furniture, fixtures, agents’ debt balances and accounts receivable that are over 90 days old.)<br />
Assigned Risk Plan (Automobile <strong>Insurance</strong> Plans):<br />
A mechanism used in some states to insure people who cannot obtain insurance in the voluntary market. There is one rate level and the individual<br />
policies are assigned to specific companies according to the percentage of the market they insure.<br />
Assurance–<strong>Insurance</strong>:<br />
These terms are today generally accepted as synonymous, although not originally so. The term “assurance” is used more commonly in Canada<br />
and Great Britain than in the United States.<br />
Assured:<br />
Synonymous with “insured.” One who has an insurance policy with an insurance carrier. “Insured” is preferred.<br />
Audit:<br />
An examination of the books of accounts, vouchers or other records of a person, corporation, firm or other organization for the purpose of<br />
ascertaining the accuracy or inaccuracy of the record.<br />
Automobile Death Indemnity Coverage:<br />
Provides limited life insurance protection to insured persons specifically named in the policy in the event of a death that is a direct result of<br />
a vehicle accident. Payment is not contingent upon the establishment of negligence, but death by an intentional act of the insured is not<br />
covered.<br />
Automobile Disability Income Coverage:<br />
Provides persons specifically named in the policy with the weekly benefit shown in the policy in the event of continuous total disability as a<br />
direct result of bodily injury, sickness, or infection caused by an auto accident.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
A (continued)<br />
Automobile <strong>Insurance</strong> (Coverages):<br />
For definitions of specific types available, see following auto insurance coverages listed alphabetically throughout the <strong>Glossary</strong>—Automobile<br />
Death Indemnity Coverage, Automobile Disability Income Coverage, Automobile Liability <strong>Insurance</strong>, Automobile Physical Damage <strong>Insurance</strong>,<br />
Bodily Injury Liability <strong>Insurance</strong>, Collision <strong>Insurance</strong>, Comprehensive Automobile <strong>Insurance</strong>, Deductible Collision and Deductible Comprehensive<br />
Coverages, Medical Payments Automobile <strong>Insurance</strong>, Personal Injury Protection Automobile <strong>Insurance</strong> (PIP), Property Damage Liability<br />
<strong>Insurance</strong>, Towing Coverage, Underinsured Motorists Coverage, Uninsured Motorists Coverage and Uninsured Motorists Property Damage<br />
Coverage.<br />
Auto <strong>Insurance</strong> Premium:<br />
The price an insurance company charges for coverage, based on the frequency and cost of potential accidents, theft and other losses. Prices<br />
vary from company to company, as with any product or service. Premiums also vary depending on the amount and type of coverage purchased;<br />
the make and model of the car; and the insured’s driving record, years of driving and the number of miles the car is driven per year.<br />
Other factors taken into account include the driver’s age and gender, where the car is most likely to be driven and the times of day–rush hour<br />
in an urban neighborhood or leisure-time driving in rural areas, for example. Some insurance companies may also use credit history-related<br />
information. (See <strong>Insurance</strong> Score.)<br />
Automobile Liability <strong>Insurance</strong>:<br />
Protection for the insured against loss arising out of legal liability when his or her car injures others or damages their property. (Includes<br />
Bodily Injury Liability and Property Damage Liability Coverages.)<br />
Automobile Physical Damage <strong>Insurance</strong>:<br />
The Collision and Comprehensive coverages in the automobile insurance policy.<br />
Aviation <strong>Insurance</strong>:<br />
Coverage against aviation perils, primarily involving operation of aircraft and characterized by a constant exposure to potential catastrophe<br />
loss. Types of coverages include insurance for damage to the aircraft or contents, aircraft owner’s liability insurance on passenger bodily injury<br />
or death, Airport Liability, Hangarkeeper’s Liability, and Aviation Products Liability insurance.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
B<br />
Bailee:<br />
One who has temporary possession of property belonging to another.<br />
Balance Sheet:<br />
Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities,<br />
such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus.<br />
Changes in that surplus are one indicator of an insurer’s financial standing.<br />
Basic Form:<br />
A package insurance policy providing coverage against a limited number of specified perils.<br />
Beach and Windstorm Plans:<br />
State-sponsored insurance pools that sell property coverage for the peril of windstorm to people unable to buy it in the voluntary market<br />
because of their high exposure to risk. Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover residential and commercial properties<br />
against hurricanes and other windstorms. Georgia and New York provide this kind of coverage for windstorm and hail in certain coastal<br />
communities through other property pools. <strong>Insurance</strong> companies that sell property insurance in the state are required to participate in these<br />
plans. Insurers share in profits and losses. (See Fair Access to <strong>Insurance</strong> Requirements Plan–FAIR Plan; Residual Market.)<br />
Beneficiary:<br />
Any person, institution, trust, etc., named in a life policy to receive the policy benefits upon the death of the insured.<br />
Binder:<br />
A written or oral contract issued temporarily to place insurance in force immediately prior to issuance of a new policy or endorsement of an<br />
existing one. A binder is subject to payment of the premium and provides coverage under the terms of the policy to be issued, unless otherwise<br />
specified.<br />
Blanket Coverage:<br />
A blanket form is one under which property is insured under a single amount applying to several different pieces of property rather than a<br />
specific amount of insurance on each property.<br />
Block Policy:<br />
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<br />
the policyholder.<br />
Bodily Injury Liability <strong>Insurance</strong>:<br />
This coverage protects an insured against legal liability for injury to another person arising from an accident.<br />
Boiler and Machinery <strong>Insurance</strong>:<br />
A form of property coverage for loss arising out of the operation of pressure, mechanical and electrical equipment. It may cover loss to the<br />
boiler and machinery itself and business interruption losses.<br />
Bond:<br />
A security that obligates the issuer to pay interest at specified intervals and to repay the principal amount of the loan at maturity. In insurance,<br />
a form of suretyship. Bonds of various types guarantee a payment or a reimbursement for financial losses resulting from dishonesty,<br />
failure to perform and other acts.<br />
Bond Rating:<br />
An evaluation of a bond’s financial strength, conducted by such major ratings agencies as Standard & Poor’s and Moody’s Investors Service.<br />
Book of Business:<br />
Total amount of insurance on an insurer’s books at a particular point in time.<br />
Broad Form:<br />
A package policy providing coverage for the same perils covered in the basic form, plus specified additional perils.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
B (continued)<br />
Broker:<br />
A representative of the buyer of property and liability insurance who deals with either agents or companies in arranging for the coverage<br />
required by the customer. A broker is paid a commission by the company or its agent.<br />
Burglary:<br />
The loss of property due to theft when there is visible evidence of forcible entry to the exterior of the building.<br />
Burglary and Theft <strong>Insurance</strong>:<br />
<strong>Insurance</strong> for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple<br />
peril policy.<br />
Business Income <strong>Insurance</strong> (Business Interruption <strong>Insurance</strong>):<br />
Commercial coverage that reimburses a business owner for lost profits and continuing fixed expenses during the time that a business must<br />
stay closed while the premises are being restored because of physical damage from a covered peril, such as a fire. Business interruption<br />
insurance also may cover financial losses that may occur if civil authorities limit access to an area after a disaster and their actions prevent<br />
customers from reaching the business premises. Depending on the policy, civil authorities coverage may start after a waiting period and last<br />
for two or more weeks.<br />
Businessowners Policy (BOP):<br />
A policy that combines property, liability and business interruption coverages for small- to medium-sized businesses. Coverage is generally<br />
cheaper than if purchased through separate insurance policies.<br />
Business Interruption <strong>Insurance</strong>:<br />
See Business Income <strong>Insurance</strong>.<br />
Buy-Out Policy:<br />
A professional liability policy covering future claims resulting from incidents which occurred during the period that an expired claims-made<br />
policy was in force.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
C<br />
Cancellable Policy:<br />
A policy which may be cancelled by the company at any time by giving advance notice in compliance with state requirements to the insured<br />
citing the reasons such insurance is being cancelled and refunding any unearned premium. (Term is not usually applicable to life or health<br />
insurance.)<br />
Cancellation:<br />
The discontinuance of an insurance policy before its normal expiration date.<br />
Capacity:<br />
The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer,<br />
the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to<br />
loss is an important measure of solvency.<br />
A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity.<br />
When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored<br />
by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity,<br />
usually because of a high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline,<br />
underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to<br />
increase profitability. Policyholder surplus is sometimes used as a measure of capacity.<br />
Capital:<br />
Shareholder’s equity (for publicly-traded insurance companies) and retained earnings (for mutual insurance companies). There is no general<br />
measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. (See Risk-<br />
Based Capital; Surplus; Solvency.)<br />
Capital Markets:<br />
The markets in which equities and debt are traded. (See Securitization of <strong>Insurance</strong> Risk.)<br />
Capital Stock <strong>Insurance</strong> Company:<br />
An insurance company which is owned and controlled by stockholders or investors.<br />
Captive Agent:<br />
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless<br />
it is first rejected by the agent’s captive company. (See Exclusive Agent.)<br />
Captive Insurer:<br />
Insurers that are created and wholly-owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.<br />
Cargo <strong>Insurance</strong>:<br />
A broad classification of marine insurance providing coverage on cargo, as opposed to hulls, to protect shippers by sea from loss or damage to<br />
goods for which they would be unlikely to collect from the carriers themselves. Whether cargoes are insured for a particular voyage or under<br />
open policies which are in the nature of reporting-form policies depends upon the volume and regularity with which a shipper uses ocean<br />
transit. Cargo insurance also can cover goods transported by train or truck.<br />
Carrier:<br />
The insurance company or the one who agrees to pay the losses. The carrier may be organized as a stock or mutual company, a reciprocal<br />
exchange, as an association of underwriters or as a state fund.<br />
Car Year:<br />
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.<br />
Cash Value:<br />
The cash fund which a life policy develops usually after the first or second year the policy has been in force. It is available when the policy is<br />
surrendered or may be borrowed earlier as a policy loan.<br />
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(Rev. 04/07)<br />
C (continued)<br />
Casualty <strong>Insurance</strong>:<br />
<strong>Insurance</strong> primarily concerned with the legal liability for losses caused by injury to persons or damage to property of others. Also includes,<br />
among other coverages: automobile, Workers’ Compensation, employers’ liability, general liability, plate glass, theft and personal liability. It<br />
excludes life, fire and marine insurance.<br />
Catastrophe:<br />
Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property<br />
losses totaling more than a given amount, currently $25 million.<br />
Catastrophe Bonds:<br />
Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe<br />
such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus<br />
spreading the risk. (See Securitization of <strong>Insurance</strong> Risk.)<br />
Catastrophe Deductible:<br />
A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These<br />
large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to<br />
buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.<br />
Catastrophe Factor:<br />
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.<br />
Catastrophe Model:<br />
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential<br />
cost of natural disasters and other catastrophic losses for a given geographic area.<br />
Catastrophe Reinsurance:<br />
Reinsurance (insurance for insurers) for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused<br />
by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of<br />
companies including catastrophe reinsurers who operate on a global basis. Insurers’ ability and willingness to sell insurance fluctuates with the<br />
availability and cost of catastrophe reinsurance.<br />
After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance<br />
becomes extremely limited. Claims deplete reinsurers’ capital and, as a result, companies are more selective in the type and amount of risks<br />
they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property<br />
insurance.<br />
Cede:<br />
To transfer all or part of a risk written by an insurer (the ceding, or primary company) to a reinsurer.<br />
Cell Phone <strong>Insurance</strong>:<br />
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.<br />
Cession:<br />
The unit of insurance passed to the reinsurer by the ceding company. The unit (cession) may accordingly be the whole or a portion of (a)<br />
single risks, (b) defined type or class of policies or (c) defined divisions of a policy as agreed.<br />
Chartered Life Underwriter (CLU):<br />
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the uses of life insurance to<br />
satisfy the financial needs of the insured in light of current tax and other laws. A Chartered Life Underwriter is normally an agent or someone<br />
responsible for sales or marketing activities.<br />
Chartered Property Casualty Underwriter (CPCU):<br />
A designation conferred in recognition of the attainment of certain standards of education and proficiency in the art and science of property<br />
and casualty insurance underwriting.<br />
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(Rev. 04/07)<br />
C (continued)<br />
Claim:<br />
A request for payment for a loss which may come under the terms of an insurance contract. There are two types of claims. A first-party claim<br />
is one made by the policyholder for reimbursement by his or her company. A third-party claim is one by a person against a policyholder of<br />
another company and the payment, if any, will be made by that company.<br />
Claim Frequency:<br />
The number of claims occurring under a given coverage divided by the number of earned exposures for the given coverage. It is usually<br />
expressed as the number of claims paid per 100 of such exposures. Example: For auto bodily injury (BI), the frequency of 2.50% means that<br />
bodily injury accidents were incurred at the rate of 2-1/2 for every 100 cars insured for BI for one year.<br />
Claim Severity:<br />
The average cost per claim.<br />
Claims-Made Form:<br />
A type of liability policy which covers claims which occur and are reported while the policy is in effect.<br />
Classification:<br />
The combining of policyholders or properties into groups with the same general characteristics so that the various groups’ inherent differences<br />
in exposure to loss can be recognized for rating or underwriting purposes.<br />
Coinsurance (Health <strong>Insurance</strong>):<br />
A provision in a medical-expense insurance policy which requires that the insured person pay part of the expense and the insurance company<br />
will pay the remaining part. (Also see Coinsurance [Property <strong>Insurance</strong>].)<br />
Coinsurance (Property <strong>Insurance</strong>):<br />
A provision in a property insurance policy which requires the insured to carry insurance equal to a certain specified percentage of the value of<br />
the property for the insured to receive full payment on a loss up to the amount of the policy. Otherwise, payment would be only a percentage<br />
of the actual loss, that percentage determined by the amount of insurance carried relative to the amount that is required to be carried by the<br />
policy for full protection up to policy limits. (Also see Coinsurance [Health <strong>Insurance</strong>].)<br />
Collateral:<br />
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. (Also called security.)<br />
Collateral Source Rule:<br />
Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil<br />
actions related to negligence or other liability.<br />
Collision <strong>Insurance</strong>:<br />
Protection against loss resulting from any damage to the policyholder’s car caused by collision with another vehicle or object, or by upset of<br />
the insured car, whether it was the insured’s fault or not (other than his/her own willful act). This does not cover other people’s property. (See<br />
Deductible Collision.)<br />
Combined Ratio:<br />
The sum of the ratio of losses incurred to premiums earned and the ratio of commissions and expenses incurred to premiums written.<br />
Combined Single Limit:<br />
A liability coverage limit that combines both bodily injury and property damage into one aggregate amount.<br />
Commercial Blanket Bond:<br />
A fidelity bond for operators of commercial establishments, etc. (See Fidelity Bond.)<br />
Commercial Credit <strong>Insurance</strong>:<br />
A guarantee to manufacturers, wholesalers and service organizations that they will be paid for goods shipped or services rendered. It is a<br />
guarantee of that part of their working capital that is represented by accounts receivable.<br />
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(Rev. 04/07)<br />
C (continued)<br />
Commercial General Liability Policy:<br />
<strong>Of</strong>ten referred to as the CGL, this policy provides broad protection against situations in which a business must defend itself against lawsuits or<br />
pay damages for personal injury or property damage to third parties.<br />
Commercial <strong>Insurance</strong> (Coverages):<br />
Definitions of many commercial coverages are listed alphabetically throughout the <strong>Glossary</strong>. Among these coverages are Aviation <strong>Insurance</strong>,<br />
Cargo <strong>Insurance</strong>, Commercial Credit <strong>Insurance</strong>, Commercial Multiple-Line Policy, Crop-Hail <strong>Insurance</strong>, Employers’ Liability <strong>Insurance</strong>, General<br />
Liability <strong>Insurance</strong>, Kidnap and Ransom <strong>Insurance</strong>, Marine <strong>Insurance</strong>, Products Liability <strong>Insurance</strong>, Professional Liability <strong>Insurance</strong>, Public Liability<br />
<strong>Insurance</strong>, Rain <strong>Insurance</strong>, Surplus Lines, Title <strong>Insurance</strong> and Workers’ Compensation.<br />
Commercial Lines:<br />
The various kinds of insurance which are written for businesses. (Also see Commercial <strong>Insurance</strong> [Coverages].)<br />
Commercial Multiple-Line Policy:<br />
Package type of policy that includes a wide range of essential property and liability coverages for businesses.<br />
Commission:<br />
A percentage of an insurance premium paid to an agent or broker for producing and servicing the business.<br />
Commissioner of <strong>Insurance</strong>:<br />
Title of the head of the state insurance department who is responsible for the enforcement of insurance laws and for promulgating regulations<br />
dealing with the insurance industry.<br />
Comparative Negligence:<br />
Under this concept a plaintiff (the person bringing suit) may recover damages even though guilty of some negligence. His or her recovery,<br />
however, is reduced by the amount or percent of that negligence. There are various forms of comparative negligence, such as: “Pure Comparative,”<br />
in which the plaintiff recovers so long as he or she is not solely at fault; “Less Than,” in which the plaintiff recovers so long as his<br />
or her negligence is less than that of the defendant; and “Not Greater Than,” in which the plaintiff recovers so long as his or her negligence is<br />
not greater than the defendant’s.<br />
Competitive Replacement Parts:<br />
See Crash Parts; Generic Auto Parts.<br />
Competitive State Fund:<br />
A facility established by a state to sell workers compensation in competition with private insurers.<br />
Complaint Ratio:<br />
A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is written as<br />
the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical<br />
providers over the promptness of payments may also be included.<br />
Completed Operations Coverage:<br />
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.<br />
Comprehensive Automobile <strong>Insurance</strong>:<br />
Protection against loss resulting from damage to the insured auto, commonly referred to as ”other than collision” coverage. Broad coverage is<br />
provided and includes protection from such hazards as fire, theft, glass damage, wind, hail and malicious mischief. This is a first-party coverage.<br />
Comprehensive Personal Liability <strong>Insurance</strong>:<br />
Protection for an insured against loss arising out of his or her legal liability to pay money for damage or injury he or she has caused to others.<br />
This does not include automobile liability, but includes almost every activity of the insured except “personal injury” and his or her business<br />
operations. (See “Personal Injury” Liability <strong>Insurance</strong>.)<br />
Compulsory Auto Liability <strong>Insurance</strong>:<br />
<strong>Insurance</strong> laws in some states require motorists to carry at least certain minimum auto liability coverages for bodily injury and property damage.<br />
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C (continued)<br />
Concealment:<br />
Normally means the willful withholding of material fact which could affect an insurer’s issuance of a policy or processing of a claim.<br />
Conditions:<br />
Provisions of an insurance policy which state the rights and duties of the insured and insurer.<br />
Condominium <strong>Insurance</strong>:<br />
A policy designed for the special needs of condominium unit owner-occupants to cover personal property and liability, to complement the<br />
insurance normally purchased by the condominium association for the building, structures and liability. Additional coverages are offered unit<br />
owners by many insurers.<br />
Consequential Loss:<br />
A loss resulting from, but not caused directly by, another insured loss. A “consequential loss” (spoilage of meat stored in a refrigerated building,<br />
for example) usually arises out of a change in temperature resulting from damage to the building (but not directly to the meat) by a<br />
covered peril such as fire. “Consequential Loss” coverages are available to protect the insured against this specific indirect loss.<br />
Contingent Liability <strong>Insurance</strong>:<br />
Covers the insured individual or business in cases of indirect or “contingent” liability, where direct liability for an accident, for example, falls on<br />
another, but because of the relationship between the insured and the other party, the insured might still be held indirectly liable. (Example: A<br />
business being responsible for the work performed by an independent contractor.)<br />
Contract:<br />
The “Law of Contracts” specifies four requirements for the formation of a single contract: (1) parties of legal capacity; (2) expression of mutual<br />
consent of the parties to a promise, or set of promises; (3) a valid consideration; and (4) the absence of any statute or other rule declaring<br />
such agreement void. An insurance policy qualifies as a contract under the above definition.<br />
Contract Bond:<br />
A bond which guarantees faithful performance of a construction contract and payment of all material and labor bills related to that contract. A<br />
Performance Bond covers faithful performance only; a Payment Bond guarantees payment of material and labor expenses.<br />
Contractual Liability <strong>Insurance</strong>:<br />
Provides coverage for claims arising out of liability that has been assumed by the insured under a written or oral contract.<br />
Contributory Negligence:<br />
Carelessness of the injured person that helped cause the accident in which he or she was injured. Some states bar recovery to the plaintiff if<br />
the plaintiff was contributorily negligent.<br />
Coverage:<br />
The scope of the protection provided under a contract of insurance; any of several risks covered by a policy.<br />
Covered/Insured Peril:<br />
The perils of loss you are protected against by an insurance policy. Examples of perils include fire, lightning, theft, vandalism and the threat of<br />
a lawsuit.<br />
Crash Parts:<br />
Sheet metal parts that are most often damaged in a car crash. (See Generic Auto Parts.)<br />
Credit:<br />
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.<br />
Credit Derivatives:<br />
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.<br />
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C (continued)<br />
Credit Disability <strong>Insurance</strong>:<br />
Disability insurance on the borrower, payable to the creditor while the borrower is disabled, to cover the loan payment (usually small loans<br />
repayable in installments). This insurance is usually issued through the creditor (a lender or lending agency) and is provided by an insurance<br />
company under a group credit disability policy. Credit disability insurance also can be purchased by an individual directly from an insurance<br />
company. (Also see Credit Life <strong>Insurance</strong>.)<br />
Credit Enhancement:<br />
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial<br />
guarantee or with standby letters of credit issued by a bank.<br />
Credit <strong>Insurance</strong> (Commercial):<br />
See Commercial Credit <strong>Insurance</strong>.<br />
Credit Life <strong>Insurance</strong>:<br />
Term life insurance on the life of a borrower, payable to the creditor, to repay a loan (usually small loans repayable in installments) in case of<br />
death. This insurance is usually issued through the creditor (a lender or lending agency) and is provided by a life insurance company under a<br />
group credit life insurance policy to insure the lives of those who borrow from the creditor. Credit life insurance also can be purchased by an<br />
individual directly from a life insurance company. (Also see Credit Disability <strong>Insurance</strong>.)<br />
Credit Rating:<br />
See Bond Rating.<br />
Credit Score:<br />
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, from<br />
getting a job, finding a place to live, securing a loan, getting a telephone, and buying insurance. Credit history is routinely reviewed by insurers<br />
before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety which can lead to more accidents<br />
and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. <strong>Insurance</strong> scores may<br />
be used in underwriting and rating insurance policies. (See <strong>Insurance</strong> Score.)<br />
Crime <strong>Insurance</strong>:<br />
Term referring to property coverages for the perils of burglary, theft and robbery.<br />
Crop-Hail <strong>Insurance</strong>:<br />
Protection against hail damage to growing crops. Coverage is often afforded under such policies for crop damage due to fire, windstorm,<br />
drought, frost, snow, etc.<br />
Customer Service Representative:<br />
The assistant that supports the sales efforts of the sales agent or producer. Other titles include administrative assistant, agency underwriter<br />
and marketing specialist. CSR is also a designation for a certified customer service representative.<br />
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D<br />
Declarations:<br />
That part of the policy describing the named insured, address, effective date, term of the policy, applicable coverages, the amount of insurance<br />
and the premium.<br />
Decreasing Term Life <strong>Insurance</strong>:<br />
Term insurance, the face value of which decreases each year over a stated period. Family income and mortgage cancellation are common<br />
types of decreasing term insurance.<br />
Deductible:<br />
A provision in an insurance contract stating that the insurer will pay that amount of any insured loss that is in excess of a specified amount.<br />
The specified amount is the deductible.<br />
Deductible Collision and Deductible Comprehensive Coverages:<br />
Forms of collision or comprehensive auto insurance coverages which specify that an insurance company will pay the damage less a specified<br />
amount under the particular coverage. For example: For $100 Deductible Collision Coverage, the company would deduct $100 from the total<br />
damage under the collision coverage and be liable for the amount in excess of $100. Rates are reduced as the amount of the deductible is<br />
increased.<br />
Demutualization:<br />
The conversion of insurance companies from mutual companies owned by their policyholders into publicly-traded stock companies.<br />
Depreciation:<br />
A decrease in the value of property due to age, wear and tear.<br />
Deregulation:<br />
In insurance, reducing regulatory control over insurance rates and forms. Commercial insurance for businesses of a certain size has been<br />
deregulated in many states.<br />
Diminution of Value:<br />
The idea that a vehicle loses value after it has been damaged in an accident and repaired.<br />
Directors and <strong>Of</strong>ficers Liability<br />
<strong>Insurance</strong> (D&O):<br />
Coverage for directors and officers of firms or organizations against liability claims arising out of alleged errors in judgment, breaches of duty,<br />
and wrongful acts related to their organizational activities.<br />
Direct Premiums Written:<br />
Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some<br />
direct premiums and the risk involved with their reinsurers.<br />
Direct Sales/Direct Response:<br />
Method of selling insurance directly to the insured through an insurance company’s own employees, through the mail, or via the Internet. This<br />
is in lieu of using captive or exclusive agents.<br />
Direct Writer:<br />
An insurer whose distribution mechanism is either the direct selling system or the exclusive agent system. (See Agent.)<br />
Disability Threshold:<br />
In no-fault insurance states with the disability threshold, it provides that a victim may not sue in tort unless he/she has been disabled (defined<br />
differently in various state plans) from an accident for a specific period of time.<br />
Dividends:<br />
(1) Policyholder Dividend—The return of part of the premium paid for a policy issued on a participating basis by an insurer. Any such dividend<br />
is dependent upon premiums collected in excess of losses and expenses for the particular class of business at the end of the policy period. (2)<br />
Stockholder Dividend—A portion of the surplus paid to the stockholders of a corporation.<br />
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D (continued)<br />
Dollar Threshold:<br />
In no-fault auto insurance states with the dollar threshold, it prevents individuals from suing in tort to recover for pain and suffering unless<br />
their medical expenses exceed a certain dollar amount.<br />
Domestic <strong>Insurance</strong> Company:<br />
An insurance company organized or domiciled in a given state is referred to in that state as a domestic carrier.<br />
Double Indemnity:<br />
See Accidental Death Benefit (Life <strong>Insurance</strong>).<br />
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E<br />
Early Warning System:<br />
A system of measuring insurers’ financial stability set up by insurance industry regulators. An example is the <strong>Insurance</strong> Regulatory Information<br />
System (IRIS), which uses financial ratios to identify insurers in need of regulatory attention.<br />
Earned Premium:<br />
The part of the total property/casualty policy premium earned by the insurance company which applies to the expired portion of the policy<br />
period.<br />
Earthquake <strong>Insurance</strong>:<br />
Covers a building and its contents, but includes a large percentage deductible on each. A special policy or endorsement exists because earthquakes<br />
are not covered by standard homeowners or most business policies.<br />
Economic Loss:<br />
Total financial loss resulting from the death or disability of a wage earner, or from the destruction of property. Includes the loss of earnings,<br />
medical expenses, funeral expenses, the cost of restoring or replacing property, and legal expenses. It does not include non economic losses,<br />
such as pain caused by an injury.<br />
Electronic Commerce (E-Commerce):<br />
The sale of products such as insurance over the Internet.<br />
Elimination Period:<br />
A kind of deductible or waiting period usually found in disability policies. It is counted in days from the beginning of the illness or injury.<br />
Employee Dishonesty Coverage:<br />
Covers direct losses and damage to businesses resulting from the dishonest acts of employees. (See Fidelity Bond.)<br />
Employers’ Liability <strong>Insurance</strong>:<br />
Provides protection for the employer for those injuries arising out of and in the course of employment which were not covered under the<br />
workers’ compensation law.<br />
Endorsement:<br />
An additional piece of paper, not a part of the original contract, which cites certain terms and which becomes a legal part of that insurance<br />
contract. Additions to life insurance contracts are accomplished through the use of riders, which are similar to endorsements.<br />
Environmental Impairment <strong>Insurance</strong>:<br />
A form of insurance designed to cover losses and liabilities arising from damages to property by pollution.<br />
Equipment Breakdown <strong>Insurance</strong>:<br />
See Boiler and Machinery <strong>Insurance</strong>.<br />
Equity:<br />
In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.<br />
Errors and Omissions <strong>Insurance</strong> (E&O):<br />
A type of professional liability insurance which indemnifies insured professionals—who include, but are not limited to, lawyers, insurance<br />
agents and brokers, accountants, real estate agents, appraisers, abstracters, title insurance agents, architects and engineers, advertising<br />
agents, adjusters, directors and trustees, fiduciaries, travel agents and data processing firms—for losses sustained because of their errors or<br />
oversights.<br />
Escrow Account:<br />
Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.<br />
Excess and Surplus Lines:<br />
Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a<br />
non-admitted carrier.<br />
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E (continued)<br />
Excess of Loss Reinsurance:<br />
A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or<br />
a part of the claim above that amount.<br />
Excess Limits:<br />
Coverage against losses in excess of a specified dollar limit.<br />
Exclusion:<br />
A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.<br />
Exclusive Agent:<br />
A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any<br />
other company unless it is first rejected by the agent’s company. (See Captive Agent.)<br />
Exclusive Remedy:<br />
Part of the social contract that forms the basis for workers compensation statutes under which employers are responsible for work-related<br />
injury and disease, regardless of whether is was the employee’s fault and in return the injured employee gives up the right to sue when the<br />
employer’s negligence causes the harm.<br />
Expense Ratio:<br />
The ratio of a company’s operating expenses to premiums written. (Expenses include losses and loss adjustment expenses.)<br />
Experience:<br />
The loss record of an insured or of a particular class of coverage.<br />
Expiration Date:<br />
The date shown on the declarations page of the policy when coverage will stop. It may be a specific date or a statement that coverage is<br />
continuous until cancelled.<br />
Exposure:<br />
This term in the insurance field may have several meanings: (1) possibility of loss; (2) a loss potential as measured by type of construction,<br />
area or values; (3) a possibility of a loss being communicated to an insurance risk from its surroundings; or (4) a unit of measure of the<br />
amount of risk a company assumes (for example, one car insured for one year).<br />
Extended Coverage:<br />
An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic<br />
policy.<br />
Extended Coverage Property <strong>Insurance</strong>:<br />
An extension of the fire insurance policy to protect the insured against property damage caused by the additional perils of windstorm, hail,<br />
explosion, or riot, civil commotion, aircraft, vehicle and smoke.<br />
Extended Replacement Cost Coverage:<br />
Pays a certain amount above the policy limit to replace a damaged home, generally 120% or 125%. Similar to a guaranteed replacement cost<br />
policy, which has no percentage limits. Most homeowner policy limits track inflation in building costs. Guaranteed and extended replacement<br />
cost policies are designed to protect the policyholder after a major disaster when the high demand for building contractors and materials can<br />
push up the normal cost of reconstruction. (See Replacement Cost Coverage.)<br />
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F<br />
Face Amount:<br />
See Protection Amount.<br />
Facultative Reinsurance:<br />
Reinsurance on an individual policy basis wherein each risk which an insurance company wishes to reinsure is reviewed by the reinsurer, which<br />
has the “faculty” or option to accept or decline all or part of each risk offered to it.<br />
FAIR (Fair Access to <strong>Insurance</strong> Requirements) Plan:<br />
A facility, operating under a government-insurance industry cooperative program, to make fire insurance and other forms of property insurance<br />
readily available to persons who have difficulty obtaining such coverage.<br />
Family Auto <strong>Insurance</strong>:<br />
The automobile policy (most common in the industry) which provides protection for the insured and resident relatives in the same household.<br />
Family Plan <strong>Insurance</strong>:<br />
This is insurance in which the head of the household has one master policy on his/her life (usually whole life) and term coverage for wife/husband<br />
and children in lesser amounts.<br />
Farm-Ranchowners <strong>Insurance</strong>:<br />
Package policy that protects the policyholder against named perils and liabilities and usually covers homes and their contents, along with<br />
barns, stables, and other structures.<br />
Federal Crime <strong>Insurance</strong>:<br />
<strong>Insurance</strong> against burglary, larceny and robbery losses offered by the federal government where the Federal <strong>Insurance</strong> Administration has<br />
determined that such insurance is not otherwise readily available.<br />
Federal <strong>Insurance</strong> Administration:<br />
Federal agency in charge of administering the National Flood <strong>Insurance</strong> Program. It does not regulate the insurance industry.<br />
Federal Reserve Board:<br />
Seven-member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the<br />
banking industry. It also controls and oversees the U.S. monetary system and credit supply.<br />
Fee For Service (FFS):<br />
Formerly a standard health insurance policy. Now a form of health insurance that allows the insured to go to any doctor, hospital or other<br />
provider which would bill for each service given, and the insurer and the patient share in the cost of the services provided.<br />
Fidelity Bond:<br />
A form of protection that covers policyholders for losses that they incur as a result of fraudulent acts by specified individuals. It usually insures<br />
a business for losses caused by the dishonest acts of its employees.<br />
Fiduciary Bond:<br />
A type of surety bond, sometimes called a probate bond, which is required of certain fiduciaries, such as executors and trustees, that guarantees<br />
the performance of their responsibilities.<br />
Fiduciary Liability:<br />
Legal responsibility of a fiduciary to safeguard assets of beneficiaries. A fiduciary, for example a pension fund manager, is required to manage<br />
investments held in trust in the best interest of beneficiaries. Fiduciary liability insurance covers breaches of fiduciary duty such as misstatements<br />
or misleading statements, errors and omissions.<br />
File-and-Use States:<br />
States where insurers must file rate changes with their regulators, but don’t have to wait for approval to put them into effect.<br />
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F (continued)<br />
Financial Guarantee <strong>Insurance</strong>:<br />
Covers losses from specific financial transactions and guarantees that investors in debt instruments, such as municipal bonds, receive timely<br />
payment of principal and interest if there is a default. Raises the credit rating of debt to which the guarantee is attached. Investment bankers<br />
who sell asset-backed securities, securities backed by loan portfolios, use this insurance to enhance marketability. (See Municipal Bond <strong>Insurance</strong>.)<br />
Financial Responsibility Law:<br />
A state law which may require motorists to furnish evidence, either before or after involvement in an auto accident (depending on the individual<br />
state’s law), of ability to pay for damages up to certain minimum dollar limits. These requirements commonly are met by carrying auto<br />
liability insurance with specified minimum limits or more.<br />
Finite Risk Reinsurance:<br />
Contract under which the ultimate liability of the reinsurer is capped and on which anticipated investment income is expressly acknowledged<br />
as an underwriting component. Also known as Financial Reinsurance because this type of coverage is often bought to improve the balance<br />
sheet effects of statutory accounting principles.<br />
Fire <strong>Insurance</strong>:<br />
Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril<br />
policies.<br />
First-Party Coverage:<br />
Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the<br />
broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the<br />
injured person is not able to provide services such as child care, for substitute services. (See No-Fault; Third-Party Coverage.)<br />
Fleet Policy:<br />
An auto policy covering a number of vehicles owned by a single insured.<br />
Floater:<br />
A form of insurance that applies to movable property, whatever its location, within the territorial limits imposed by the contract. The coverage<br />
“floats” with the property.<br />
Flood <strong>Insurance</strong>:<br />
Coverage against loss resulting from the flood peril, widely available under a program developed in 1968 by the private insurance industry and<br />
the federal government.<br />
Forced Place <strong>Insurance</strong>:<br />
<strong>Insurance</strong> purchased by a bank or creditor on an uninsured debtor’s behalf so if the property is damaged, funding is available to repair it.<br />
Foreign <strong>Insurance</strong> Company:<br />
In a given state, an insurer domiciled in another state.<br />
Fraternal Benefit Society:<br />
An organization that exists to provide social and insurance benefits to its members. In such a society, members often share a common religious,<br />
ethnic or vocational background, although some fraternals are open to the general public.<br />
Fraud:<br />
Intentional concealment or misrepresentation with the objective of forcing an insurer to provide a benefit (such as paying a claim) which<br />
otherwise would not be provided.<br />
Frequency:<br />
Number of times a loss occurs. One of the criteria used in calculating premium rates.<br />
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F (continued)<br />
Fronting:<br />
A procedure in which a primary insurer acts as the insurer of record by issuing a policy, but then passes the entire risk to a reinsurer in exchange<br />
for a commission. <strong>Of</strong>ten, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer<br />
is not. The reinsurer in this scenario is often a captive or an independent insurance company that cannot sell insurance directly in a particular<br />
country.<br />
Funded Reserve:<br />
Bookkeeping account of sums set aside periodically by a business for the purpose of paying for losses as they occur. Usually, the sums are<br />
invested conservatively.<br />
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G<br />
Gap <strong>Insurance</strong>:<br />
An automobile insurance option, available in some states, that covers the difference between a car’s actual cash value when it is stolen or<br />
wrecked and the amount the consumer owes the leasing or finance company. Mainly used for leased cars. (See Actual Cash Value.)<br />
General Average:<br />
In ocean marine insurance, a concept which provides that, where a portion of a vessel or cargo is jettisoned to save the entire venture from<br />
peril at sea, the resulting loss is shared by all parties involved. The owners of property that is saved contribute in proportion to the interests<br />
suffering loss, provided the latter are free of fault in the danger and the venture ultimately is successful. (Distinct from Particular Average.)<br />
General Damages:<br />
In auto insurance, typically refers to awards for pain and suffering.<br />
General Liability <strong>Insurance</strong>:<br />
A broad term meaning liability insurance, other than automobile liability or employers’ liability, written to cover professional and commercial<br />
risks. In respect to commercial liability, various available coverages could cover such risks as premises and operations, contractual liability,<br />
products and completed operations.<br />
Generally Accepted Accounting Principles (GAAP):<br />
Generally accepted accounting principles (GAAP) accounting is used in financial statements that publicly-held companies prepare for the Securities<br />
and Exchange Commission. (See Statutory Accounting Principles–SAP.)<br />
Generic Auto Parts:<br />
Auto crash parts produced by firms that are not associated with car manufacturers. Insurers consider these parts, when certified, at least as<br />
good as those that come from the original equipment manufacturer (OEM). They are often cheaper than the identical part produced by the<br />
OEM. (See Crash Parts; Aftermarket Parts; Competitive Replacement Parts; Original Equipment Manufacturer Parts–OEM.)<br />
Glass <strong>Insurance</strong>:<br />
Coverage for glass breakage caused by all risks; fire and war are sometimes excluded. <strong>Insurance</strong> can be bought for windows, structural glass,<br />
leaded glass, and mirrors. Available with or without a deductible.<br />
Good Driver Plan:<br />
An auto insurance rating program that reflects the insured’s accident and traffic violation record as a factor in determining the premium.<br />
Grace Period:<br />
The number of days (31 in most cases) a life insurance policy will remain in force when a payment is overdue.<br />
Graduated Drivers License:<br />
Licenses for younger drivers that allow them to improve their skills. Regulations vary by state, but often restrict night time driving. Young drivers<br />
receive a learner’s permit, followed by a provisional license, before they can receive a standard drivers license.<br />
Gramm-Leach-Bliley Act:<br />
Financial services legislation, passed by Congress in 1999, that removed Depression-era prohibitions against the combination of commercial<br />
banking and investment-banking activities. It allows insurance companies, banks, and securities firms to engage in each others’ activities and<br />
own one another.<br />
Group <strong>Insurance</strong>:<br />
A single policy covering a group of individuals, usually employees of the same company or members of the same association and their dependents.<br />
Coverage occurs under a master policy issued to the employer or association.<br />
Guarantee Period:<br />
Period during which the level of interest specified under a fixed annuity is guaranteed.<br />
Guaranteed Cost <strong>Insurance</strong>:<br />
The life insurance sold by some companies, with all cost factors guaranteed at the time of issue. Policies of this type usually have lower premiums<br />
than the pre-divided premiums of comparable participating policies.<br />
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(Rev. 04/07)<br />
G (continued)<br />
Guaranty Fund:<br />
A fund, derived from assessment against solvent insurance companies, to absorb losses of claimants against insolvent insurers.<br />
Gun Liability:<br />
A new legal concept that holds gun manufacturers liable for the cost of injuries caused by guns. Several cities have filed lawsuits based on this<br />
concept.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
H<br />
Hacker <strong>Insurance</strong>:<br />
A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.<br />
Hail <strong>Insurance</strong>:<br />
See Crop-Hail <strong>Insurance</strong>.<br />
Hard Market:<br />
A seller’s market in which insurance is expensive and in short supply. (See Property/Casualty <strong>Insurance</strong> Cycle.)<br />
Hazard:<br />
The presence of a condition that could cause loss or injury to property or persons. For example, smoking in bed increases the chance for loss<br />
of property and life resulting from fire.<br />
Health <strong>Insurance</strong>:<br />
There are two major types: Disability income insurance pays for loss of income due to disability; medical expense insurance pays for hospital,<br />
doctor and other medical expenses. Both of these generally pay for losses arising from sickness or accidents. Some policies, referred to as<br />
“accident policies,” do not cover sickness.<br />
Health Maintenance Organization (HMO):<br />
The oldest form of managed health care. In exchange for a monthly fee, HMOs offer members a comprehensive range of health services, usually<br />
including preventive medical care.<br />
Hold Harmless Agreement:<br />
A contract under which one party’s legal liability for damages is assumed by the other party to the contract.<br />
Homeowners Policy:<br />
A package policy for the homeowner that combines “named peril” (including theft coverage) protection on contents, coverage on the dwelling<br />
ranging from “named peril” to physical loss, additional living expense protection and personal liability insurance.<br />
House Year:<br />
Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.<br />
Hull Policy:<br />
An ocean marine or aviation insurance contract covering damage to or loss of a ship or plane, but not the contents.<br />
Hurricane:<br />
A tropical storm with sustained winds of 75 or more miles an hour that is usually accompanied by rain and abnormally high tides.<br />
Hurricane Deductible:<br />
A percentage or dollar amount added to a homeowners insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles<br />
are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be<br />
triggered and the extent of the high risk area, vary from insurer to insurer and state to state.<br />
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(Rev. 04/07)<br />
I<br />
Indemnify:<br />
Provide financial compensation for losses.<br />
Indemnity:<br />
In general, means reimbursement for loss, but also is used to mean a benefit provided by a policy. In health insurance it sometimes is used to<br />
designate an amount paid regardless of actual loss or expense incurred.<br />
Identity Theft Coverage:<br />
Coverage for expenses incurred as the result of an identity theft. Can include costs for notarizing fraud affidavits and certified mail, lost<br />
income from time taken off from work to meet with law-enforcement personnel or credit agencies, fees for reapplying for loans and attorney’s<br />
fees to defend against lawsuits and remove criminal or civil judgments.<br />
Incurred But Not Reported Losses (IBNR):<br />
Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event<br />
that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to<br />
estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim<br />
where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time.<br />
<strong>Insurance</strong> companies regularly adjust reserves for such losses as new information becomes available.<br />
Incurred Losses:<br />
Losses occurring within a fixed period, whether or not adjusted or paid during the same period.<br />
Independent Agent:<br />
Agent who is self-employed, is paid on commission, and represents several insurance companies. (See Captive Agent.)<br />
Inflation Guard Clause:<br />
A provision added to a homeowners insurance policy that automatically adjusts the coverage limit on the dwelling each time the policy is<br />
renewed to reflect current construction costs.<br />
Inland Marine <strong>Insurance</strong>:<br />
This broad type of coverage was developed for shipments that do not involve ocean transport. Covers articles in transit by all forms of land<br />
and air transportation as well as bridges, tunnels and other means of transportation and communication. Floaters that cover expensive personal<br />
items such as fine art and jewelry are included in this category. (See Floater.)<br />
Insolvency:<br />
Insurer’s inability to pay debts. <strong>Insurance</strong> insolvency standards and the regulatory actions taken vary from state to state. When regulators<br />
deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or<br />
rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one<br />
of degree. Regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to<br />
pass the financial tests regulators administer as a routine procedure. (See Liquidation; Risk-Based Capital.)<br />
Inspection Report:<br />
A report filed by an investigator employed by the insurance company or a credit agency, giving general information on the health and finances<br />
of the applicant and the physical condition of the property (if property is to be insured).<br />
Insurable Risk:<br />
Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and<br />
part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable<br />
price for the insurance.<br />
<strong>Insurance</strong>:<br />
A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to<br />
an insurance company or other large group in return for a premium.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
I (continued)<br />
<strong>Insurance</strong> Pool:<br />
A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided<br />
by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to<br />
cover risks that can’t obtain coverage in the voluntary market such as coastal properties subject to hurricanes. (See Beach and Windstorm<br />
Plans; Fair Access to <strong>Insurance</strong> Requirements Plan–FAIR Plan; Joint Underwriting Association–JUA.)<br />
<strong>Insurance</strong> Regulatory Information System (IRIS):<br />
Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of <strong>Insurance</strong> Commissioners. Each individual<br />
state insurance department chooses how to use IRIS.<br />
<strong>Insurance</strong> Score:<br />
<strong>Insurance</strong> scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on<br />
loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well<br />
consumers manage their financial affairs, not of their financial assets. It does not include information about income or race. Studies have<br />
shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage<br />
their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting<br />
and rating tool.<br />
<strong>Insurance</strong>-to-Value:<br />
<strong>Insurance</strong> written in an amount approximating the value of the insured property.<br />
Insured:<br />
A person covered by an insurance policy.<br />
Internal Fraud:<br />
An act of deception or strategy used to deceive or cheat an insurer by an employee, including misrepresentation or concealment.<br />
Internet Insurer:<br />
An insurer that sells exclusively via the Internet.<br />
Internet Liability <strong>Insurance</strong>:<br />
Coverage designed to protect businesses from liabilities that arise from the conducting of business over the Internet, including copyright<br />
infringement, defamation, and violation of privacy.<br />
Investment Income:<br />
The income generated by a company’s portfolio of investments (such as bonds, stocks or other financial ventures).<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
J<br />
Joint Underwriting Association (JUA):<br />
A device used to provide insurance to those who cannot obtain insurance in the voluntary market. Certain companies issue policies at one rate<br />
level and handle claims, but the ultimate costs are borne by all companies writing insurance in that state.<br />
Junk Bonds:<br />
Corporate bonds with credit ratings of BB or less. They pay a higher yield than investment grade bonds because issuers have a higher perceived<br />
risk of default. Such bonds involve market risk that could force investors, including insurers, to sell the bonds when their value is low.<br />
Most states place limits on insurers’ investments in these bonds. In general, because property/casualty insurers can be called upon to provide<br />
huge sums of money immediately after a disaster, their investments must be liquid. Less than 2 percent are in real estate and a similarly small<br />
percentage are in junk bonds.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
K<br />
Key Person <strong>Insurance</strong>:<br />
<strong>Insurance</strong> on the life or health of a key individual whose services are essential to the continuing success of a business and whose death or disability<br />
could cause the firm a substantial financial loss.<br />
Kidnap and Ransom <strong>Insurance</strong>:<br />
Written for financial institutions and other corporations, this insurance covers named employees for individual or aggregate amounts paid as<br />
ransom, with deductibles requiring the insured to participate in approximately 10% of any loss.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
L<br />
Lapsed Policy:<br />
A life or health insurance policy terminated as a result of non payment of a premium before the end of the grace period.<br />
Law of Large Numbers:<br />
The theory of probability on which the business of insurance is based. Simply put, this mathematical premise says that the larger the group of<br />
units insured, such as sport-utility vehicles, the more accurate the predictions of loss will be.<br />
Legal Expense <strong>Insurance</strong>:<br />
<strong>Insurance</strong> to reimburse policyholders for legal fees incurred for defense from lawsuits involving areas of civil law not covered by standard liability<br />
insurance. Examples include: discrimination, wrongful discharge, contract disputes and patent disputes.<br />
Level Premium Life <strong>Insurance</strong>:<br />
<strong>Insurance</strong> for which the cost is distributed evenly over the period during which premiums are paid. The premium remains the same from year<br />
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<br />
excess paid in the early years builds up a reserve which helps meet the costs in later years.<br />
Liabilities:<br />
An insurance company’s liabilities consist of its immediate or contingent policy obligations and unpaid claims, as well as the usual obligations<br />
arising out of doing business such as taxes, payroll, etc.<br />
Liability <strong>Insurance</strong>:<br />
Provides protection for the insured against loss arising out of his/her legal liability to third parties.<br />
Liability Limits:<br />
The stipulated sum or sums beyond which an insurance company is not liable to protect the insured.<br />
License—Agent or Broker:<br />
Certification issued by a state’s department of insurance that an individual is qualified to solicit insurance applications in the state for the<br />
period covered.<br />
License—Company:<br />
Certification issued by a state’s department of insurance that an insurance company is qualified to do business in the state.<br />
Limit:<br />
The maximum amount of benefits that an insurer agrees to pay in the event of a loss.<br />
Line:<br />
A type or kind of insurance.<br />
Liquidation:<br />
Enables the state insurance department as liquidator or its appointed deputy to wind up the insurance company’s affairs by selling its assets<br />
and settling claims upon those assets. After receiving the liquidation order, the liquidator notifies insurance departments in other states and<br />
state guaranty funds of the liquidation proceedings. Such insurance company liquidations are not subject to the Federal Bankruptcy Code but<br />
to each state’s liquidation statutes.<br />
Liquidity:<br />
The ability and speed with which a security can be converted into cash.<br />
Liquor Liability:<br />
Coverage for bodily injury or property damage caused by an intoxicated person who was served liquor by the policyholder.<br />
Litigation:<br />
The process of a lawsuit.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
L (continued)<br />
Lloyd’s of London:<br />
A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed<br />
by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market<br />
as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by<br />
shipowners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets<br />
behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.<br />
Lloyds:<br />
Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. <strong>Insurance</strong><br />
is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in<br />
Texas.<br />
Long-term Care <strong>Insurance</strong>:<br />
Coverage that, under specified conditions, provides skilled nursing, intermediate care, or custodial care for a patient (generally over age 65) in<br />
a nursing facility or his or her residence following an injury.<br />
Loss:<br />
A reduction in the quality or value of a property, or a legal liability.<br />
Loss Adjustment Expenses:<br />
The sum insurers pay for investigating and settling insurance claims, including the cost of defending a lawsuit in court.<br />
Loss Control Representative:<br />
<strong>Insurance</strong> company employees, also called safety engineers, that perform loss control surveys or inspections, and prepare written loss control<br />
reports that outline their findings.<br />
Loss Control Service:<br />
Engineering or inspection service which assists the insured in reducing its exposure to loss.<br />
Loss Costs:<br />
The portion of an insurance rate used to cover claims and the costs of adjusting claims. <strong>Insurance</strong> companies typically determine their rates<br />
by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.<br />
Loss Expense—Unallocated:<br />
Salaries and other expenses incurred in connection with the operation of a claims department of a property and liability insurance carrier<br />
which cannot be charged to individual claims.<br />
Loss Exposure:<br />
The possibility that a loss may occur.<br />
Loss of Use:<br />
A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live<br />
elsewhere while their home is being restored following a disaster.<br />
Loss Ratio:<br />
In property and liability insurance, the percent that losses bear to premiums for a given period.<br />
Loss Reserve:<br />
The estimated liability on an insurer’s balance sheet for unpaid insurance claims or losses that have occurred as of a given reporting date. On<br />
an individual claim, the loss reserve is the estimate of what will ultimately be paid out on that case.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
M<br />
Malicious Mischief:<br />
The willful or intentional damage to or destruction of another’s property. Coverage for malicious mischief is usually combined with the vandalism<br />
peril in insurance policies.<br />
Malpractice <strong>Insurance</strong>:<br />
Coverage afforded to a professional practitioner, such as a doctor or a lawyer, against liability claims for damages resulting from alleged negligence<br />
in the performance of the insured’s services.<br />
Manual:<br />
A book published by an insurance company, rating association or bureau, containing its rates, classifications and rules for rating a policy.<br />
Marine <strong>Insurance</strong>:<br />
See Inland Marine <strong>Insurance</strong> and Ocean Marine <strong>Insurance</strong>.<br />
Material Damage:<br />
<strong>Insurance</strong> against damage to a vehicle or boat itself. It includes automobile comprehensive, collision, fire and theft. Material damage and<br />
physical damage are terms that are often used interchangeably.<br />
Maturity:<br />
The date at which the endowment amount of a life policy becomes payable.<br />
McCarran-Ferguson Act:<br />
Federal law signed in 1945 in which Congress declared that states would continue to regulate the insurance business. Grants insurers a limited<br />
exemption from federal antitrust legislation.<br />
Mediation:<br />
Nonbinding procedure in which a third party attempts to resolve a conflict between two other parties.<br />
Medical Payments Automobile <strong>Insurance</strong>:<br />
Coverage in non-no-fault states, which pays medical and hospital expenses and the expense of funeral services resulting from an automobile<br />
accident, regardless of the liability of the insured. This is a first-party coverage.<br />
Mine Subsidence Coverage:<br />
An endorsement to a homeowners insurance policy, available in some states, for losses to a home caused by the land under a house sinking<br />
into a mine shaft. Excluded from standard homeowners policies, as are other forms of earth movement.<br />
Mortgage <strong>Insurance</strong>:<br />
(1) A basic type of life insurance or disability insurance purchased for the specific purpose of paying off any mortgage balance outstanding at<br />
death or paying mortgage payments while the insured is disabled. (2) ”Private mortgage insurance“ offers a method of providing minimum<br />
down payment residential mortgages by insuring mortgage lenders against losses in the event of borrower default.<br />
Multi-Peril Policy:<br />
A package policy that provides protection against a number of separate perils. Multi-peril policies are not necessarily multiple-line policies,<br />
since the combined perils may be all within one insurance line, such as property. (See Multiple-Line Policy.)<br />
Multiple-Line Company:<br />
A company that writes a variety of basic or traditional lines of insurance known as property and casualty (liability) insurance, such as auto,<br />
boat owners, homeowners, commercial, etc.<br />
Multiple-Line Policy:<br />
A package policy which combines coverages from both the traditional property and liability insurance lines.<br />
Municipal Bond <strong>Insurance</strong>:<br />
Coverage that guarantees bondholders timely payment of interest and principal even if the issuer of the bonds defaults. <strong>Of</strong>fered by insurance<br />
companies with high credit ratings, the coverage raises the credit rating of a municipality offering the bond to that of the insurance company.<br />
It allows a municipality to raise money at lower interest rates. A form of financial guarantee insurance. (See Financial guarantee insurance.)<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
N<br />
Named Peril:<br />
Peril specifically mentioned as covered in an insurance policy.<br />
Non-Admitted Company (Carrier):<br />
An insurance company not licensed to do business in the state in question.<br />
Non-Admitted Insurer:<br />
Insurers licensed in some states, but not others. States where an insurer is not licensed call that insurer non-admitted. They sell coverage that<br />
is unavailable from licensed insurers within the state.<br />
No-Fault Automobile <strong>Insurance</strong>:<br />
A form of insurance by which a person’s financial losses resulting from an automobile accident, such as medical and hospital expenses and<br />
loss of income, are paid by his/her own insurance company without concern for who was at fault. The right to sue may be restricted in some<br />
cases.<br />
Non-Forfeiture Options:<br />
The choices available to an insured as to how the cost value of a life insurance policy will be received—as a lump-sum payment, as extended<br />
term insurance, or as reduced paid-up life insurance. These options guarantee that the cash value will not be forfeited by the insured.<br />
Non-Participating <strong>Insurance</strong>:<br />
See Guaranteed Cost <strong>Insurance</strong>.<br />
No-Pay, No Play:<br />
The idea that people who don’t buy coverage should not receive benefits. Prohibits uninsured drivers from collecting damages from insured<br />
drivers. In most states with this law, uninsured drivers may not sue for noneconomic damages such as pain and suffering. In other states,<br />
uninsured drivers are required to pay the equivalent of a large deductible ($10,000) before they can sue for property damages and another<br />
large deductible before they can sue for bodily harm.<br />
Notice of Loss:<br />
A written notice required by insurance companies immediately after an accident or other loss. Part of the standard provisions defining a policyholder’s<br />
responsibilities after a loss.<br />
Nuclear <strong>Insurance</strong>:<br />
Covers operators of nuclear reactors and other facilities for liability and property damage in the case of a nuclear accident and involves both<br />
private insurers and the federal government.<br />
Nursing Home <strong>Insurance</strong>:<br />
A form of long-term care policy that covers a policyholder’s stay in a nursing facility.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
O<br />
Obligee:<br />
A person, firm, corporation or government agency protected by a surety bond.<br />
Occupational Disease:<br />
Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation<br />
policies. (See Workers’ Compensation.)<br />
Occupational Hazard:<br />
Dangers inherent in an occupation which increase the risk of sickness or injury.<br />
Occurrence Policy:<br />
<strong>Insurance</strong> that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later. (See Claims-Made<br />
Policy.)<br />
Ocean Marine <strong>Insurance</strong>:<br />
Coverage of all types of vessels and watercraft, for property damage to the vessel and cargo, including such risks as piracy and the jettisoning<br />
of cargo to save the property of others. Coverage for marine-related liabilities. War is excluded from basic policies, but can be bought back.<br />
Omnibus Clause:<br />
An automobile policy provision that covers persons driving the named insured’s auto with the named insured’s permission.<br />
Open Competition States:<br />
States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are<br />
not reasonable and adequate or are discriminatory.<br />
Operating Expenses:<br />
The cost of maintaining a business’ property, includes insurance, property taxes, utilities and rent, but excludes income tax, depreciation and<br />
other financing expenses.<br />
Options:<br />
Contracts that allow, but do not oblige, the buying or selling of property or assets at a certain date at a set price.<br />
Ordinance of Law Coverage:<br />
Endorsement to a property policy, including homeowners, that pays for the extra expense of rebuilding to comply with ordinances or laws,<br />
often building codes, that did not exist when the building was originally built. For example, a building severely damaged in a hurricane may<br />
have to be elevated above the flood line when it is rebuilt. This endorsement would cover part of the additional cost.<br />
Original Equipment Manufacturer Parts (OEM):<br />
Sheet metal auto parts made by the manufacturer of the vehicle. (See Generic Auto Parts.)<br />
Other Than Collision Coverage:<br />
See Comprehensive Automobile <strong>Insurance</strong>.<br />
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(Rev. 04/07)<br />
P<br />
Package Policy:<br />
A combination of two or more individual policies or coverages into a single policy. A homeowners policy, for example, is a package combining<br />
property, liability and theft coverages for the homeowner.<br />
Paid Losses:<br />
The actual dollar total that has been paid on incurred losses by issuing checks or drafts to claimants.<br />
Partial Disability:<br />
An impairment that prevents the insured from performing one or more, but not all, important duties of his/her job.<br />
Participating <strong>Insurance</strong>:<br />
The life insurance, sold by some life companies, on which dividends may be payable to policy owners. The amount and timing of the dividend<br />
payments are determined by the company board of directors.<br />
Particular Average:<br />
In ocean marine insurance, a concept providing that, where a portion of vessel or cargo is jettisoned to save the entire venture from peril at<br />
sea, the resulting loss is borne entirely by that individual owning the property that is damaged or sacrificed. No other interests contribute to<br />
payment of the loss. (Distinct from General Average.)<br />
Pay-at-the-Pump:<br />
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on<br />
gasoline.<br />
Peril:<br />
The cause of a possible loss, such as fire, windstorm, theft, explosion or riot.<br />
Permanent <strong>Insurance</strong>:<br />
The type of life insurance that develops cash value and includes whole life, endowment, universal life and variable life insurance.<br />
Persistency:<br />
An insurance term used to refer to the probability of insurance remaining in force.<br />
Personal Articles Floater:<br />
A form of coverage designed to meet the needs for insurance on property of a movable nature. The coverage usually protects against all<br />
physical loss, subject to special exclusions and conditions. Examples of property covered include jewelry, furs, silverware and fine arts.<br />
“Personal Injury” Liability <strong>Insurance</strong>:<br />
Protects against liability for damages other than physical injury arising out of false arrest, detention or imprisonment, or malicious prosecution;<br />
libel, slander or defamation of character; invasion of privacy, wrongful eviction or wrongful entry.<br />
Personal Injury Protection Automobile <strong>Insurance</strong> (PIP):<br />
First-party coverage in no-fault states that usually pays for medical expenses, loss of income and certain other expenses resulting from an<br />
auto accident. Coverage’s scope varies widely by state law so no two states have identical coverages. (See No-Fault Automobile <strong>Insurance</strong>.)<br />
Personal Lines:<br />
Types of insurance written for individuals or families, rather than for businesses.<br />
Personal Property:<br />
This type of property is usually movable and easily transportable. On the other hand, real property generally is considered to be immovable,<br />
such as land and things affixed to it. A rule of thumb definition for personal property is “everything other than real property.”<br />
Physical Hazard:<br />
This refers to the material, structural or operational features of the risk itself, apart from the persons owning or managing it. Electrical wiring,<br />
building construction and type of heating system are examples of physical hazards.<br />
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(Rev. 04/07)<br />
P (continued)<br />
Physical Loss Form:<br />
This property coverage protects against loss from risk of physical loss to buildings except as limited or excluded in the form.<br />
Point of Service (POS) Plan:<br />
An HMO that offers an indemnity-type option. The primary care doctors in a POS plan make referrals to other providers in the plan. However,<br />
members can refer themselves outside the plan and still get some coverage as well.<br />
Policies-in-Force:<br />
Policies written and recorded on the books of the carrier which are unexpired as of a given date. Usually applies to property and liability insurance.<br />
Policy:<br />
The name generally used to mean the written contract of insurance.<br />
Policyholder:<br />
One who owns an insurance policy. A mortgagee often is issued a copy of an insurance policy or certificate of insurance at the request of the<br />
insured, but it is not a policyholder.<br />
Policyholders’ Surplus:<br />
The sum an insurance company has remaining after all liabilities are deducted from all assets. Sums such as paid-in capital and special voluntary<br />
reserves are also included in this term. This surplus is one form of financial protection to policyholders in the event a company suffers<br />
unexpected or catastrophic losses.<br />
Policy Loan:<br />
The borrowing against a life insurance policy’s cash value.<br />
Political Risk <strong>Insurance</strong>:<br />
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.<br />
Pollution <strong>Insurance</strong>:<br />
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated.<br />
It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified<br />
time frame after the policy expires.<br />
Pool:<br />
An organization of insurers or reinsurers through which particular types of risks are underwritten with premiums, losses and expenses shared<br />
in agreed ratios.<br />
Pre-Existing Condition:<br />
A physical condition that existed prior to the issuance of an insurance policy.<br />
Premises:<br />
The building, other structures and land where the insurance protection is applicable. It is usually described and defined in the property and<br />
casualty policy.<br />
Premium:<br />
The amount of money charged a policyholder for an insurance policy. (Also see Direct Premiums Written, Earned Premium, Net Premiums<br />
Written, Unearned Premium.)<br />
Premium Auditor:<br />
A person who examines a liability insurance policyholder’s insurance records (sales, payroll, etc.) at the end of the policy term to determine<br />
if the basis for the premium charge has either increased or decreased. If the audited premium is less than originally estimated and paid, the<br />
policyholder will receive a refund; if greater, the policyholder will receive a statement for the balance.<br />
Premium Tax:<br />
A state tax on premiums paid by its residents and businesses and collected by insurers.<br />
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(Rev. 04/07)<br />
P (continued)<br />
Premiums in Force:<br />
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.<br />
Premiums Written:<br />
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net<br />
premiums written are premiums written after reinsurance transactions.<br />
Primary Company:<br />
In a reinsurance transaction, the insurance company that is reinsured.<br />
Primary Market:<br />
Market for new issue securities where the proceeds go directly to the issuer.<br />
Prime Rate:<br />
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.<br />
Principal:<br />
In suretyship, the party whose honesty or performance is guaranteed.<br />
Prior Approval States:<br />
States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.<br />
Private Mortgage <strong>Insurance</strong>:<br />
See Mortgage <strong>Insurance</strong>.<br />
Private Placement:<br />
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.<br />
Producer:<br />
Any person directly involved in the sale of insurance.<br />
Product Liability:<br />
A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform<br />
federal laws guide manufacturer’s liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without<br />
the need to prove negligence or fault.<br />
Product Liability <strong>Insurance</strong>:<br />
Protects manufacturers’ and distributors’ exposure to lawsuits by people who have sustained bodily injury or property damage through the use<br />
of the product.<br />
Professional Liability <strong>Insurance</strong>:<br />
Covers professionals for negligence and errors or omissions that injure their clients.<br />
Proof of Loss:<br />
Documents showing the insurance company that a loss occurred.<br />
Property/Casualty <strong>Insurance</strong>:<br />
Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty<br />
insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/<br />
health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.<br />
Property/Casualty <strong>Insurance</strong> Cycle:<br />
Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three<br />
year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular<br />
and less frequent.<br />
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(Rev. 04/07)<br />
P (continued)<br />
Property Damage Liability <strong>Insurance</strong>:<br />
Protection against loss from legal liability for damage to the property of another.<br />
Property <strong>Insurance</strong>:<br />
Provides financial protection against loss or damage to the insured’s property, other than automobile, caused by specified perils, such as fire,<br />
windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.<br />
Proposition 103:<br />
A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving<br />
records and less on geographical location. The initiative changed many aspects of the state’s insurance system and was the subject of lawsuits<br />
for more than a decade.<br />
Protection Amount:<br />
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—depending<br />
upon the policy. This amount will be reduced by the amount of any outstanding policy loan.<br />
Proximate Cause:<br />
The dominating cause of loss or damage; an unbroken chain of events between the occurrence of an insured peril and damage to property. As<br />
an illustration, weather damage occurring from fire-fighting activities is covered under the fire policy because fire was the proximate cause of<br />
the loss.<br />
Public Liability <strong>Insurance</strong>:<br />
A broad term meaning insurance to cover professional and commercial risks against liability exposures other than those involving employees<br />
or arising out of ownership or use of autos or airplanes.<br />
Purchasing Group:<br />
An entity that offers insurance to groups of similar businesses with similar exposures to risk.<br />
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(Rev. 04/07)<br />
R<br />
Rain <strong>Insurance</strong>:<br />
<strong>Insurance</strong> protection against loss due to rain, hail, snow or sleet, which causes cancellation or reduced earnings of an outdoor event.<br />
Rate:<br />
A charge per unit in determining insurance premiums.<br />
Rate Regulation:<br />
The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. (See<br />
Open Competition States; Prior Approval States.)<br />
Rating Agencies:<br />
Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps<br />
Inc.; Fitch, Inc.; Mayday’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings,<br />
capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience.<br />
A high financial rating is not the same as a high consumer satisfaction rating.<br />
Rating Bureau:<br />
An organization that gathers statistics, makes rates and/or creates policy forms and provides other services for the property and casualty<br />
insurers affiliated with the bureau.<br />
Rating Territory:<br />
In various property and casualty lines, a geographical grouping within which insureds are likely to share an exposure to similar risks. Grouping<br />
of insureds within a territory helps establish equitable rates for the territory.<br />
Real Estate Investments:<br />
Investments generally owned by life insurers that include commercial mortgage loans and real property.<br />
Receivables:<br />
Amounts owed to a business for goods or services provided.<br />
Redlining:<br />
An illegal act to refuse to lend money or issue insurance based only on geographic area.<br />
Reinstatement:<br />
The restoration of a lapsed life or health insurance policy to its original premium-paying status—usually after evidence of good health has<br />
been submitted and past-due premiums have been paid.<br />
Reinsurance:<br />
An arrangement by which one insurer transfers all or a portion of its risk under a policy or group of policies to another insurer (reinsurer).<br />
Thus reinsurance is insurance purchased by an insurance company from another insurer, to reduce risk for the original insurer.<br />
Reinsurance Facility:<br />
An alternative mechanism to service those insureds who cannot obtain insurance in the voluntary market. Premiums and losses for the business<br />
that is ceded to the facility are pooled and all insurers share according to their proportion of the voluntary market.<br />
Renters Policy:<br />
A package type of insurance that includes coverage similar to a homeowners policy to cover the personal property of a renter or tenant in a<br />
building.<br />
Rents or Rental Value Coverages:<br />
<strong>Insurance</strong> against loss of the rental value of a property; protects against loss of rents resulting from an insured peril.<br />
Replacement Cost Property Coverage:<br />
<strong>Insurance</strong> under which the amount payable is the current replacement cost of the property new, rather than the depreciated value. Applies to<br />
the building structures (in most cases) and can apply to contents in some policies.<br />
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(Rev. 04/07)<br />
R (continued)<br />
Reserve:<br />
(1) An amount representing actual or potential liabilities kept by an insurer to cover obligations to policyholders and third-party claimants. (2)<br />
An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion, a reserve may be an<br />
asset, such as a reserve for taxes not yet due.<br />
Residual Market:<br />
A general term describing the total of all consumers who have had difficulty purchasing insurance through normal channels. Automobile <strong>Insurance</strong><br />
Plans, FAIR Plans, Reinsurance Facilities and Joint Underwriting Associations all service this market.<br />
Retention:<br />
The net amount of risk retained by an insurance company for its own account or that of specified others, and not reinsured.<br />
Retrocession:<br />
The reinsurance bought by reinsurers to protect their financial stability.<br />
Retrospective Rating:<br />
Rating procedure that allows adjustment of an insured’s final rate on the basis of the insured’s own loss experience.<br />
Rider:<br />
Additional provision added to a policy by issuance of an amending document.<br />
(See Endorsement.)<br />
Risk:<br />
Chance of loss with respect to person, liability or the property of the insured. Also is used to mean “the insured.”<br />
Risk-Based Capital:<br />
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of<br />
insurance, liability as opposed to property business, generally necessitate higher levels of capital<br />
Risk Management:<br />
The management of the various risks that might affect a business firm. Its purpose is to identify potential loss situations and control or reduce<br />
them through insurance, elimination of risk, or improved or additional safety practices.<br />
Risk Retention Groups:<br />
<strong>Insurance</strong> companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one<br />
state to handle liability insurance.<br />
Robbery:<br />
The loss of property due to theft when a person is threatened with physical harm or injury.<br />
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(Rev. 04/07)<br />
S<br />
Sales Expense:<br />
Compensation of agents, advertising expense and other costs related to selling insurance policies.<br />
Salvage:<br />
Property damaged to the extent that it is not economical to perform repairs, taken over by an insurer after it has paid a claim, to reduce its<br />
loss by “salvaging” the remaining value of the property.<br />
Schedule:<br />
A list describing the property or items insured under the policy and the extent to which they are insured.<br />
Secondary Market:<br />
Market for previously issued and outstanding securities.<br />
Securities and Exchange Commission (SEC):<br />
The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including<br />
an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and<br />
other information about their stock.<br />
Securities Outstanding:<br />
Stock held by shareholders.<br />
Securitization of <strong>Insurance</strong> Risk:<br />
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors<br />
directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See Catastrophe<br />
Bonds.)<br />
Self-<strong>Insurance</strong>:<br />
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<br />
losses.<br />
Severity:<br />
Size of a loss. One of the criteria used in calculating premiums rates.<br />
Sewer-Drain Back-Up Coverage:<br />
An optional part of homeowners insurance that covers sewers.<br />
Shared Market:<br />
See Residual Market.<br />
Soft Market:<br />
A condition where insurance premiums are lowered and the availability of insurance is high. Opposite of a hard insurance market.<br />
Solicitor:<br />
A person authorized by an agent to solicit and receive applications for insurance.<br />
Solvency:<br />
<strong>Insurance</strong> companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements,<br />
statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial<br />
data disclosure.<br />
Special Multi-Peril Policy (SMP):<br />
A business policy which combines in one contract the coverages normally purchased under several policies. Many options and endorsements<br />
are available to tailor it to the policyholder’s needs.<br />
Specified Perils:<br />
See Named Peril.<br />
OII <strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong> 38
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(Rev. 04/07)<br />
S (continued)<br />
Speculative Risk:<br />
A type of risk with three possible outcomes: gain, loss or no change.<br />
Spread of Risk:<br />
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same<br />
time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because<br />
the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See Adverse Selection.)<br />
Stacking:<br />
Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow<br />
policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of<br />
liability available for each vehicle.<br />
Standard Provisions:<br />
Policy provisions required by law.<br />
Standard Risk:<br />
A person who according to a company’s underwriting standards is entitled to insurance without extra rating or special restrictions.<br />
Statutory Accounting Principles (SAP):<br />
Those principles required by statute that must be followed by an insurance company when submitting its financial statements to the various<br />
state insurance departments. Such principles differ from Generally Accepted Accounting Principles (GAAP) in some important respects. For<br />
example, SAP requires that expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and<br />
taken into revenue.<br />
Statutory Underwriting Profit or Loss:<br />
Earnings or losses as shown by an insurer on its Statutory Income Statement (convention blank) as required by state insurance departments.<br />
More specifically: (1) the profit or loss realized from insurance operations as distinct from that realized from investments; (2) the excess of<br />
premiums over losses and expenses (profit), or the excess of losses and expenses over premiums (loss).<br />
Stock Company:<br />
A company organized and owned by stockholders, as distinguished from the mutual form of company, which is owned by its policyholders.<br />
Stopgap Endorsement:<br />
Provides employer liability coverage for work-related injury arising out of incidental operations or exposure in the monopolistic fund states.<br />
Structured Settlement:<br />
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually<br />
for his or her lifetime, instead of in a single lump sum payment. (See Annuity.)<br />
Subrogation:<br />
A principle of law incorporated in insurance policies that enables an insurance company, after paying a loss to its insured, to recover the<br />
amount of the loss from another who is legally liable for it.<br />
Substandard or Extra Risk:<br />
An individual who, because of health history or physical limitations, does not measure up to the qualifications of a standard life or health<br />
insurance risk.<br />
Superfund:<br />
A federal law enacted in 1980 to initiate cleanup of the nation’s abandoned hazardous waste dump sites and to respond to accidents that<br />
release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation,<br />
and Liability Act.<br />
Surety Bond:<br />
An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. The surety<br />
company, for example, becomes responsible for fulfillment of a contract if the contractor defaults.<br />
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(Rev. 04/07)<br />
S (continued)<br />
Suretyship:<br />
Contractual relationship in which one party (surety) guarantees another party (obligee) against the default or misperformance of a third party<br />
(principal). (See Fidelity Bond and Surety Bond.)<br />
Surplus:<br />
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,<br />
the term surplus-to-policyholders means the excess of admitted assets over liabilities.<br />
Surplus Lines:<br />
A term originating in property/casualty insurance, used to describe any risk or part thereof for which insurance is not available through a<br />
company licensed in the applicant’s state (an “admitted” insurer). The business, therefore, is placed with “non-admitted” insurers (insurers not<br />
licensed in the state) in accordance with surplus or excess lines provisions of state insurance laws. These provisions generally allow operations<br />
on a relatively unregulated basis; that is, the non-admitted insurer is not subject to the same rate or coverage requirements that apply to an<br />
admitted insurer.<br />
Surrender Charge:<br />
A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.<br />
Swaps:<br />
The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example,<br />
or because investment goals have changed.<br />
Syndicate:<br />
A group of insurers or underwriters that join to insure certain property that may be of such value or high hazard or so expensive to underwrite<br />
that it can be covered more safely or efficiently on a cooperative basis.<br />
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(Rev. 04/07)<br />
T<br />
Tenants Policy:<br />
See Renters Policy.<br />
Term:<br />
A period of time for which a policy is issued.<br />
Term <strong>Insurance</strong>:<br />
Life insurance protection during a limited number of years but expiring without value if the insured survives the stated period.<br />
Territorial Rating:<br />
A method of classifying risks by geographic location to set a fair price for coverage. The location of the insured may have a considerable impact<br />
on the cost of losses. The chance of an accident or theft is much higher in an urban area than in a rural one, for example.<br />
Terrorism Coverage:<br />
Included as a part of the package in standard commercial insurance policies before September 11, 2001 virtually free of charge. Since September<br />
11, terrorism coverage prices have increased substantially to reflect the current risk.<br />
Theft <strong>Insurance</strong>:<br />
Protection for loss of property due to stealing, including burglary, robbery and larceny.<br />
Third-Party Administrator:<br />
Outside group that performs clerical functions for an insurance company.<br />
Third-Party Coverage:<br />
Liability coverage purchased by the policyholder as a protection against possible lawsuits filed by a third party. The insured and the insurer are<br />
the first and second parties to the insurance contract. (See First-Party Coverage.)<br />
Threshold:<br />
Used in no-fault auto insurance to remove non-serious cases from the tort system by establishing a point of “threshold” that must be met or<br />
exceeded to sue in tort. <strong>Of</strong> those states and the District of Columbia that have no-fault auto insurance, many, including the District of Columbia,<br />
have a threshold in their plan. There are three types of thresholds: the dollar threshold, the disability threshold and the verbal threshold.<br />
Title <strong>Insurance</strong>:<br />
An insurance contract relating to real estate described in the policy which protects the insured landowner against loss or damage by reason of<br />
defects, liens or encumbrances in the insured title, if these faults exist at the date of the policy and are not expressly excluded from its terms.<br />
Tort:<br />
Any wrongful act, damage or injury done willfully, negligently or in circumstances involving strict liability, but not involving breach of contract,<br />
for which a civil lawsuit can be brought.<br />
Tort Law:<br />
The body of law governing negligence, intentional interference, and other wrongful acts for which civil action can be brought, except for<br />
breach of contract, which is covered by contract law.<br />
Tort Reform:<br />
Refers to legislation designed to reduce liability costs through limits on various kinds of damages and through modification of liability rules.<br />
Total Disability:<br />
Disability that prevents a person from performing (a) any of his/her occupational duties, or (b) any duties for which he/she is reasonably<br />
qualified. Definitions vary within policies.<br />
Total Loss:<br />
The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or<br />
property.<br />
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(Rev. 04/07)<br />
T (continued)<br />
Towing Coverage:<br />
Insures against charges for towing and road service at the place of disablement, with a maximum amount stipulated for each occurrence.<br />
Transparency:<br />
A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated<br />
so that they are easily understood and frank.<br />
Travel <strong>Insurance</strong>:<br />
<strong>Insurance</strong> to cover problems associated with traveling, generally including trip cancellation due to illness, lost luggage and other incidents.<br />
Treaty Reinsurance:<br />
A general reinsurance agreement between the ceding or primary company and the reinsurer containing the contractual terms under which a<br />
portion or all of the primary company’s business or a particular class is passed on to the reinsurer.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
U<br />
Umbrella Liability Policy:<br />
A form of insurance protection against losses in excess of amounts covered by other liability insurance policies; also protects the insured in<br />
many situations not covered by the usual liability policies. This policy is available for both personal and commercial lines coverage.<br />
Unbundled Contracts:<br />
A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.<br />
Underinsurance:<br />
The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing<br />
or repairing damaged items covered in the policy.<br />
Underinsured Motorists Coverage (UIM):<br />
Coverage is intended to cover you and passengers in your car for losses unpaid because sufficient bodily injury liability limits are not available<br />
from the policy of an at-fault driver. How and under what circumstances the coverage becomes operative varies in different states.<br />
Underwriter:<br />
An employee of an insurance company who is a selector of risks. The underwriter is expected to select business that will produce an average<br />
risk of loss no greater than anticipated for the class of business. In the life insurance industry, “underwriter” may also mean an agent or other<br />
field representative who is referred to as a “field underwriter.”<br />
Underwriting:<br />
The process of selecting risks for insurance and determining in what amounts and on what terms the insurance company accepts the risk.<br />
Underwriting Profit or Loss:<br />
The profit or loss experienced by a property/casualty insurance company after deducting from earned premiums the incurred losses and<br />
expenses of doing business, but before provision of federal income tax. It excludes investment income.<br />
Unearned Premium:<br />
The portion of a property/casualty insurance premium that applies to the unexpired portion of the policy period.<br />
Uninsurable Risk:<br />
Risks for which it is difficult for someone to get insurance. (See Insurable Risk.)<br />
Uninsured Motorists Coverage:<br />
Pays the policyholder and passengers in his/her car for losses sustained by reason of bodily injury, sickness, disease or death caused by the<br />
owner or operator of an uninsured automobile or a “hit-and-run” driver.<br />
Uninsured Motorists Property Damage Coverage (UMPD):<br />
Provides coverage to a vehicle involved in an accident with an uninsured motorist. UMPD is similar to “collision coverage,” and is not available<br />
to those who purchase collision coverage.<br />
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<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
V<br />
Valuation:<br />
The process of determining a company’s liabilities under its policy obligations is known as policy valuation. The process of determining the<br />
value of a company’s investments is known as asset valuation. Minimum valuation standards are usually prescribed by state laws.<br />
Valued Policy:<br />
An insurance policy under which the insurance company is obligated to pay the full amount of the policy written to insure real property against<br />
loss by fire (and, sometimes, other perils) when the property insured is totally destroyed. Several states have laws that are known as Valued<br />
Policy Laws.<br />
Vandalism:<br />
Willful, intentional, often random, destruction or defacement of private or public property. <strong>Insurance</strong> against the vandalism peril is usually<br />
combined with the malicious mischief peril.<br />
Variable Life <strong>Insurance</strong>:<br />
A type of permanent life insurance in which the death benefit and the policy value vary in relation to the investment experience of a selected<br />
fund in which the policy values are invested.<br />
Verbal Threshold:<br />
In no-fault auto insurance states with the verbal threshold, victims are allowed to sue in tort only if their injuries meet certain verbal descriptions<br />
of the types of injuries that should, as a matter of policy, render one eligible to seek to recover for pain and suffering in a cause of action<br />
in tort.<br />
Viatical Settlement Companies:<br />
<strong>Insurance</strong> firms that buy life insurance policies at a steep discount from policyholders who are often terminally ill and need the payment for<br />
medications or treatments. The companies provide early payouts to the policyholder, assume the premium payments, and collect the face<br />
value of the policy upon the policyholder’s death.<br />
Void:<br />
A policy contract that for some reason specified in the policy becomes free of all legal effect. One example under which a policy could be<br />
voided is when information a policyholder provided is proven untrue.<br />
Volatility:<br />
A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.<br />
Volcano Coverage:<br />
Most homeowners policies cover damage from a volcanic eruption.<br />
Volume:<br />
Number of shares a stock trades either per day or per week.<br />
Voluntary Market:<br />
The market where a person seeking insurance obtains it with no help from the state, through an insurer of his or her own selection.<br />
OII <strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong> 44
<strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong><br />
(Rev. 04/07)<br />
W<br />
Waiver:<br />
The surrender of a right or privilege. In life insurance, a provision that sets certain conditions, such as disablement, which allow coverage to<br />
remain in force without payment of premiums.<br />
War Risk:<br />
Special coverage on cargo in overseas ships against the risk of being confiscated by a government in wartime. It is excluded from standard<br />
ocean marine insurance and can be purchased separately. It often excludes cargo awaiting shipment on a wharf or on ships after 15 days of<br />
arrival in port.<br />
Water-Damage <strong>Insurance</strong> Coverage:<br />
Protection provided in most homeowners insurance policies against sudden and accidental water damage, from burst pipes for example. Does<br />
not cover damage from problems resulting from a lack of proper maintenance such as dripping air conditioners. Water damage from floods is<br />
covered under separate flood insurance policies issued by the federal government.<br />
Weather Derivative:<br />
An insurance or securities product used as a hedge by energy-related businesses and others whose sales tend to fluctuate depending on the<br />
weather.<br />
Weather <strong>Insurance</strong>:<br />
A type of business interruption insurance that compensates for financial losses caused by adverse weather conditions, such as constant rain<br />
on the day scheduled for a major outdoor concert.<br />
Workers’ Compensation:<br />
A system (established under state laws) under which employers provide insurance for benefit payments to employees for their work-related<br />
injury, death and disease regardless of fault. Not to be mistaken as health insurance.<br />
Wrap-Up <strong>Insurance</strong>:<br />
Broad policy coordinated to cover liability exposures for a large group of businesses that have something in common. Might be used to insure<br />
all businesses working on a large construction project, such as an apartment complex.<br />
Write:<br />
To insure, underwrite or accept an application for insurance.<br />
Written Premiums:<br />
See Premiums Written.<br />
Sources: Original glossary reprinted, with permission, Allstate <strong>Insurance</strong> Company, Northbrook, IL, with all rights. Excerpts also from Insuring<br />
Your Business, by Sean Mooney, Chief Economist, Director of Research, and Senior Vice President at Guy Carpenter & Company in New York,<br />
and former economist, <strong>Insurance</strong> Information <strong>Institute</strong>; Ensuring Availability: Residual Property <strong>Insurance</strong> Plans, Property <strong>Insurance</strong> Plans<br />
Service <strong>Of</strong>fice and The Buyers’ Guide to Business <strong>Insurance</strong>, PSI Research. Additional glossary terms from online glossary of the <strong>Insurance</strong><br />
Information <strong>Institute</strong>, www.iii.org/media/glossary/.<br />
OII <strong>Glossary</strong> <strong>Of</strong> <strong>Insurance</strong> <strong>Terms</strong> 45