Glossary

Glossary


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A

Accident

an unexpected event or circumstance occurring without deliberate intent

Actual Cash Value

repayment value for indemnification due to loss or damage of property – in most cases it is the replacement cost minus depreciation

Actuary

a professional who analyses probabilities of risk and risk management including calculation of premiums, dividends and other applicable insurance industry standards

Admission

hospital inpatient care for any medical condition

Advance Premiums

occur when a policy has been processed, and the premium has been paid prior to the effective date

Adverse Selection

the social phenomenon whereby persons with a higher than average probability of loss seek greater insurance coverage than those with less risk

Agent

n individual who sells, services, or negotiates insurance policies either on behalf of an insurance company or independently

Aggregate

the maximum amount or total amount of coverage payable for a single loss, or multiple losses, during a policy period, or on a single project

All-Risks Insurance Policy

also known as open peril, this type of policy covers a broad range of losses. The policy covers all risks not explicitly excluded in the policy contract

Annuitant

the beneficiary of an annuity payment

Annuity

a contract providing income for a specified period of time, or duration of life for a person or persons

Arbitration

a binding dispute resolution tactic whereby a conciliator with no interest in the outcome intercedes

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B

Blanket coverage

coverage for property and liability that extends to more than one location, class of property or employee

Bodily Injury

physical injury including sickness or disease to a person

Boiler & Machinery or Equipment Breakdown & Machinery

coverage for the failure of boilers, machinery and other electrical equipment. Benefits include (i) property of the insured, which has been directly damaged by the accident; (ii) costs of temporary repairs and expediting expenses; and (iii) liability for damage to the property of others (third parties)

Broker

a company or individual who receives commissions from the sale and service of insurance policies. These companies or individuals work on behalf of the customer and are not restricted to selling policies for a specific company but commissions are paid by the company with which the sale was made

Burglary and Theft

coverage for property taken or destroyed by breaking into and entering the insured’s premises, burglary or theft

Business Interruption

loss of income as a result of property damage to a business facility

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C

Claim

a request made by the insured to the insurer for remittance of payment due to loss incurred and covered under the policy agreement

Claims-made Form

A type of liability insurance form that only pays if the both event that causes (triggers)the claim and the actual claim are submitted to the insurance company during the policy term

Commission

a percentage of premium paid to agents and or brokers by insurance companies for the sale of policies

Comprehensive General Liability (CGL)

coverage of all business liabilities unless specifically excluded in the policy contract

Co-pay

a cost sharing mechanism in group insurance plans where the insured pays a specified amount of incurred medical expenses and the insurer pays the remainder

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D

Declarations

policy statements regarding the applicant and property covered such as demographic and occupational information, property specifications, use of property, etc.

Deductible

Portion of the insured loss paid by the policy holder

Directors & Officers Liability

liability coverage protecting directors or officers of a corporation from liability arising out of the performance of their professional duties on behalf of the corporation

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E

Effective Date

date at which an insurance policy goes into force.

Employers Liability

employers’ liability coverage for the legal liability of employers arising out of injuries to employees. This code should be used when coverage is issued as an endorsement, or as part of a statutory workers’ compensation policy.

Endorsement

an amendment to a policy adjusting the coverages and taking precedence over the general contract.

Environmental Impairment Liability (EIL)

coverage for negligence or omission resulting in pollution or environmental contamination

Environmental Pollution Liability

liability coverage of an insured to persons who have incurred bodily injury or property damage from acids, fumes, smoke, toxic chemicals, waste materials or other pollutants

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F

Facultative Reinsurance

reinsurance for a specific policy for which terms can be negotiated by the original insurer and reinsurer

Fidelity

a bond or policy covering an employer’s loss resulting from an employee’s dishonest act (e.g., loss of cash, securities, valuables, etc.)

Financial Guaranty

a surety bond, insurance policy, or an indemnity contract (when issued by an insurer), or similar guaranty types under which loss is payable upon proof of occurrence of financial loss to an insured claimant, obligee or indemnitee as a result of failure to perform a financial obligation or any other permissible product that is defined as or determined to be financial guaranty insurance

Fire

coverage protecting the insured against the loss to real or personal property from damage caused by the peril of fire or lightning, including business interruption, loss of rents, etc.

Fronting

an arrangement 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 for a commission. Often, the fronting insurer is licensed to do business in a state or country where the risk is located, but the reinsurer is not

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H

Hard Market

a market characterized by high demand and low supply leading to higher prices

Hazard

circumstance which tends to increase the probability or severity of a loss.

Hold-Harmless Agreement

A risk transfer mechanism whereby one party assumes the liability of another party by contract

Homeowners Insurance

a package policy combining real and personal property coverage with personal liability coverage. Coverage applicable to the dwelling, appurtenant structures, unscheduled personal property and additional living expense are typical.

Hull Insurance

coverage for damage to a marine vessel or aircraft and affixed items

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I

Insurable Interest

A right or relationship in regard to the subject matter of the insurance contract such that the insured can suffer a financial loss from damage, loss or destruction to it.

Insurance

an economic device transferring risk from an individual to a company and reducing the uncertainty of risk via pooling.

Insured

the party(ies) covered by an insurance policy.

Insurer

an insurer or reinsurer authorized to offer insurance services

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L

Lapse

termination of a policy due to failure to pay the required renewal premium

Loss Adjuster

a person who investigates claims and recommends settlement options based on estimates of damage and insurance policies held

Loss Ratio

the percentage of incurred losses to earned premiums

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M

Market Value

fair value or the price that could be derived from current sale of an asset.

Moral Hazard

personality characteristics of the insured that increase probability of losses. For example, not taking proper care to protect insured property because the insured knows the insurance company will replace it if it is damaged or stolen

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N

Named Peril Coverage

insurance for losses explicitly defined in the policy contract

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P

Package Policy

two or more distinct policies combined into a single contract.

Peril

the cause of loss

Personal Accident Insurance

insurance for unforeseen bodily injury

Policy

a written contract ratifying the legality of an insurance agreement

Policy Period

time period during which insurance coverage is in effect

Premium

Money charged for the insurance coverage reflecting the risk posed to the insurance pool

Principle of Indemnity

a general legal principle related to insurance that holds that the individual recovering under an insurance policy should be restored to the approximate financial position he or she was in prior to the loss

Product Liability

insurance coverage protecting the manufacturer, distributor, seller, or lessor of a product against legal liability resulting from a defective condition causing personal injury, or damage, to any individual or entity, associated with the use of the product

Professional Errors and Omissions Liability Insurance

coverage available to pay for liability arising out of the performance of professional or business-related duties, with coverage being tailored to the needs of the specific profession. Examples include accountants, architects, engineers, insurance agents and brokers, lawyers, real estate agents, stockbrokers

Property Insurance

coverage protecting the insured against loss or damage to real or personal property from a variety of perils, including but not limited to fire, lightening, business interruption, loss of rents, glass breakage, tornado, windstorm, hail, water damage, explosion, riot, civil commotion, rain, or damage from aircraft or vehicles

Provisions

contingencies outlined in an insurance policy

Proximate Cause

the dominant cause of loss leading to an insurance claim

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R

Risk Based Capital (RBC) Ratio

ratio used to identify insurance companies that are poorly capitalized. Calculated by dividing the company’s capital by the minimum amount of capital regulatory authorities have deemed necessary to support the insurance operations

Reinsurance

a transaction between a primary insurer and another licensed (re) insurer where the reinsurer agrees to cover all or part of the losses and/or loss adjustment expenses of the primary insurer. The assumption is in exchange for a premium. Indemnification is on a proportional or non-proportional basis

Reinsurer

company assuming reinsurance risk

Reserve

A portion of the premium retained to pay future claims

Risk

Uncertainty concerning the possibility of loss by a peril for which insurance is pursued

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S

Salvage

value recoverable after a loss

Soft Market

a buyer’s market characterized by abundant supply of insurance driving premiums down

Standard Risk

a risk which, according to a company’s underwriting standards, is considered a normal risk and insurable at standard rates. High or low risk candidates may qualify for extra or discounted rates based on their deviation from the standard

Subrogation

situation where an insurer, on behalf of the insured, has a legal right to bring a liability suit against a third party who caused losses to the insured. Insurer maintains the right to seek reimbursement for losses incurred by insurer at the fault of a third party

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U

Underwriter

person who identifies, examines and classifies the degree of risk represented by a proposed insured in order to determine whether or not coverage should be provided and, if so, at what terms

Underwriting

the process by which an insurance company examines risk and determines whether the insurer will accept the risk or not, classifies those accepted and determines the appropriate rate for coverage provided

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W

Workers’ Compensation

insurance that covers an employer’s liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by statutory labor laws and other statutes

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