Glossary (A-K)

A

(ADB) accelerated death benefits

ADB—accelerated death benefits In a life insurance policy, this is when the benefits or payoff are paid before the death of the insured person in cases where that person is terminally ill and may need those benefits for medical and living expenses.

3-D policy

(See dishonesty, disappearance, and destruction policy.)

401(k) Plan

Retirement plan in which employees can make contributions (or elective deferrals) to the plan on a pretax basis. Employers can also make contributions to the plan on behalf of the employee. The maximum combined amount that can be contributed by the employee and employer is 25% which is also subject to a dollar amount cap. A 401(k) Plan is also known as a qualified savings plan.

403(b) Plan

Retirement plan, designed specifically for public school and other local or state public employees, in which employees can make contributions (or elective deferrals) to the plan on a pretax basis. Employers can also make contributions to the plan on behalf of the employee. The maximum combined amount that can be contributed by the employee and employer is 20% which is also subject to a dollar amount cap. The 403(b) Plan is similar to the 401(k) Plan. Other employees eligible for this type of plan are those employed by nonprofit, scientific, religious or charitable organizations.

501(c)(3)

A company that qualifies and is formed under IRS code 501(c)(3) is not-for-profit and is exempt from income tax. Charities are formed under 501(c)(3).

501(c)(9) (VEBA)

A trust formed under IRS code 501(c)(9), also known as a Voluntary Employee Beneficiary Association. Used by self-insured groups to fund their group health and other employee benefits plans. Contributions made to the trust are deductible from federal income tax and appreciation of trust assets is not taxable.

A (or Judgment) Rates

Rates used by an insurer that are not statistically credible because adequate data does not exist for that particular coverage or class. Such rates are based on the experience and best judgment of the underwriter for each individual risk.

A-rates

A rates Rates that are not actuarially credible because there are inadequate statistics or loss experience to set forth class or general rates; therefore, the underwriter or insurer must complete an evaluation of the exposures posed by the individual risk and determine a judgment rate. Rates should be equitable to the exposure retained by the insurer.

A.S.-automatic sprinkler

An indication on a diagram that the risk is protected by automatic sprinklers.

AAA

(See American Academy of Actuaries.)

AAI

Alliance of American Insurers (See: 1. accredited adviser in insurance; 2. Alliance of American insurers [also see Property Casualty Insurers Association of America.])

AAIPA

(See African-American Insurance Professionals Association.)

AAIS-American Association of Insurance Services

The rating bureau for inland marine, aircraft hull and package insurance fields for insurers choosing to participate. Formerly Transportation Insurance Rating Bureau. Headquarters: Bensenville, IL.

AAIS-American Association of Insurance Services

A and E coverage (See architects and engineers coverage.)

AAIS-American Association of Insurance Services

ADR (See alternative dispute resolution.)

AAIS-American Association of Insurance Services

agent of record letter A simple letter that a new agent sends to an insurer as formal notice that he or she has been authorized to take over an insurance account from another agent. It permits the insurer to change its records to reflect the change.

AAIS-American Association of Insurance Services

AICP (See Association of Insurance Compliance Professionals.)

AAIS-American Association of Insurance Services

alternative dispute resolution Refers to methods that attempt to resolve an insurance dispute without resorting to litigation. Common methods are mediation, and either binding or nonbinding arbitration.

AAIS-American Association of Insurance Services

alternative risk transfer Typically refers to methods of transferring the risk of loss that don’t involve traditional insurance, such as risk retention groups, captive insurers and contractual agreements to shift or transfer an exposure to loss.

AAIS-American Association of Insurance Services

architects and engineers (A&E) coverage A shorthand reference to any package of policies that are tailored to handling architectural and engineering operations such as design-build firms, environmental contractors/engineers, project managers, surveyors, etc. Coverage usually encompasses general, professional, business auto, environmental (pollution), and other related liability.

AAIS-American Association of Insurance Services

ART (See alternative risk transfer.)

AAIS-American Association of Insurance Services

Association of Insurance Compliance Professionals Originally called the Society of State Filers, this organization serves members from property, casualty, life and health insurers, regulatory agencies, consultants and other specialty operations who have an active interest in insurance compliance. It provides a host of compliance-related educational and networking opportunities. Headquarters: Reston, VA.

AAM

Associate in Automation Management designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

AAMGA-American Association of Managing General Agents

A trade association of independent insurance general agents serving the interests of insurance companies and local agents. Provides markets for all types of insurance with emphasis on surplus and specialty lines. Established in 1926. Headquarters: Washington, DC.

AAU-Associated Aviation Underwriters

Formerly a pool of aviation risk underwriters formed in the 1920s. AAU is now, through a merger with a British aviation insurer, known as Global Aerospace.

Abandonment

1) In ocean marine insurance, the transfer by the insured to an insurer of all rights, title, and interest in and to the insured property, in return for the sum insured. It is effected by the insured’s tender of such transfer (notice of abandonment) and the insurer’s acceptance. A valid tender can be made only when the facts show that there has been a “constructive total loss” or “actual total loss” of the insured property through an insured cause of loss. In such case, however, the insured can recover the sum insured as for a total loss, even though the insurer has refused to accept the tender and there has been no abandonment. 2) The word also appears in “sue and labor” clauses of various inland marine policies by way of a stipulation that compliance with the requirements of the clause shall be without prejudice to either the insured or the insurer respecting waiver or acceptance of abandonment. 3) In property insurance, abandonment is relinquishing ownership of damaged property to an insurer to permit a total loss claim to be made; but most commercial property coverage forms, dwelling policies, and the homeowners policy prohibit such abandonment. Instead, these policies require the insured to protect damaged property from further loss. (See abandonment clause.)

Abandonment clause

The actual provision in an insurance contract, usually ocean marine, inland marine or property, that refers to abandonment and whether or not it is allowed by that particular policy. (See abandonment, actual total loss, and constructive total loss.)

Abatement

With regard to insurance, refers to acts to reduce or minimize the effects of a harmful event; similar to remediation.

ABI

(See Association of British Insurers.)

Absolute assignment

When the policyowner or insured transfers or assigns all of the rights and subsequent control in a policy to another party or entity. (See assignment and absolute ownership.)

Absolute beneficiary

A provision in a life insurance policy stating that the beneficiary cannot be changed unless the insured obtains the beneficiary’s consent. (See irrevocable beneficiary.)

Absolute exclusion

absolute exclusion Refers to any clause that is designed to bar coverage for a given peril without the use of any coverage exceptions.

Absolute liability

Liability that exists and is imposed upon a party, even though no negligence or fault was committed by that party. Absolute liability is most often imposed when the circumstances of the operation, product, or activity are considered highly hazardous or dangerous.

Absolute ownership

Those cases where the policyowner or insured has full and absolute rights to assign, sell or give away all rights to a policy to another party. (See absolute assignment and assignment.)

Abutting coverage

Two or more insurance policies with consecutive policy periods providing common insurance to an insured.

ACAS

Associate, Casualty Actuarial Society designation sponsored by the Casualty Actuarial Society. Headquarters: Arlington, VA.

Accelerated death benefits (ADB)

In a life insurance policy, this is when the benefits (or payoff) are paid before the death of the insured person in cases where that person is terminally ill and may need those benefits for medical and living expenses.

Accelerated endowment

With respect to life insurance, some policies will offer an option to convert the policy into an endowment before its normal or set maturity date by using the accumulated policy dividends for this purpose. (See accelerated option.)

Accelerated option

With respect to life insurance, some policies will offer an option to convert the accumulated policy dividends and cash value to pay off the policy. (See accelerated endowment.)

Accept

The taking of risk (by an insurer or other person authorized to act for that insurer, such as an underwriter) by expressing a willingness to issue insurance. Also known as assume.

Accident

An event or occurrence that is unintended, unforeseen, and unexpected; something which could not be considered as a foreseeable occurrence and consequence of an undertaking; a casualty or mishap.

Accident and sickness insurance

A broad term describing protection from loss because of illness or injury which may result in loss of life, loss of earnings, or expenses incurred. Within the broad area of health insurance, there are several major coverages which focus on more specific needs. (See disability income insurance, health insurance, hospitalization insurance, and sickness insurance.)

Accident control

Inspection and engineering work on insured risks to help remove potential causes of loss. Loss prevention work applies to both property and casualty insurance and is also referred to as safety engineering, accident prevention, accident control, or loss prevention.

Accident experience

1) A summary of claims activity, which details the insured’s frequency of accident to a selected unit of measurement, thus making the loss experience more meaningful. 2) In workers compensation insurance, the rate of disabling injuries, number of lost work days due to accidents, or the number of first-aid cases are among items that may be considered in an accident experience.

Accident frequency

The determination of how often the rate or frequency of accidents occur at a particular operation, site, location, or to the insured as a whole for a specified period of time for the exposure units involved. These ratios and calculations are used to determine and verify the projected claims and loss exposure a risk may experience in order to price and set rates, claims services, and loss control services needed. Use of accident frequency ratios over a period of time for a specified risk also may be used to determine if loss trends are improving and if the loss control services are effective.

Accident insurance

Insurance covering death, dismemberment, loss of sight, loss of income, and medical expenses caused by accidental injury.

Accident only insurance

Policies issued to cover death, dismemberment and medical services for accidents only.

Accident prevention

All the ways and means used to avoid the occurrence of an accident or to reduce its consequences if it does occur, such as the control of personal performance, machine performance, and physical environment, including the training needed to reduce the number of accidents and cost of accidental injuries. Accident prevention is one of the less publicized functions of risk managers and insurers, many of which improve safety in industry, the home, and on the roads through safety engineering and research. Also called loss prevention, safety engineering, accident control, or loss prevention.

Accident reconstructionist

A person with expertise in evaluating accident circumstances (such as vehicle or craft speed, lighting conditions, weather, influence, substances, reaction times, safety equipment, human factors, etc.) in order to report on that accident?s cause (and sometimes whether the applicable accident could have been avoided) .

Accident report

Either the report that is used to document the time, cause, results, injuries, parties, and other pertinent facts of an accident for insurance purposes or a similar type of report prepared by law enforcement persons as a result of an accident.

Accident severity

A formula or calculation used to determine a ratio for use in evaluating how serious or severe an insured’s accidents or injuries are, such as the ratio of the amount of loss to the value of property in property insurance, or the amount of loss to exposure units in liability or workers compensation insurance.

Accident year experience

Simply stated, it is the statistical matching of all losses occurring (regardless of when the losses are reported) during a given 12-month period of time, with all premium earned (regardless of when the premium was written) during the same period of time. Calendar year experience, on the other hand, is the statistical matching of all losses incurred (not necessarily occurring) within a given 12-month period, usually beginning on January 1, with all premium earned within the same period of time. Yet a third related term is policy year experience which, to put it simply, is the statistical segregation of all premiums and losses attributable to policies having an inception or renewal date within a given 12-month period. (See calendar year experience and policy year experience.)

Accidental bodily injury

Bodily injury to a person or persons that has been caused accidentally and with unforeseen results.

Accidental death

Any death that results from causes other than natural causes or homicide.

Accidental death and dismemberment insurance (AD&D)

A specific type of life insurance policy that pays benefits in the case of the death or dismemberment of the insured from accidental causes. If dismemberment occurs, benefits are paid on a periodic basis, such as weekly, bi-weekly or monthly for the injury. The amount of the benefit payment is based on the type and severity of the dismemberment.

Accidental death benefit

Some life insurance policies have provisions that provide for an additional benefit payment in the case of an accidental death. (See double indemnity and multiple indemnity.)

Accidental death insurance

A life insurance policy that pays a benefit only in the event that death was accidental.

Accidental means

The cause of a result which was not intentional.

Accidental occurrence

Injury or damage that is caused by an unexpected and unforeseen incident, event or series of events.

Accommodation line

A line of business an insurer accepts which does not meet all or most underwriting criteria but which is accepted for other reasons: 1) the value of the total account, the producer, or the center of influence 2) to help a good producer, and thus possibly obtain more submissions from that producer.

Account current

A monthly report between an agent and the insurer, which includes policy numbers, premiums, and applicable commissions on business produced by that agent.

Account executive

A person whose duty is to specifically service an account or group of accounts for an agency or brokerage firm.

Account premium modification plan

Rating plans that have been developed for accounts and that apply to specified lines of business, most often property lines. Usually based on some combination of size and loss ratio with respect to that individual account. These rating plans can result either in credits or debits to the risk.

Account selling

An insurance sales strategy that focuses on handling all of a client’s coverage needs rather than handling only a portion of those needs. The method is one that improves customer retention.

Accountants professional liability insurance

A form of professional liability insurance covering the negligence of accountants in their professional practices.

Accounts receivable insurance

Coverage that protects businesses against their inability to collect their accounts receivable because of the loss of supporting records that have been destroyed by a covered cause of loss. Also covered are the extra collection expenses that are incurred because of such loss or damage and other reasonable expenses incurred to re-establish records of accounts receivable after loss or damage.

Accrual basis of accounting

A specific accounting method that records credits and debits when the income and expenses actually occurred rather than on the date they are actually paid or received.

Accrued benefit

Refers to the amount of benefit that accrues for an individual participant of a defined benefit pension plan. The benefit is often calculated as a percentage of salary combined with years of service, but it is not paid until normal retirement age.

Accumulate at interest option

One of the dividend options of participating life insurance policies. Dividends paid by the insurer are left with the insurance company to accumulate interest.

Accumulated funding deficiency

If a company fails to fund the qualified pension plan to the minimum levels required by law it has a funding deficiency. Such plans (and their sponsors) are subject to penalties and other legal remedies designed to correct the situation before participants are hurt by the underfunding.

Accumulation

This is a life insurance term that reflects the increase in value and, therefore, the subsequent benefits available for payouts as the life of the policy progresses and the premiums paid into the policy have a chance to accumulate and earn income for the insurer.

Accumulation period

With respect to health and medical insurance policies, it normally refers to the amount of time within each policy period that is available to the insured to satisfy the deductible amounts.

Accumulation units

Variable annuities are invested in equities called side funds. The monies paid into the annuity are placed into the side funds and one way to represent their value is in units. For example, a $100 annuity premium may purchase 2.3 units this month and 3.2 units next month because the value of the equities in the side fund has fallen.

Accumulation value

Specifically applicable to universal life insurance policies, this term is used to express the sum total of all the premiums paid and interest accrued without regard for deductions made for benefits, expenses, etc.

ACFE-Association of Certified Fraud Examiners

An international organization that sponsors the certification of professionals trained to detect, investigate and prevent fraud and white collar crime. Headquarters: Austin, Texas.

Acid and chemical damage policy

A specially designed property policy to provide coverage to property for loss from acids and chemical contact or spills. Related coverage to consider would be a difference in conditions insurance. (See difference in conditions insurance (DIC).)

ACORD – User Groups Information Exchange

A network created and supported by ACORD. Its purpose is to encourage greater use of standardized processes and procedures between insurance carriers and agents.

ACORD forms

Standard application forms, used nationwide, for gathering the necessary data needed to rate, classify and underwrite requested insurance coverages. These forms come under the auspices of the nonprofit ACORD insurance association.

ACORD—Association for Cooperative Operations Research and

Development Development A nonprofit insurance facility dedicated to serving the independent agency system in the USA by developing and maintaining standard application forms, providing electronic data interchange standards and other support of agency automation. ACORD is located in Pearl River, NY.

Acquisition cost

1) The cost of selling insurance. Normally the agent’s and broker’s commission, but in some cases the term is used to designate any cost of putting the business on the books. 2) In rate filings by insurers with state insurance departments, one of three expense elements shown: general expenses, commissions, and other acquisition costs (such as advertising and service office expenses).

ACS

Associate Customer Service designation sponsored by the Life Office Management Association. Headquarters: Atlanta, GA.

ACSR

Accredited Customer Service Representative designation sponsored by the Independent Insurance Agents of America. Headquarters: Alexandria, VA.

Act of God

An event beyond human origin or control (lightning, windstorms and earthquakes are examples), the damage from which would not be the responsibility of an insured. Acts of God are excluded under certain liability insurance policies.

Act of God bond

(See catastrophe bond.)

Actionable

Omissions, conditions, offenses or acts which could result in contractual or legal action. Example: If an insured does not file the required proof of loss on an insurance policy within the specified period of time, that omission is actionable, meaning the coverage on the claim may be denied.

Active life fund

A life product where an unallocated fund is maintained for the active members of the fund. Fund assets are included under a deposit accumulation plan. When a member retires, an individual annuity is purchased for the member with the resources within the fund.

Active life reserve

Life insurance reserves set up to accommodate the present value of future death claims. Since claims are usually low in the early years of policies but increase throughout the life of the policies, the expected results are that the reserves are overstated during the early years and understated in the later years when viewed on an individual policy basis.

Active malfunction

With respect to products liability, this term refers to a product that actually results in damage or injury to a user’s property when put to use as originally designed and intended.

Actively-at-work-provision

This is a health insurance policy provision. It stipulates that on the date a group insurance contract becomes effective, an employee who is absent due to an accident or illness is ineligible for coverage until he or she returns to work.

Actual authority

The level of operating responsibility that an insurance carrier deliberately assigns to an agent. (Also see express authority and implied authority.)

Actual cash value

The basis of loss settlement in property insurance policies, which takes into consideration factors such as replacement value less depreciation, market value, rental value, the use of the building, the area in which it is located, obsolescence, assessed valuation, and any other factor that would have an effect upon the value. A working rule-of-thumb definition, however, is “replacement cost new at the time of loss, less depreciation.” (See replacement cost insurance.)

Actual total loss

When insured property is so badly damaged by a covered cause of loss that it is not repairable or recoverable or when there is so little remaining of the salvageable or repairable nature that it no longer has any value, it is considered an actual total loss. This usually signifies the maximum settlement possible under the terms of the policy. (See abandonment clause.)

Actuarial adjustment

This term refers to the revisions that are made to reserves or premiums, based on a company’s experience and projected claims.

Actuarial assumptions

Estimated factors used by an actuary to project future financial situations. The factors forecasted may include such items as premium levels, company expenses, or loss reserves.

Actuarial benefit equivalence

When plans or coverages have benefit differences, this term is used to explain the degree of difference when comparing the benefits of the different plans.

Actuarial cost method

A method used to determine future benefits based on present fixed contributions or the contributions necessary to reach a desired benefit level at some time in the future.

Actuarial equivalent

In order to statistically compare data on unlike items, products or factors, mathematical or actuarial equivalencies are set.

Actuarial funding method

A method developed by the actuarial operation to set the amounts of contributions and the intervals of those contributions that are necessary to achieve the benefit(s) offered.

Actuarial gains and losses

With respect to insurance company operations, actuarial calculations are used to predict or determine the necessary rate, premium, expense and reserve levels, etc., needed to accomplish goals. When the actual results are better than those set or predicted, actuarial gains are achieved; and when results are worse than those set or predicted, losses are experienced. (See experience.)

Actuarial present value

A term used to designate the current value that has been assigned to future benefits, including contingencies for factors such as early payouts of benefits. (See present value.)

Actuarial report

A report outlining current conditions or future requirements of an insurer, self-insured or pension fund necessary to meet its obligations. The report is prepared and signed by an actuary.

Actuarial science

The science of using data, statistics and mathematical calculations to make rate, premium, coverage, loss/ claims, benefit and other pertinent decisions as applied to the insurance industry.

Actuarial Society of South Africa

This society consists of actuaries and actuarial students in South Africa. Founded in 1948, it promotes professionalism among its members who work (or plan to someday work) in the country’s financial services sector. It promotes conferences for networking and continuing education. Headquarters: Cape Town, South Africa.

Actuarial valuation

The review and evaluation of the creditability of some specific aspect of the insurance operation at a given time. For example, a valuation of the creditability of a reserve for a line of business as of a specified date and time.

Actuaries and pension consultants professional liability

Professional liability insurance developed for actuaries and pension consultants and their unique and special needs.

Actuary

A social mathematician who uses mathematical skills to define, analyze and solve complex business and social problems involving insurance and employee benefit programs. The work of actuaries involves the various contingencies that face human beings: birth, marriage, sickness, accident, loss of property, legal liability, retirement and death, and the financial effects which these and other contingencies have on various insurance and benefit programs. Many of these programs involve long-range financial obligations, for which actuarial forecasts are fundamental in maintaining a sound financial basis: rate-making, premium and loss reserving, investment valuation, pension benefits, and insurance statistics, among others.

Ad valorem

A legal term meaning according to value. Often used with respect to a value bill of lading. A value bill of lading is the receipt issued by the transportation company for goods being shipped and which describes the specifics of carriage, including freight and value of goods. (See value bill of lading.)

ADA-Americans With Disabilities Act

ADA—Americans With Disabilities Act A federal act designed to set standards to remove the barriers to employment, transportation, public accommodations, public services, and telecommunications that exist to those members of our society who have physical disabilities of many types. The act encompasses many aspects of everyday life and generates wide-ranging implications for almost every commercial business or service.

Add-ons

Coverages provided under a policy that are extras, supplementing the main coverages.

Additional coverages

Largely obsolete term that formerly referred to adding additional causes of loss to a very basic property insurance policy, Typically, such coverages are included in broad or special cause of loss forms.

Additional death benefit

Life insurance benefits offered should death occur during a specific time period or as a result of specific causes. (See death benefit and double indemnity.)

Additional deposit provision

A clause used in some whole life insurance policies that allows the insured to choose to make unscheduled premium payments. This type of provision is common in policies that pay variable rates of interest on deposit premiums or that allow for the purchase of additional insurance coverage.

Additional extended coverage

Additional causes of loss added to property policies which include items such as vandalism and malicious mischief, water from ruptured plumbing and heating systems, glass breakage, ice, snow and freezing, and falling trees and collapses. This coverage is rarely used and has been replaced by the broad or special cause of loss forms as they relate to property insurance.

Additional insured

A person, other than the named insured, who is protected by the terms of the policy. Usually a specified individual such as a spouse or a member of the insured’s family but sometimes, as in automobile insurance, any person, provided that person is driving the insured vehicle with the insured’s permission.

Additional living expense insurance

Insurance for the extra amount it costs an insured to live until repairs are made to the insured’s dwelling.

Additional medical

A workers compensation endorsement used to provide additional medical benefits in excess of those required by the workers compensation law of the state jurisdiction(s) covered in the policy.

Additional named insured

A party, other than the first named insured, that has been shown as an insured in the policy Declarations or in an addendum to the policy Declarations or by endorsement once the policy has been issued. This party has the status of named insured.

Additional premium

When a policy has been issued subject to rate, audit, inspection; is assessable; or when the policy is endorsed; the additional premium is the extra amount due, over and above the initial premium stated in the Declarations. Such premium is charged for increased exposures, retrospective rate calculations, additional coverage, or premium audit.

Additional provisions

Additional clauses or provisions that have been added to the basic coverage form insuring agreements, to the benefit provisions of a policy, or to the standard/uniform provisions which have been added to clarify, define, broaden, exclude, or limit the coverage normally provided.

Additional term insurance option

Sometimes called the fifth dividend option in a participating life insurance policy, paid dividends are entered as a single net premium to purchase one-year term insurance.

Adequacy

(See rate adequacy.)

Adhesion contract

A type of contract in which the conditions of the contract are drawn or written by the insurer with no input from the insured who must adhere to the terms and conditions as set forth, and who has little recourse to negotiate for better benefits or terms. If there is any ambiguity when a contract of adhesion has been written, court decisions and rulings will be in favor of the party who did not have control of the wording of the provisions; in this case the insured.

Adjacent

One building is adjacent to another if it is very close to another building although not actually touching it, with no intervening building.

Adjoining

When a building is so located that it touches another building.

Adjustable life insurance policy

A form of life insurance where the insured is permitted to adjust either their insurance coverage or premiums. The effect of increasing premiums without increasing coverage is that more cash tends to accumulate. Keeping coverage the same while decreasing premium will make the policy look more like term insurance because there will be less cash accumulation. Universal life is also called flexible premium adjustable life insurance.

Adjustable policy

A policy in which the exposure basis is a variable (such as sales or payroll), which can be determined only at the end of the policy term. (See audit, and reporting policy (or form).)

Adjustable premium

Policies issued by an insurer that do not guarantee the premium upon renewal. At each subsequent renewal the policy may be re-rated and bear premiums that may or may not be substantially different than the previous period premium. (See annualization.)

Adjuster

One who determines the amount of loss suffered. A “company” adjuster represents the company. A “public” adjuster represents the policyholder. An “independent” adjuster may be hired by either.

Adjusters errors and omissions insurance

A type of insurance designed to provide coverage for adjusters for their errors, omissions, or negligent acts committed while performing the functions of their job. This coverage is available for individuals, firms or insurers.

Adjustment

The process of handling and settling claims by determining the amount of a loss an agreeing on the amount requested by a policyholder or claimant because of a loss or damages suffered. Also referred to claims adjustment.

Adjustment bureau

An organization that maintains a staff of adjusters and whose business it is to adjust losses for those companies which refer their losses to the bureau. (See General Adjustment Bureau, Inc.)

Adjustment expenses

Those expenses that are directly attributed to the process of handling or adjusting claims, but which specifically exclude the actual claims payment amounts. Expenses may include items to investigate the claim, forensic reports, and cost of research.

Adjustment income

A life insurance benefit which provides the beneficiary with income often used during the interim period while other living finances are arranged; hence, the term adjustment income.

Administration expenses

The normal and expected operating costs to run an organization.

Administrative services only (AS0) plan

Where a self-insurer pays an insurer or other organization to administer its operations, including benefits and claims.

Administrator

An individual who has been appointed by the court to administer or manage the estate and affairs of a deceased person. The difference between an administrator and an executor is that an executor is named in the decedent’s will, while the administrator is appointed by the court in cases where there is no will or where the executor cannot or will not fulfill the necessary duties. (See executor and executrix.)

Admiralty

A term used to encompass anything to do with maritime operations.

Admiralty courts

Section of the federal or national court system that deals with matters pertaining to vessels, crew and their cargoes navigating on interstate or international waters. Maritime procedures, precedents and rules are different in admiralty courts than in other courts.

Admiralty liability

The liability posed by the combination of both common and statutory law, as it relates to maritime operations and activities.

Admiralty proceeding

A legal proceeding relating specifically to maritime law (including ocean marine insurance issues) and handled in a maritime court.

Admitted assets

Those assets, or portions thereof, of an insurance company which under state insurance laws may be taken into account in establishing the financial condition of the insurance company, e.g., agents’ balances or uncollected premiums under 90 days old. (See nonadmitted assets and assets.)

Admitted company

A foreign or alien insurance company which has been licensed by the insurance department of the state in question and which, thereby, is authorized to conduct business within that state to the extent licensed. Also called an admitted market or admitted insurer.

Admitted insurer

Admitted liability

An aviation specific coverage for passengers or guests aboard aircraft, which precludes the need for those guests or passengers to prove the liability of the insured owner or operator of the aircraft in order to recover for damages suffered in an accident. This coverage is normally written with a maximum limit per seat, and the passenger or guest can recover up to that amount.

Admitted market

Admitted reinsurance

Reinsurers that have been admitted to operate in the states in which they are accepting cessions from primary insurers.

Admitted reinsurer

(See admitted company. Same status, except for a reinsurance operation.)

Advance deposit premium plan

advance deposit premium plan A reinsurance industry arrangement in which a ceding company pays its premiums in installments over the period of the reinsurance contract. Ideally the payments should, ultimately, match the amount the reinsurer pays to cover losses. The plan is adjusted at the contract’s end if payments do not balance.

Advance funding

The basic premise behind pension plans is that money accumulates during an employee’s working years in order to “fund” the payment of benefits after the employee retires.

Advance payment

Moneys or payments made for coverage payment prior to the inception of the policy period, usually accompanied by the application or request for coverage.

Advance premium

A provisional or deposit premium charged at the start of a policy term, with the final premium determined after the policy has expired.

Advance profits insurance

This is a form of business income (interruption) insurance, but with a twist. Rather than acting as a contingency against a halt to ongoing activity, it protects against a delay in getting new operations up and running on time. Naturally the delay has to be due to a source of direct damage that is eligible for coverage. Typically such insurance must be negotiated on a customized basis.

Adventure

With respect to ocean marine insurance, any type of commercial venture which exposes a maritime vessel (including cargo) to potential losses by perils of the sea.

Adventure clause

With respect to ocean marine insurance, the clause within the insurance coverage that requires the insured to provide the insurer with an accurate and detailed description of the voyage, which in turn will become attached to and part of the Declarations of the policy and which will be used as the basis for the coverage, underwriting, and pricing of the insurance policy.

Adverse selection

The insuring of one or more risks with a higher chance of loss than that contemplated by the applicable insurance rate. The selection of such risks is adverse because the rate is inadequate. Also called anti-selection.

Advertisers liability insurance

Covers an insured against claims for libel, slander, defamation, infringement of copyright, invasion of privacy, etc., arising out of its advertising program. Also available for radio and television stations and advertising agencies.

Advertising injury

Damages or injury sustained by a claimant in the course of the advertising activities of the insured which included such injury as libel, slander, violation of the right to privacy, misappropriation of advertising ideas, or the infringement of copyright.

Advisory organization

One of the three basic forms of insurance organizations: rating bureaus, advisory organizations, and trade associations. Rating bureaus make and file rates, loss costs, rating plans, schedules, manuals and forms for members, subscribers and service purchasers who choose to use them. Advisory organizations perform advisory functions for insurers relative to these rating bureau activities and, like rating bureaus, are licensed by state insurance departments, subject to examination and other regulation. Trade associations are cooperative organizations to protect the business interests of their member insurers, producers, adjusters, attorneys, or other groups. Either a rating bureau or an advisory association can function as a statistical organization, and the function of advisory organizations and trade associations can overlap. Distinctions in functions can best be appreciated by understanding that, historically, rating and advisory organizations were licensed and regulated under state rating laws because of the public interest in the cooperative activities of insurers, relative to pricing and the need for regulation, in order to replace application of antitrust laws. (See rating bureau and trade association.)

Affiliated company

A company that is operated independently from other related companies but has some type of common ownership with those companies, such as the same set or sub-set of owners or stockholders.

Affiliation of health providers

An association or partnering of health care providers that collectively offer health care coverages to a specific group of patients.

Affinity group

A group of persons with some area of interest in common (such as a job, hobby or employer) that is turned into an association to which insurance products are marketed on a group rather than an individual basis.

Affinity marketing

(See target marketing.)

Affirmative warranty

An acknowledgment or affirmation by the insured as to the credibility or verification of certain facts or conditions pertinent to the issuance of the policy.

AFNI

See Associate in National Flood Insurance.

African-American Insurance Professionals Association (AAIPA)

An association that promotes the advancement and enhancement of the image of African-American professionals whose job responsibilities are related to the insurance industry. The association is also dedicated to educating the public about insurance careers and to improve network opportunities. Headquarters: Los Angeles, CA.

AFSB

Associate in Fidelity and Surety Bonding designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

After care

aftercare The care, follow-up treatment, or therapy needed by a patient who has recently undergone surgery, accident, or illness.

After charge

In some fire insurance rating schedules for commercial property, certain additions or loadings on the rate are made for defects (such as poor housekeeping or minor wiring defects) that can be easily corrected. The purpose of separate charges for such defects is to encourage their prompt correction, in which event the rate will be lowered by the amount of the after charges.

Aftershock

An earthquake of similar or lesser intensity that follows a main (initial) earthquake.

AGC

(See Associated General Contractors of America.)

AGC Surety Bond Committee

An Associated General Contractors of America standing committee. It assists various surety organizations with policy questions related to forms, industry issues and products.

Age adjustment clause

With respect to a life insurance policy, it is the provision that allows the insurer to adjust the death benefit payment if the age of the insured was misrepresented, and if that misrepresentation has been proved.

Age change

In life and health insurance, a concept that allows the insurer to set a procedure to determine the “age” of the insured and when that age changes to another year to be used in the setting of rates and benefits. When used for life insurance contracts, it is common to use the date midway between the insured’s natural birthdays. When used by health insurers, it is common to use the insured’s age of the previous birthday.

Age discrimination in employment act (ADEA)

Age Discrimination in Employment Act (ADEA) Federal legislation prohibits mandatory retirement at age 65 and requires pension plans to continue funding individual accounts and benefit accruals if an employee should work after the age of 65. The law also provides protection for older employees (aged 40+) from discriminatory hiring, firing and other practices.

Age limits

For certain coverages or types of policies, insurers will set minimum and maximum age limits in order for applicants or insureds to remain eligible. Should an existing insured reach the maximum age limit, coverage may not be offered for renewal.

Age of majority

age of majority It is the age (which varies by state) when an individual may legally enter into and be bound by the terms of any contract. Until the age of majority a minor may not apply for life insurance without the signature of a parent or guardian.

Agency

A business office whose function is the sales of insurance and insurance products. An agency may be owned or run by a general agent, manager, independent agent, or company manager. The principal is responsible for the statements and actions of agents performing within the scope of authorization specified in the agency agreement. (See captive agent, general agent, and independent agent.)

Agency appointment

An insurance company’s formal agreement to grant an agency the authority to represent the company and sell its insurance products.

Agency bill

A payment procedure in which an insurance agency sends the premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commission.

Agency company

Insurers who use agents as their sales force when producing insurance business.

Agency contract

The legal contract drawn to establish the terms and conditions used as the basis of the relationship between an insurance company and its agency force.

Agency expiration list

The record of an insurance agency’s current policyholders and the dates their policies expire.

Agency plant

This term refers to those insurers who use agents as the company’s sales organization and includes both captive and independent agency forces.

Agency reinsurance

A very specific type of reinsurance arrangement in which a contract is drawn between insurer and reinsurer covering only the specified business that is produced by a specific agent of that ceding insurer.

Agency superintendent

A management position of an insurance company. An agency superintendent usually oversees a territorial division and the agents within that territory. Often strictly a production person, as distinguished from one in charge of certain lines of insurance.

Agent

One who has the authority to act for another. In insurance language, an agent is the person who sells insurance by contacting the policyholder. By contract and by law, the agent is endowed with many of the powers of the company itself. There are various types of agents, based upon the contractual relationship with the insurer they represent. (See independent agent, exclusive agent, and broker.)

Agent of record

The agent who has been recognized by the insured or customer as his or her authorized representative for handling the specified insurance transactions.

Agent’s authority

The authority that has been legally granted to an agent in the agency contract between the agent and insurer.

Agent’s balance

Based on the commission schedule set forth in the agency contract between the insurer and agent, the agent’s balance is the detailed statement of commission credits or debits earned by the agent on the business written with that insurer.

Agent’s commission

The income or remuneration earned by an agent for writing business with an insurer, usually based on commission or specified percent of premium placed by that agent with the insurer. The commission schedule (the percent of premium for the business placed) is set forth as part of the agency contract with the insurer. (See commission.)

Agent’s license

The license issued by a state which confirms that an agent has completed the requirements and has been given authority to conduct the specified types of business for the time period indicated. Often, agents must qualify for a license by examination, and licenses must be renewed annually with proof of continuing education.

Agent’s qualification laws

Laws that define standards of insurance knowledge that an individual must meet in order to be licensed as an agent.

Agents errors and omissions insurance

A type of professional liability insurance designed for agents covering professional acts, errors, and omissions that may occur during the performance of their duties as an agent.

Aggregate benefits

The maximum amount an insured is able to collect under a single policy regardless of the number of claims, injuries, accidents, or number of insureds.

Aggregate deductible

Under this deductible provision, an insured qualifies for insurance payment only after all eligible, incurred losses during the policy year exceeds the established deductible amount.

Aggregate excess insurance

Coverage developed for operations that fully or partially retain (self-insure) their losses, subject to a specified maximum loss amount. When accumulated annual losses exceed the established maximum, any remaining (subsequent) losses are paid by the aggregate excess policy (subject to that policy’s limit).

Aggregate excess of loss reinsurance

A company wishing to protect itself in the event its net loss ratio for a given year rises above a certain percentage, may buy reinsurance which pays in excess of that figure up to a higher agreed percentage beyond which the company is once more liable. In short, a plan which takes the sting out of an above-average net loss ratio. Also known as stop loss reinsurance or excess of loss ratio reinsurance.

Aggregate extension clause

(See claims series clause.)

Aggregate funding method

A method where the necessary contributions for a pension plan are calculated for the entire group of plan participants. This approach is less expensive than performing individual calculations.

Aggregate indemnity

The most that an insured or beneficiary is allowed to collect in indemnity benefits under that policy as a result of any one disability or in that policy period.

Aggregate limit

In a policy providing such an aggregate limit, the maximum amount the insurer will pay during the policy period, irrespective of the policy’s limit of liability. (See limit or limit of liability.)

Aggregate working excess reinsurance

Treaty reinsurance in which the ceding insurer retains a portion of each risk plus an aggregate amount of loss in excess of each retention.

Aggregator

A vendor who combines information from information publishers with similar characteristics (rating, underwriting, forms analysis, etc.) into larger packages. Value is derived from cost savings or the ability to reach a larger market and charge higher prices from bundling multiple products.

Agreed amount

The amount of coverage that the insurer and insured have mutually agreed to be the value of the property at the time the insurance is purchased.

Agreed amount clause

A condition of a policy stating that the insurer agrees to waive the coinsurance requirement in consideration of the insured’s maintaining insurance equal to the amount agreed upon at the inception of the policy.

Agreed value

An agreement made between the insurer and insured at policy inception confirming that both parties concur that the limit of insurance set forth in the schedule of property is that item’s value, and that agreed upon value is the amount that will be paid by the insurer in the event of a total loss.

Agreed value clause

A condition of a policy stating that the insurer agrees to waive the coinsurance requirement in consideration of the insured’s maintaining insurance for the scheduled item, equal to the value agreed upon at the inception of the policy.

Agricultural equipment insurance

An inland marine policy tailored to insure the equipment found on a farm or ranch. Available with causes of loss on an “all-risk” or “specified cause of loss” basis.

AIA-American Insurance Association

A trade association of primarily stock property and casualty insurers that performs numerous functions, such as fire and accident prevention, reviews of insurance legislation, research, setting of building and fire department standards, arson and fraudulent claims investigations, etc. Headquarters: Washington, DC.

AIAF

Associate in Insurance Accounting and Finance designation sponsored by the Insurance Institute of America, headquarters: Malvern, PA, and the Life Office Management Association, headquarters: Atlanta, GA.

AIC

Associate in Claims designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

AIM

Associate in Management designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

AIMU

AIMU A trade association representing marine insurers and related organizations. It also acts as a lobbyist on marine insurance issues and provides support services, such as inspections, claims, loss control, and tracking legal and industry trends and news. Headquarters: New York, NY.

Air cargo liability insurance

Coverage for the legal liability of an air carrier for loss or damage to cargo while in its care, custody or control.

Air passenger insurance

Life insurance purchased at airports by passengers on scheduled airlines. The face value of the policy is paid to the beneficiary in the event of death on that particular flight. Also called air travel insurance.

Air travel insurance

Aircraft hull insurance

Covers any loss arising out of physical damage to the aircraft itself in flight, on the ground, or both.

Aircraft insurance

A type of package policy for aircraft which combines both the property insurance for the hull and coverage for bodily injury and property damage liability arising out of the ownership or use of the insured aircraft.

Aircraft liability insurance

Covers the insured for both bodily injury and property damage liability arising out of the ownership or use of the insured aircraft.

Aircraft passenger liability insurance

Covers the liability resulting from bodily injury and sickness or disease suffered by any passenger arising out of the ownership or use of the insured aircraft.

Aircraft product liability insurance

Coverage required by a manufacturer of aircraft, components or equipment. Also covered are those involved in selling aircraft, parts or fuel, or entities that repair or maintain aircraft. This policy protects such operations against claims arising from injury or damage caused by product defects or by improperly completed operations.

Aircraft spare parts insurance

All-risk coverage for leased aircraft parts, such as engines, spare parts and equipment, while the property is on the ground or being carried as cargo by air, land or waterborne transit.

Airport liability insurance

Covers the liability arising out of the ownership or maintenance of premises, normally a hangar located at either a municipal or private airport.

Airway bill

A bill of lading specifically designed for air carriers. When issued by an air carrier, the bill verifies that the carrier is in receipt of the cargo and sets the terms and conditions for carrying that cargo.

AIU-American International Underwriters Corporation

Acting as foreign manager for a group of American stock insurance companies, this corporation underwrites all classes of insurance on properties and risks outside the United States and Canada. Headquarters: New York, NY.

Alarm valve

A mechanism on many automatic sprinkler systems which activates an alarm, sometimes a loud gong, or in other cases signals directly to the fire department when a sprinkler head has opened.

ALCM

Associate in Loss Control Management designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

Alcoholic Beverage Control (ABC) laws

(See dram shop laws.)

Alcoholic beverage liability insurance

More commonly called liquor liability insurance or dram shop liability insurance, this coverage is for owners and operators of a business that sells or serves liquor. This coverage was designed to protect against liability for accidents caused by intoxicated customers.

Aleatory contract

A contract in which the consideration or monetary value between the parties to the contract is not equal. In the case of insurance contracts, the insured or policyholder pays a premium and may collect nothing from the insurer if no loss occurs. On the other hand, if a loss does occur, the insured or policyholder may collect considerably more than the amount of the premium.

Alien company

An insurance company that is domiciled or incorporated in a country outside the United States, but which conducts either insurance or reinsurance operations in the U.S. (See domestic company.)

Alienated premises exclusion

A provision that bars liability for property damage occurring to a structure that is alienated (sold, abandoned, donated, given away) by an insured.

Alienation clause

A policy clause that details the terms, conditions, or requirements that will apply should property which is the subject of the insurance be sold and title transferred during the policy term. Two of the most common examples are the alienation clause in a mortgage insurance policy which requires that the balance of a loan be paid should the property be sold, or a property insurance policy which clarifies that the insurance coverage cannot be assigned or transferred to the new owners when the property is sold.

Alienation of benefits

Refers to a situation when someone other than the plan participant is designated to receive a pension benefits, such as a creditor attempting to garnish pension benefits to pay for a defaulted loan. Federal law generally forbids alienation of benefits.

All American Marine Slip

A syndicate of many American insurance and reinsurance companies formed in 1972 to provide a substantial market for large, high-risk or unusual marine exposures historically handled by foreign markets.

All payers system

This is a health insurance term that indicates that both public and private participants are subject to the same rules and rates when paying hospitals for services rendered.

All-comers

State requirements or pending legislation that require an insurer to take or accept all applicants for a given type of insurance. Also referred to as take-all-comers.

All-lines insurer

Insurers offering property, liability, life and health coverages. Governmental and business constraints prevent an insurer from literally providing every single possible line of insurance.

All-risk policy

A policy that covers loss caused by any cause of loss which is not excluded, as contrasted to “named peril” policies which protect against certain perils named in the policies. Usual to certain types of property and marine insurance contracts, the term “all risk” frequently appears in quotes, since such coverage includes “almost” all risks (i.e., all but those excluded).

Alliance of American Insurers

A trade association made up primarily of mutual property and casualty insurers, though as of September, 1977, membership was open to nonmutual companies. Fosters research and publishes educational materials, with headquarters in Schaumburg, IL. Formerly the American Mutual Insurance Alliance. (See Property Casualty Insurers Association of America.)

Allied lines

Those coverages that are frequently written with fire insurance (e.g., sprinkler leakage, earthquake and water damage).

Allocated benefits

When the benefits provided by a health or disability policy are scheduled for specified items, as to the maximum amount allowed for that item. As an example, a maximum amount is set per day for room charges or specified tests.

Allocated claim expense

Expenses that can be attributed to an individual claim and are charged to that specific claim. The most common are investigative expenses such as research and forensic or defense costs.

Allowed assets

(See admitted assets.)

Allowed costs

In health insurance, those expenses that are covered by the insurance policy, which may include such items as physicians’ or nursing services, drugs, dressings, bandages, prosthetics, etc.

Alphabet broker (alphabet house)

Slang for any of several large brokers occasionally referred to by initials derived from their names.

Alternate settlement option

In mortgage insurance, it refers to a carrier?s claim settlement option. An insurance company may settle a loss by paying the total actual loss, as well as legal costs and expenses that are related to the foreclosure and/or repossession. However, the action has to take place before actual foreclosure and the option waives the insurer?s right to any future recovery when the applicable property is later sold.

Alternative market

This term applies to the use of insurance or coverage sources that fall outside of the traditional insurance/reinsurance market and includes captive insurance companies, insurance purchasing groups and risk retention groups.

Alternative risk financing

(See alternative risk transfer.)

Ambiguity

Anything doubtful, uncertain, unclear, or capable of being misunderstood in an insurance contract. Ambiguities are usually construed against the insurer.

Ambulance service malpractice insurance

Professional liability coverage for ambulance drivers, EMTs, and attendants for bodily injury, mental injury, or death to patients caused by error, omission, or negligence in the services rendered in the course of their professional duties.

Ambulatory care

Medical services provided on an outpatient (non-hospitalized) basis. Services may include diagnosis, treatment, surgery and rehabilitation.

Amendment

A document with language attached to and becoming part of a basic policy for the purpose of modifying the policy, either at inception or mid-term. The term endorsement is usually associated with property and casualty policies while the term rider is normally used with life, accident and health contracts. (See attachment and rider.)

American Academy of Actuaries (AAA)

National association that promotes training, education and accreditation in expertise in the actuarial (pricing and ratemaking) sciences. Headquarters: Washington D.C.

American agency system

The contracting of insurance companies with agents who are independent contractors to effect property-liability insurance, to issue policies, to own the expiration records thereof, and in general to represent the companies in their communities. Agents may represent more than one company. The system has reached its highest development in the United States, hence “American” agency system. (See independent agent, direct writer and expiration.)

American Arbitration Association

An organization sponsoring voluntary arbitration for labor-management and commercial and international trade disputes. Has established an accident claims tribunal to service arbitration proceedings under the family protection coverage of automobile liability policies, which name the association as administrator of arbitration. Headquarters: New York, NY.

American Association of Insurance Services (AAIS)

AAIS is a national insurance advisory organization that develops policy forms, rules, rating information, provides statistical reporting and product development for its programs in personal, commercial, farm, and inland marine insurance. Headquarters: Wheaton, IL.

American Association of Managing General Agents (AAMGA)

American Bureau of Shipping

A technical society, sponsored by ship owners, which sets minimum standards for ship design, materials and construction. Provides periodic surveys of ships and machinery to maintain adequate standards, and publishes American Bureau of Record listing vessels “classed.” This record provides detailed information, such as type, size, construction material, machinery, fuel used, and date and type of last survey. Headquarters are in New York, but the bureau has correspondents in principal seaports.

American Cargo War Risk Reinsurance Exchange

An association of companies writing ocean marine business, formed for the purpose of reinsuring war risks on ocean cargoes. The reinsurance facilities established by this organization permitted member companies to provide automatic cargo coverage to importers and exporters even during the worst part of World War II. Headquarters: New York, NY.

American College, The

(Formerly The American College of Life Underwriters.) Founded in 1927, The American College is a private, nonprofit educational institution for the advancement of learning and professionalism in life insurance and related financial sciences. Those properly qualified persons who successfully pass the examinations this college prepares are awarded the designation “Chartered Life Underwriter” (CLU), or the graduate degree of “Master of Science in Financial Services.” Headquarters: Bryn Mawr, PA.

American Council of Life Insurance

A public relations organization representing legal reserve life insurance in legislative and administrative matters at federal, state and municipal levels of government. Conducts economic and social research programs, compiles statistics, and publishes pamphlets and consumer booklets. Headquarters: Washington, DC.

American Hull Insurance Syndicate

An association of insurance companies writing hull, war risk and builders risk coverage on larger commercial vessels. Formed to provide a ready and sufficient market for American and foreign ships. Management issues its own policies and settles losses on behalf of subscriber companies. Headquarters: New York, NY.

American Institute for Property and Liability Underwriters,

Inc. Inc. Inc. Inc. An insurance educational organization which establishes insurance educational standards and fosters educational work. Those properly qualified persons who successfully pass the examinations this body prepares are awarded the designation “Chartered Property and Casualty Underwriter” (CPCU). Headquarters: Malvern, PA.

American Institute Hull Clauses

Ocean marine?s version of the Standard Fire Clause. It consists of more than 200 lines of text that includes coverages, conditions and exclusions that may be used to insure large vessels. The original clauses were introduced by the American Institute of Marine Underwriters in 1977.

American Institute of Marine Underwriters (AIMU)

A trade association representing marine insurers and related organizations. It also acts as a lobbyist on marine insurance issues and provides support services, such as inspections, claims, loss control, and tracking legal and industry trends and news. Headquarters: New York, NY.

American Insurance Association (AIA)

American International Underwriters Corporation (AIU)

American Lloyd’s

Associations of individual underwriters operating in a limited number of states. Separate organizations from Lloyd’s of London. (See Lloyd’s.)

American Mutual Insurance Alliance

(See Alliance of American Insurers.)

American Nuclear Insurers

A syndicate of stock property and casualty companies formed to write material damage and liability insurance on industry-operated nuclear reactors and related operations. Headquarters: Farmington, CT. Formerly known as Nuclear Energy Liability-Property Insurance Association (NEL-PIA).

American Risk and Insurance Association

An association that promotes the advancement of knowledge of risk management and the career advancement of its members. The organization sponsors annual educational meetings and sponsors a variety of publications including the Journal of Risk Management and the Risk Management Insurance Review. Headquarters: Malvern, PA.

American Society of Insurance Management, Inc. (ASIM)

(See Risk and Insurance Management Society, Inc. (RIMS).)

Americans with Disabilities Act (ADA)

A federal act designed to set standards to remove the barriers to employment, transportation, public accommodations, public services, and telecommunications that exist for those members of our society who have physical disabilities of many types. The act encompasses many aspects of everyday life and generates wide-ranging implications for almost every commercial business or service.

AMIM

Associate in Marine Insurance Management designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

Amortization

Periodical write-down of premium paid on purchase of a bond or write-up of discount received on purchase of a bond so as to reach par value at maturity date.

Amortization period

Used in reinsurance rating to describe the number of years it would take for a policy’s premium to equal the amount of indemnification.

Amortized value

The current appraised worth of any bond not yet matured and which was either bought at a discount (less than its face value) or at a premium (more than its face value). For example, a bond bought today at $1,050 to mature in 10 years would have an amortized value one year hence of $1,045, two years hence of $1,040, etc.

Amount at risk

A life insurance term to express the amount the insurer would pay in benefits in case of death on a whole life policy. It is calculated using the difference between the face amount of the policy and the cash value that has been accumulated.

Amount of insurance

Based on the terms of a specific policy, the most an insurer will pay for any single loss. The maximum amount an insured can collect.

Amount subject

Also known as maximum possible loss (MPL). The largest percentage of the insured property which could possibly be destroyed by the insured perils. Normally this amount would be all the property within the four walls of a structure plus loss to adjacent property due to its proximity. An amount subject or MPL estimate is invariably the ultimate in pessimism, but it is a most important concept in underwriting large risks in order to compute rates and to understand the need for capacity, as well as to appreciate all exposures. Maximum foreseeable loss (MFL) is used periodically and has substantially the same meaning.

Analytic System for the Measurement of Relative Fire Hazards

Also known as Dean Schedule. A method (now obsolete) of rating fire insurance risks developed by A. F. Dean (Chicago, 1901). Geographically, much of the country is rated under this schedule. Dean described a standard unoccupied risk for which a base rate was named depending on overall territorial factors. Each individual hazard or factor (construction, area, damageability, occupancy, exposure, etc.) that appeared in the risk added or subtracted a percentage of the base rate to produce the specific rate. A successful, logical method which has contributed much to insurance thinking and practice.

Analytics

A term that formerly referred to the science of logical analysis. However, the term is now used to describe certain types of business or operational information that facilitate decision-making via the close examination of such information and activities.

Ancillary benefits

Benefits in a health insurance policy that are available to pay for unscheduled service and miscellaneous charges such as medication, bandages, etc.

Animal insurance

Life and health insurance for animals or livestock. (See poultry insurance (chickens).)

Animal mortality insurance

A type of animal life insurance that provides benefits for the death of the specified animal for any cause unless otherwise excluded. Coverage is normally very broad and the exclusions few, if any at all. (See livestock mortality insurance.)

Anniversary date

The anniversary date of policy inception as listed in the policy Declarations, and each subsequent expiration and renewal.

Annual (yearly) renewable term insurance

A term life insurance policy that the insured can renew for a specific number of years without proving insurability. Each year the policy?s premium increases. (See also yearly renewable term.)

Annual aggregate deductible

The total amount an insured is responsible to retain for the sum of all losses up to a specified deductible during an annual policy period. Once the annual aggregate deductible has been reached by the accumulation of payment by the insured, the insurer responds to the remaining claims up to the policy limits.

Annual form

A transportation policy used by organizations that frequently ship property.

Annual renewal agreement

Certain policy forms contain a clause whereby the company agrees to renew the policy for a certain number of times at some specified rate.

Annual report

The formal financial report issued by an insurer or other corporation that provides the year’s financial information to its shareholders, stockholders, and/or policyholders.

Annual statement

A summary of an insurance company’s operations for the year and a balance sheet at the end of the year, supported by detailed exhibits and schedules, and filed with the insurance department of each state where the company is licensed to conduct an insurance business. Details and the precise form of the annual statement are prescribed by the NAIC. Also known as convention blank.

Annualization

A provision in multi-year policies giving the insurer the option to re-rate the policy on each subsequent renewal or anniversary date, using the rates in effect as of the anniversary date. (See adjustable premium.)

Annuitant

The owner or beneficiary of an annuity.

Annuity

A popular device used in retirement planning, it refers to any type of periodic (generally monthly) payments made to an individual (called the annuitant). The payments may be arranged to last for a defined period of time or may be paid until the annuitant’s death. In the latter case, remaining funds may continue to a new annuitant or be paid in a lump sum to a beneficiary.

Annuity certain

An annuity that guarantees to pay income for a specified period of time, whether or not the annuitant is still alive.

Annuity due

An annuity in which the income benefits are paid at the start of the annuity period instead of the end.

Annuity period

With respect to the scheduled payments of income for an annuity, this is the amount of time between each payment.

Annuity table

The mortality table used to set rates for annuity policies.

Annuity with period certain

An annuity that pays income benefits for the life of the insured, but with an additional built-in guarantee committing the payment of income benefits for a minimum number of years, whether or not the insured survives for that minimum number of years.

Anti-arson application forms

Specially designed fire and property insurance forms for territories or areas that have a high arson rate.

Anti-coercion laws

State laws making the use of coercion illegal, falling into the category of unfair labor practice.

Anti-discrimination laws

antidiscrimination laws State laws that prohibit an insurer from offering any type of preferential terms or rates to one class of insured over another, when such treatment is not warranted by the company’s normal and usual underwriting standards and is not actuarially credible. Also known as antidiscriminatory laws.

Anti-rebate law

State insurance regulations making it illegal for an agent to offer any part of the commission from a policy to an insured as an enticement to purchase the policy.

Anti-selection

The adverse impact on an insurer when risks are selected that have a higher chance of loss than that contemplated by the applicable insurance rate. Also known as adverse selection. The selection of such risks is adverse because the rate is inadequate.

Antitrust laws

Federal and state laws that attempt to prevent price fixing or price discrimination, prevent monopolies, and as a result, also prevent illegal restraints in commerce. Anti-compact laws which forbid companies from agreeing on prices, products, and other business conditions to the detriment of competition, except under conditions stated in the laws.

Any occupation

A level of disability, meaning that an injured person is unable to perform any job that he or she has the training and/or skill to do, if they were not disabled.

APA

Associate in Premium Auditing designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

Apartment package policy

A package policy forming part of the special multiperil policy (SMP) program combining the various coverages applicable to the ownership and operation of an apartment house. Basically, it covers fire, allied lines and liability. It can be extended for other coverages, such as boiler and machinery, glass, fidelity, etc. The SMP has been replaced in most jurisdictions by the commercial package policy (CPP).

APM

Associated Professional Member designation sponsored by the American Society of Pension Actuaries. Fairfax, VA.

Apparent authority

Under agency law, apparent authority occurs when an agent exceeds express (actual) authority in an action but the person dealing with the agent has a justifiable belief that the agent is authorized to do the act in question. For example, an agent tells the customer she can bind coverage on her Corvette. The agent forgot that she cannot bind coverage on a Corvette but the customer does not know this and believes the agent is able to place insurance on the car.

Applicant

The person in a life insurance policy who actually applies for the insurance. The applicant does not have to be the insured if he or she has an insurable interest in the insured at the time the application is taken.

Application

In all types of insurance requiring it, a written statement by a prospective policyholder which gives the information the company relies upon when underwriting, rating and issuing the insurance. In England this is called a proposal.

Appointment

The process by which an insurance company authorizes an agent to act on that company’s behalf.

Apportionment

The process which determines how much each policy on a risk must pay when there is more than one policy involved in a loss. Apportionment refers directly to the proportioning or splitting of the loss amount.

Appraisal

(See appraisal clause or arbitration clause.)

Appraisal clause

The clause in a policy that sets forth the conditions under which a disputed loss is decided by appraisers. (See arbitration clause.)

Appraisal inventory

The inventory or list that details each item and its value, as determined by an appraiser, with respect to either the property owned by an insured or the property to be covered by a policy.

Appraiser

1) A person who determines the value of property. 2) A party who determines the amount of a disputed loss.

Appreciation

The amount by which property has increased in value. (See depreciation.)

Approved

A term rather loosely used to mean something which meets the standards set up by insurers, e.g., approved roof or approved cargo.

Approved roof

Usually a roof made of fire-resistive material as distinguished from wood.

Appurtenant structures

Other structures or real property of lesser value that are located on the same premises as the main building insured under a property insurance policy. Common examples are small metal service buildings or storage sheds.

Arbitrage

Regarding the alternative risk transfer area, refers to dealing in rapid transactions (purchase and resale) in similar financial assets in different markets and making a profit by taking advantage of short term price differences (discrepancies).

Arbitration clause

Language in most policies of insurance providing that, in the event the company and the claimant are unable to agree on the amount due after loss, the matter shall be submitted to disinterested parties for solution. One party is appointed by the insured, one by the company, and the two appointed arbitrators then pick a third, the “umpire.” (See appraisal clause and reference.)

Arbitration/mediation deductible credit

Because of the high deductibles used in some professional liability coverages, some policies may offer a repayment or a credit for a policyholder’s deductible for a claim resolved through mediation.

Arbitrator

One chosen to decide disputes out of court.

Architects and engineers professional liability insurance

Protects architects and engineers against claims arising out of their professional services caused by error, omission or negligent acts.

Architects’, Surveyors’ and Consulting Engineers’ Fees

This coverage responds to loss involving fees related to making structural or equipment repairs when fees for such building experts are not included in a loss settlement.

ARe

Associate in Reinsurance designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

ARIA

(See American Risk and Insurance Association.)

ARM

Associate in Risk Management designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

Armored car and messenger service insurance

Specialty insurance designed specifically to cover the exposures of an armored car or messenger service while loading, transporting, storing, unloading, or otherwise, during the handling of money, gems, precious metals, stock certificates and other highly negotiable instrumentalities by the service.

ARP

Associate in Research and Planning designation sponsored by the Insurance Institute of America (headquarters: Malvern, PA) and the Life Office Management Association (headquarters: Atlanta, GA.)

Arson

The intentional destruction of property by fire.

Arson fraud

Arson that is either committed by the insured or at the direction of the insured solely for the purpose of collecting insurance proceeds by the insured.

AS0 plan

Where a self-insurer pays an insurer or other organization to administer its operations, including benefits and claims.

ASA

Associate of the Society of Actuaries designation sponsored by the Society of Actuaries. Headquarters: Schaumburg, IL.

ASIM-American Society of Insurance Management, Inc.

Now known as Risk and Insurance Management Society, Inc. (RIMS). Formed in 1950. A nonprofit association dedicated to the advancement of professional standards of risk management. RIMS sponsors educational programs and maintains relationships with insurers, brokers, rating organizations, and regulatory and governmental bodies. Headquarters: New York, NY.

ASLI

(See Associate in Surplus Lines Insurance.)

ASO

(See alternate settlement option.)

ASSA

(See Actuarial Society of South Africa.)

Assailing thieves

A term used in ocean marine policies to indicate insurance against theft by physical force from persons other than the ship’s officers or crew.

Assessable insurance

A type of insurance which may require the policyholder to contribute in the event the insurer becomes unable to pay its losses. Confined to certain mutual companies. Also known as assessable policies. (See assessment mutual and nonassessable policy.)

Assessable policies

A type of insurance which may require the policyholder to contribute in the event the insurer becomes unable to pay its losses. Confined to certain mutual companies. Also known as assessable insurance. (See assessment mutual and nonassessable policy.)

Assessment

The charge levied by an insurer writing an assessable policy (as sold by some mutual insurers), in addition to the policy premium, in the event the insurer becomes unable to pay its total losses.

Assessment mutual

A mutual insurance company that has the option or right to assess or charge policyholders additional premiums when losses or expenses have increased beyond the predictions set at policy inception. (See assessable insurance.)

Asset-backed security

Any asset that is used as collateral in support of securities sold to investors for that asset.

Assets

All the property and resources of a business. (See admitted assets.)

Assigned risk plan

An association of insurers in a given state in which automobile risks unable to get insurance in the voluntary market are shared among subscribing insurers in proportion to the amount of automobile liability insurance each insurer writes in that state. All companies writing this class are required to participate in this activity, currently administered by the Automobile Insurance Plans Service Office, headquartered at Johnston, RI. Also known as automobile insurance plans, these plans sometimes take the form of joint underwriting associations.

Assignee

The person to whom life insurance policy proceeds or other (life insurance) contractual rights are assigned. There can be collateral assignees (creditors) and absolute assignees (irrevocable). (See also assignor.)

Assignment

Transferring property rights to another. Insurance policies may thus be assigned or transferred to another, but usually this requires the consent of the insurer. (See absolute assignment and absolute ownership.)

Assignment of benefits

A health insurance benefit payment option where an insured may assign policy benefits directly to the health provider. The provider is paid directly, less any deductible. Any balance is paid by the insured.

Assignor

In life insurance, the assignor is the person who possesses ownership rights and who assigns those rights to an assignee. (See also assignee).

Associate in National Flood Insurance

A designation offered by the AICPCU/IIA which demonstrates expertise in the critical aspect of the National Flood Insurance Program, particularly its requirements and administration.

Associate in Surplus Lines Insurance

This designation is sponsored by NAPSLO (National Association of Professional Surplus Lines). It was developed in part by the Insurance Institute of America and is awarded after successful completion of its four parts and exams on various key aspects of surplus lines insurance.

Associated Aviation Underwriters (AAU)

A multi-company aviation pool writing a substantial volume of most types of aviation business (domestic and international). Founded in 1929. Headquarters: New York, NY.

Associated General Contractors of America

An organization consisting of construction contractors and related companies dedicated to industry education and other services. Its goal is to represent the concerns of the industry as an advocate and to enhance its image with the general public. Headquarters: Alexandria, VA.

Association captive insurance company

A captive insurance company that is formed by the members of an association to underwrite and provide insurance only for their own association members.

Association group insurance

Group insurance offering coverage to an association, much in the same manner that it would be offered to the employee group of an employer.

Association of Average Adjusters

Professional organization of persons involved in the adjustment of maritime losses with a specific emphasis on the ancient concept of general average (a loss common to all interests in the voyage). Headquarters: New York, NY.

Association of British Insurers

Formed in 1985, this organization consists of hundreds of insurers operating in the United Kingdom. The member companies account for nearly 100 percent of the insurance business written in the UK. The ABI acts to encourage high operating standards among its members and is also an advocate of insurer issues. Headquarters: London, England.

Association of Certified Fraud Examiners-ACFE

Association of Certified Fraud Examiners (ACFE) An international organization that sponsors the certification of professionals trained to detect, investigate and prevent fraud and white collar crime. Headquarters: Austin, Texas.

Association of Trial Lawyers of America (ATLA)

Also known as Trial Lawyers Association of America. Successor to National Association of Claimants Compensation Attorneys (NACCA). An international association of plaintiffs’ lawyers primarily engaged in the field of personal injury law. Through meetings, lectures, seminars, and publications, ideas are exchanged and techniques are developed for the successful prosecution of their cases and the award of higher court judgments. Headquarters: Washington, DC.

Association professional liability insurance

Professional liability insurance for the directors, officers, and other members of an association while performing their duties on behalf of the association.

Assume

To accept (by an underwriter or other person authorized to act) all or part of a risk or an exposure, at which time insurance “attaches.” Also known as accept.

Assumed liability

Contractual liability which arises from an agreement between people, as opposed to liability which arises from common or statute law.

Assumption endorsement

Also known as a cut-through endorsement, this endorsement is an addition to an insurance policy between an insurance company and a policyholder which requires that, in the event of the company’s insolvency, any part of a loss covered by reinsurance be paid directly to the policyholder by the reinsurer. The cut-through endorsement is so named because it provides that the reinsurance claim payment “cuts through” the usual route of payment from reinsured company-to-policyholder and then reinsurer-to-reinsured company, substituting instead the payment route of reinsurer-to-policyholder. The effect is to revise the route of payment only, and there is no intended increased risk to the reinsurer. Similar to the guarantee endorsement.

Assumption of risk

A common law defense used by employers in which an employee assumes the risks for the hazards normally associated with a type of employment when that employee accepts employment. This defense is not available with workers compensation laws.

Assumption reinsurance

An insurance company may want to eliminate a block of business. It could effectively “sell” that block of business to another company through assumption reinsurance. The assuming company (reinsurer) takes over all responsibility for the policies and the ceding company is no longer a party to the contracts for that block of business.

Assurance

Same as “insurance” but used more in England and more often restricted to “life assurance” (insurance).

Assured

The person or party protected by a policy of insurance. Same as insured or policyholder.

At-will employment

Describes a common situation in which a worker is employed at the will of the employer and the employee may be fired for any reason unless the reason would violate state or federal law (such as the Americans with Disabilities Act).

ATLA-American Trial Lawyers Association

Also known as the Association of American Trial Lawyers. Successor to National Association of Claimants Compensation Attorneys (NACCA). An international association of plaintiffs’ lawyers primarily engaged in the field of personal injury law. Through meetings, lectures, seminars, and publications, ideas are exchanged and techniques are developed for the successful prosecution of their cases and the award of higher court judgments. Headquarters: Washington, DC.

Attach

The commencement of insurance coverage in a policy.

Attachment

An attachment is a rider, endorsement, or any other modification made to a policy that in some way changes, broadens, restricts or clarifies the basic coverage provided. (See rider, and endorsement.)

Attachment point

The limit or amount at which reinsurance attaches or comes into play. The limit or amount below that point is retained by the ceding company.

Attained age

The age of the insured today. (See attained age conversion).

Attained age conversion

Many term life insurance policies can be converted to other types of insurance (e.g., whole life) before the insured reaches a certain age. In such conversions, the premiums charged for the new policy are according to the insured’s current (attained) age and not his original age (age of the person when the term policy took effect).

Attending physician’s statement

Found in life and health insurance. It is the statement of the physician who treated the patient for a particular illness or accident. Underwriters often ask for an attending physician’s statement regarding illnesses and injuries appearing on a life or health insurance application to determine the exact nature of the problem, the duration of the problem and/or the prognosis for recovery. Claims adjusters use attending physician’s statements in determining coverage and payments.

Attestation clause

The clause in a policy which identifies the required signature of an officer of the insurer authorizing the coverage.

Attorney-in-fact

One who has been given specific authority to act for another in certain clearly defined matters. Often used in insurance to refer to the person or entity operating a “reciprocal exchange” or “inter-insurance exchange.”

Attractive nuisance

A condition which, although normally harmless, may nevertheless attract those (usually children) who do not understand its uses and may cause injury. Although it may be proper to maintain such a condition, the owner is nevertheless required to take such means as may be necessary to prevent its causing injury to innocent people, e.g., an empty swimming pool, an unattended tractor, or an upended ladder.

AU

Associate in Underwriting designation sponsored by the Insurance Institute of America. Headquarters: Malvern, PA.

Auctioneers errors and omissions insurance

Insurance coverage designed for auctioneers to protect against claims resulting from negligent acts, errors or omissions of auctioneers in the performance of their business-related duties.

Audit

Verification of books or accounts to determine their accuracy. Certain policies written on a reporting or adjustable form give the insurer the privilege of auditing the policyholder’s records to verify the accuracy of the premiums paid. (See Adjustable Policy.)

Audit bureau

An office which checks rates and forms of issued policies for accuracy of rates and rules. Sometimes called stamping bureau because the daily report is stamped with a rubber stamp if correctly prepared.

Audit policies

These are the types of policies that the insurer has the right to audit or examine at the end of each policy term, to determine if the premium charged was adequate based on the actual final exposure experienced by that insured.

Audit provision

A policy condition or provision that details the right of the insurer to examine or audit the records of the insured at any time during the term of the insurance policy issued or for up to three years after the expiration of that policy, to determine the actual exposure that insured places on the insurer.

Audited premium

(See auditor.)

Audited premium

anti-concurrent causation Refers to a type of insurance exclusion that bars coverage for a loss from a given cause (such as flood or earthquake), even when that cause is preceded, followed or occurred at the same time as another, normally eligible cause of loss (such as fire or lightning).

Auditor

One who checks the accuracy of figures, either the company’s or those of its policyholders who are insured by policies permitting or calling for audits. Payroll auditors in workers compensation insurance are a good example. (See payroll audit.)

AUGIE

(See ACORD – User Groups Information Exchange.)

AUS-automated underwriting systems

Systems developed by insurers for use by companies and their agents. The system consists of automatically screening insurance applicants through a grid of questions, scoring the responses and generating an underwriting decision. The theory is that such systems reduce underwriting costs and processing time while introducing greater consistency.

Authorization

A statement, written or oral, made by an underwriter to a producer, expressing the underwriter’s ability, willingness, and readiness to insure a certain risk for a certain amount on certain terms.

Authorized company or insurer

An insurer licensed by the state insurance department to write certain types of insurance in that state. A synonym for licensed or admitted company.

Authorized reinsurer

authorized reinsurer Describes reinsurance that is written (placed) with a company that is licensed (authorized) in the state where the transaction is made.

Auto insurance premium discounts

Auto insurance credits given for items that are normally considered to be safety features such as air bags, seat belts, antitheft devices or for good driving records and completion of driver training courses. Credits are also given for non-safety items such as having multiple vehicles on one policy.

Automated home

Refers to any residence that contains some level of technology (usually computer) to automate control of its major systems (lighting, sound, plumbing, heating/cooling, electricity). The equipment needed to create the automated environment results in a higher exposure to loss represented by the home and its contents.

Automated underwriting systems (AUS)

Automatic cover

Policy protection applied simultaneously with the acquisition of new property similar to that already covered by the policy. Certain policies provide that they will assume liability for property other than that covered at the commencement of the contract if and when the policyholder acquires ownership or in the event of some similar happening which the policy describes.

Automatic dividend option

A participating life insurance policy often provides several dividend options, i.e., accumulate at interest, paid-up insurance, additional term insurance, etc. The owner of the policy may select among the options at time of application and is also allowed to change the option after the policy is issued by amending the policy.

Automatic nonforfeiture option

A whole or cash value life insurance policy will lapse if premiums are not paid. However, the owner is still entitled to (does not forfeit) the cash accumulated by the policy. Three common options are surrender for cash, the purchase of a smaller paid-up whole life policy or a term policy for the same limit of insurance. The owner of the policy may select among the options at time of application and is also allowed to change the option after the policy is issued by amending the policy.

Automatic premium loan

Instead of allowing a whole or cash value life insurance policy to lapse, this option permits a company to use accumulated cash value to pay the premiums. If all the cash value is used up by a series of automatic premium loans, the policy lapses.

Automatic reinstatement

After a loss has been paid or the damaged property restored, most policies provide that the amount of insurance will automatically return to its original amount. Some policies are reduced by the amount of loss paid but can be reinstated for additional premium.

Automatic reinsurance

An agreement between a primary insurer and a reinsurer that obligates the former to pass on (cede) and the reinsurer to accept all risks that fit the guidelines established by the agreement. For instance, an automatic treaty may require Insurer A to automatically cede any homeowner policy with a dwelling limit at or above $300,000.

Automatic sprinklers (A.S.)

A system to protect property from severe damage by fire in which water is piped to devices called sprinkler heads, which melt with heat and release water to extinguish a fire. Extensively used to protect valuable properties and property so protected normally is charged a lower fire insurance rate than property not so protected.

Automatic treaty

Automobile death and disability coverage

A form of accident insurance coverage available under a private passenger automobile liability policy where the insurer pays a principal sum for accidental death, stated benefits for specific injuries (such as loss of limbs, fractures, etc.), and weekly indemnity for total disability. Covers accidents while traveling in an automobile, including getting in and out of, or by being struck by an automobile. An extra premium is charged for this coverage which is available to the policyholder, a spouse, or any other named person.

Automobile fleet

A group of automobiles, used commercially and owned or leased by the insured, which may get special rate treatment.

Automobile insurance

Any kind of insurance pertaining to the ownership, maintenance, or use of automobiles.

Automobile insurance plan

An association of insurers in a given state in which automobile risks unable to get insurance in the voluntary market are shared among subscribing insurers in proportion to the amount of automobile liability insurance each insurer writes in that state. All companies writing this class are required to participate in this activity, currently administered by the Automobile Insurance Plans Service Office, headquartered at Johnston, RI. Long identified as “assigned risk plans,” such plans sometimes take the form of joint underwriting associations.

Automobile liability excess policy

Provides excess limits for bodily injury and property damage liability for persons unable to secure more than minimum limits under their basic automobile liability insurance. Primarily purchased by assigned risk plan policyholders, the excess insurance always stipulates that the primary policy must be kept in force.

Automobile liability insurance

Protection for loss incurred through legal liability for bodily injury and damage to property of others caused by accidents arising out of ownership, maintenance or use of an automobile.

Automobile medical payments insurance

An optional coverage under an automobile liability policy which pays the medical expenses of the policyholder and any of the passengers injured by the insured automobile, irrespective of who was responsible for the accident. This was originally called “basic medical payments.” In addition, it pays the medical expenses of the policyholder and members of the immediate family injured while passengers in any other automobile or when struck by an automobile. In some no-fault states, medical payments insurance has been replaced by personal injury protection (PIP); in other states, it may supplement no-fault insurance. (See personal injury protection (PIP).)

Automobile physical damage insurance

Material damage insurance covering loss or damage to the policyholder’s automobile. (See combination automobile policy.)

Auxiliary yacht

A pleasure boat propelled both by sail and power.

Average

1) The ocean marine underwriter’s term for loss. 2) Derived from the French word “avarie,” meaning damage to ship or cargo.

Average adjuster

An adjuster of marine losses, such as particular or general average.

Average clause

Language in an insurance policy which distributes the insurance among several items in proportion to their value or in a similar way. Also known as a coinsurance clause, average distribution clause and pro rata distribution clause. (See distribution clause, pro rata clause and pro rata distribution clause.)

Average indexed monthly earnings (AIME)

The formula used by the Social Security Administration to determine an individual’s benefits. The formula takes into account all of the income earned and social security taxes paid during an individual?s working life. Most people do not pay the maximum into social security from the day they enter the workplace, so the formula adjusts benefits for those with lower earnings.

Average rate

Since rates generally apply to individual items (e.g., a building or specific contents), when two or more such items are combined in a single “blanket” amount of insurance, the value of each item is multiplied by its own rate. The sum of the premiums thus determined is divided by the total amount of insurance on all the items to produce an average rate for all the insured property.

Average risk

The type of risk that an insurer defines as average or standard for class as far as size, quality and acceptability. The baseline set by the insurer as the proverbial company normal. (See standard risk.)

Average weekly wage

1) A calculation which reflects the average rate of remuneration of employees, used as a basis for determining benefits in workers compensation insurance. 2) A type of statistic promulgated by the U.S. Department of Labor on a national level and used for determining benefits under federal compensation acts.

Aviation clause

Language in certain policies which describes restrictions in coverage in or on aircraft.

Aviation insurance

A broad field of protection covering both domestic and international operations of aircraft owned and used, involving hulls, liability, passenger liability, and airport and hangerkeeper’s liability.

Aviation passenger liability insurance

Insurance protection for the operators of aircraft, in the event of an accident where a passenger(s) is injured, killed or disabled while on a covered aircraft.

Avoidance of risk

One of the tools of the risk management process, where steps are taken by an insured to remove a process, cause of loss or hazard and thus avoid the chance of loss. Steps include changing processes or even ending a specific exposure, if necessary.

B

Backdating

Many life insurers permit a life insurance applicant to backdate their age for up to six months, in order to base the premiums on the earlier age. Of course, the coverage and the premiums are effective as of the earlier backdate. This can provide an insured with a significant long-term premium savings.

Backloading

Refers to a pension plan that accrues greater benefits to a plan participant in the later years of service (employment) in order to encourage employee retention.

Bad faith

An allegation that an insurer has failed to settle a claim within its policy limits when the opportunity existed or has dealt with another party without regard to fairness or reasonableness. Also refers to a complaint (to insurance authorities) or a suit based on an insurer’s improper actions.

Bad faith doctrine

Refers to any codification of actions that demonstrate an insurer’s unwillingness to fairly handle a claim, thereby justifying legal action.

Baggage coverage

Insurance protection for the contents of luggage or the personal effects of and for the personal use, adornment, or amusement of the insured, or a family member of the insured, while traveling. Coverage is normally worldwide and is written on an “all-risk” basis.

Bail bond

A bond intended to guarantee the appearance of a person in court to answer a legal summons for personal appearance. In the event the person out on bail fails to appear, the bondsperson or bonding company is required to pay the amount of the bond to the court.

Bailee

A person (or entity) who has temporary possession (custody) of property belonging to others, usually in order to perform a service to the property such as cleaning, restoring, repairing or storing.

Bailee customers insurance

Insurance arranged by a bailee for the account of bailors or customers. An example is the insuring of furs in a storage warehouse arranged by the warehouse bailee for the benefit of the owners of the furs.

Bailees liability coverage

Normally, this is an inland marine insurance, despite the title. This type of coverage is designed for a bailee to provide coverage for liability for the property of customers, in that bailee’s care, custody or control. Although this coverage was designed to cover the bailee’s liability exposure, it can often be endorsed or have options exist to provide a no-fault coverage to protect the customer’s property against any damage, whether or not there is negligence and subsequent liability.

Bailment

Personal property delivered by its owner to another to be held and returned to the owner in good condition. The owner who delivers the property is called the bailor, the one who receives it is the bailee.

Bailor

A person entrusting goods to another.

Balance

1) The excess on either side of a bookkeeping account. 2) The net amount due a company by an agent.

Balance sheet

A statement of the assets, liabilities and owners’ equity (surplus) of an enterprise. Assets minus liabilities equals owners’ equity.

Balance sheet reserve

Claim reserves set up to provide the funds needed to pay benefits to insureds. These reserves are regulated by law, to guarantee that an insurer is capable of paying the claims, losses and benefits promised its customers. The amount of the reserve as compared to the premium written is monitored and controlled.

Balanced billing

Refers to a physician or health care service provider that bills a patient directly for services that are not reimbursed by Medicare. The practice is prohibited by several states.

Bank burglary and robbery insurance

A package policy that provides banks with burglary, robbery, vandalism and malicious mischief protection. Typically, it is written on a primary basis for small banks and on an excess basis for larger banks.

Bankers blanket bond

A special form of bond designed to insure banks against loss from employee dishonesty, burglary, robbery, larceny, theft, forgery, misplacement and certain other perils.

Banking plan

banking plan A reinsurance industry arrangement in which a ceding company pays its premiums in installments over the period of the reinsurance contract. Ideally the payments should, ultimately, match the amount the reinsurer pays to cover losses. The plan is adjusted at the contract’s end if payments do not balance.

Bare

(See going bare.)

Bareboat basis

Operating (including hiring/chartering) a vessel without a captain, crew or normal provisions.

Barratry

Willful and illegal sinking, casting away, or damaging of a ship at sea or its cargo.

Base premium

base premium The written or earned premium that a reinsurer uses to develop its reinsurance premium.

Base rate

The manual or starting rate for a specific coverage, based on a normal or average for class risk. Deviations are made from the base rate for risk-specific characteristics, hazards, exposures, protection or lack of, and individual loss experience. After all credits and debits have been computed, a final rate is determined, which is used to calculate the coverage premium.

Baseline data

The benchmark data and statistics used by the insurance industry as a starting point to contrast and compare actual loss experience and to make loss projections.

Basic cause of loss

Property insurance covering only those causes of loss (perils) specified as covered. The types of losses insured are fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action.

Basic death benefit

The limit of life insurance provided by a policy, not including coverage from additional death and dismemberment, decreasing term or other insurance riders.

Basic extended reporting period

In “claims-made” liability policies, only those claims that occur after the retroactive date and are reported or filed against the insured during the policy period, are covered by the policy. The ERP, or tail, is an endorsement available to extend the reporting period for the filing of a claim to give additional time in order to be considered covered.

Basic form

An ISO homeowners form which covers a limited number of causes of loss.

Basic limits

Certain minimum amounts of liability in liability insurance (determined by custom or laws), for which “basic” premiums apply. Additional amounts of liability insurance are charged for by the addition of certain percentages of the premium charged for the minimum limits.

Basic rate

A fundamental rate usually applied to an entire class of policies or to similar properties in a given territory, such as one state.

Beach plans

FAIR plans to make property insurance available for Atlantic and Gulf coast states with coverage for hurricanes and catastrophic winds. Some of the states include Alabama, Florida, Louisiana, Mississippi, North and South Carolina, and Texas. (See beachfront plans.)

Beachfront plans

Assigned risk property plans to provide coverage for damage to coastal properties caused by hurricanes and heavy winds. (See beach plans and hurricane insurance.)

Bench error

A products liability term used to designate those losses resulting from faulty manufacture of products caused by error or negligence during the production stage, such as the insertion by an employee of the wrong size part.

Beneficial interest

This term applies to a party who does not necessarily own an insurance policy but who has a financial interest in the property covered by an insurance contract.

Beneficiary

The person or entity named in a life insurance policy to receive the proceeds.

Benefit formula

The formula used to calculate and determine the benefits payable to an insured or beneficiary covered by a pension plan.

Benefit schedule

A document included in group health policies that lists what the policy covers and the insurance limits per accident or illness, lifetime maximums, surgical schedules, daily limits for hospital stays, etc.

Benefits

In life, health and accident insurance, the money payable or services rendered under the policy.

Bespoke liability

A United Kingdom term for a type of third-party liability coverage that is tailored (customized) for a given insured.

Best practices

Written methods of operating within an industry such as insurance, which results in the highest level of performance.

Best’s rating

Best’s rating Refers to a rating or grade that an insurance company’s financial strength is assigned by the A.M. Best Company, a veteran rating and financial information supplier headquartered in Oldwick, New Jersey.

Betterments

Significant additions made to real estate enhancing its value and amounting to more than mere repairs or replacement. Often, these betterments are to customize a property to the specific type risk now occupying the property, such as fire protection or hood and vent work in a restaurant. When made by a tenant, these additions are usually included in the tenant’s own property insurance. (See improvements and betterments.)

Bicycle floater

An “all-risk” inland marine coverage form written to cover high-value bicycles. One method of providing this coverage is through the bicycle dealers who issue certificates on a master policy issued through the dealer. Others obtain personal floaters on their personal insurance policies.

Bid bond

A bond intended to guarantee that the bidder on a construction, supply or service contract will enter into the contract if successful as a bidder. Should the bidder fail to enter the contract, the surety on the bid bond may be called upon to pay the difference between the amount of the principal’s bid and the bid of the next lowest qualified bidder.

Bill of lading

A document issued by the transportation carrier as receipt for the goods being shipped, which describes the voyage, vessel, date of sailing, and goods. It also states the carrier’s liability, limitations and exemptions. Some bills of lading may be used as negotiable instruments. There are three types of bills of lading: under deck, on deck, and on board. (See Carriage of Goods by Sea Act (COGSA), endorsement in blank, and Harter Act.)

Binder

An oral or written agreement to provide insurance which serves as evidence of coverage prior to the issuance of a policy. It is often considered to be a temporary insurance policy to provide coverage until a permanent policy has been issued. (See cover note.)

Binding authority

When one party (usually an agent) has been given the right and commensurate authority to represent another party (usually an insurer) in effecting or creating an insurance contract.

Binding receipt

Once the initial payment has been made and while the pending life and health application for insurance is being investigated and either issued or rejected, a binding receipt is issued to verify receipt of payment and offer temporary coverage until final decision is made.

Birthday rule

When both parents work and have insurance plans that provide dependent coverage, which plan will provide coverage for the children? Under this coordination of benefits provision the birthday rule will provide coverage for dependents from the policy on the parent who has the earliest birthday in the year. For example, if the mother?s birthday is May and the father?s is December, the mother’s policy provides for the children.

Black swan catastrophe

Originally an investment theory, refers to any loss event that is rare, very severe and highly unpredictable.

Blanket contract

1) In property insurance, contracts or policies providing coverage for either more than one location, coverage or type of property. 2) In the case of health insurance, a policy or contract covering an entire specified group of people (such as employees) against a listed set of hazards or perils (for example, for medical or dental protection).

Blanket coverage

1) In property insurance, a single limit of insurance that covers a number of items, such as one amount of insurance to cover two buildings or a single building and its contents. A blanket policy usually contains certain restrictions, which may be absent in “specific” or “itemized” policies, such as the use of a 90% coinsurance clause. 2) In the case of health insurance, a policy or contract covering an entire specified group of people (such as employees) against a listed set of hazards or perils (for example, for medical or dental protection).

Blanket crime policy

An obsolete coverage that insured against employee dishonesty, losses inside and outside the premises, losses from money orders and counterfeit currency, and depositor’s forgery. The policy protected money, securities and other property with a single limit of insurance applying to all coverages.

Blanket group

A boiler and machinery term used to designate the objects that are covered by categorizing the types of machinery into fairly broad classes. The items covered by boiler and machinery insurance are referred to as objects. When blanket groupings of boiler and machinery objects are used, each individual piece of machinery does not have to be scheduled.

Blanket group policy

Policies issued to provide coverage for an entire group or category of persons with a common point of interest or relationship, for example, all U.S. veterans, or all the credit card holders of a specific bank, or employees of an employer. The coverage is made available to the entire group without underwriting the acceptability of individual members.

Blanket insurance

1) A single amount of insurance covering several items, e.g., one amount of insurance to cover two buildings, or one building and its contents. Such policies usually require the fulfillment of certain restrictions which may not be required in “specific” or “itemized” policies, such as the use of a 90% coinsurance clause. 2) In the case of health insurance, a policy or contract covering an entire specified group of people (such as employees) against a listed set of hazards or perils (for example, for medical or dental protection).

Blanket medical expense

An insurance coverage for individuals providing protection for any and all medical expenses, up to the specified maximum, with no caps or sublimits for individual or specified procedures, services, drugs and equipment.

Blanket position bond

A fidelity bond which insures an employer against loss from dishonest acts by employees. As the name implies, blanket coverage is granted for all employees in the regular service of the employer during the term of the bond. The bond is issued for a fixed sum and each employee is covered up to the full amount of the bond. The maximum amount payable for any one embezzlement involving more than one employee would thus be the amount of the bond multiplied by the number of employees involved. (See commercial blanket bond.)

Blanket position public official bond

A fidelity bond that insures a public organization from the dishonest acts of any listed public employee.

Blanket rate

A fire insurance rate which applies to blanket insurance.

Blanket retrocession

Retrocession protecting a portfolio of reinsurance, as opposed to specific retrocession, which deals with a particular reinsurance. (See retrocession.)

Blended rates

Blended rate health plans use a base or manual rate that is modified by the experience of the group. This can help mid-sized groups even out premiums when faced with shock losses and add a premium cushion for the company when experience is good.

Block cancellation

When an insurer makes the decision to cancel an entire line of business, class of business, coverage within a territory, coverage within an agency, or book of business without consideration for the retention of the individual policies.

Block limit

A maximum amount of insurance an insurer is willing to write within any one city block or one block of an urban area. An uncommon practice today.

Block policy

Inland marine coverages offering protection for all of the described type property of an insured on an “all-risk” basis, from the time the insured obtains possession, through loading, transport, unloading, storage, display, or sales, including any repair or processing necessary at off-premises locations. Two of the most common block policies are the jewelers block or the furriers block coverages.

Blood bank professional liability insurance

Coverage designed for owners and operators of blood banks against negligence, errors or omissions arising out of alleged malpractice, rendering or failing to render professional services, or mistakes in taking, handling, processing, storing or distributing blood products.

Bloodstock insurance

Livestock mortality coverage for high-value racing horses and prize show horses (both stallions and brood mares).

Bloodstock insurance

bloodstock Insurance Coverage for horses raised and used in racing and as breeding stock (typically pedigree).

Blue Cross Plan

A nonprofit, tax-exempt health service prepayment organization providing coverage for health care and related services. Unlike most private insurance companies, the plans usually provide service rather than indemnity benefits, often paying hospitals on the basis of reasonable costs (by pre-arranged agreement) rather than charges. The 70 individual plans in the U.S. should be distinguished from their national association, the Blue Cross Association.

Blue Shield plan

A Blue Shield plan pays for physician and other medical expenses while a Blue Cross plan pays for hospital expenses. (See also Blue Cross plan.)

Bluewater

Boating insurance term referring to ocean waters.

Board of education liability insurance

Liability protection for elected or appointed members of school boards, including administrators, teachers and other employees. Coverage is for alleged damages to third parties resulting from the negligence, wrongful acts, errors and omissions occurring during the performance of duties with respect to schools boards or boards of education.

Bobtail coverage

Auto liability coverage that protects against losses involving trucks while being operated without a trailer (typically occurs after a trailer has been delivered or for cabs traveling to pick up a trailer, prior to its delivery).

Bodily injury (BI)

Injury, sickness or disease sustained by a person, including death at any time resulting therefrom.

Bodily injury liability insurance

A form of “third-party” protection covering the insured’s legal liability for bodily injury to others caused by the insured’s negligence. (See liability insurance.)

Boiler and machinery insurance

Protection against loss from disruption of boilers and machinery by an insured peril: loss to the boiler and machinery itself, damage to other property, business interruption losses, or all three. Also known as machinery breakdown insurance.

Boilerplate language or policy

boilerplate language or policy An older term that refers to any policy or form that consists entirely of standard provisions, absent any special or custom features.

Bond

There is more than one type of bond. Insurance bonds are normally three-party contracts in which one party agrees to guarantee the act, performance or behavior of a second party to a third party. Two common types of bonds are fidelity and surety. (See bond-fidelity and bond-surety.)

Bond-fidelity

An insurance policy that reimburses an employer for employee theft or embezzlement. (See bond.)

Bond-surety

A written agreement wherein one party, called the surety, obligates itself to a second party, called the obligee or beneficiary, to answer for the default of a third party, called the principal. (See bond.)

Book debts insurance

(See accounts receivable insurance.)

Book of business

1) A defined body of insurance policies in force. (See portfolio.) 2) All of the policies or insurance accounts written by a company or agent. Example: an insurer’s book of commercial business, or an agent’s overall book of business, or an agent’s book of business by insurer.

Book value

The dollar amount of assets (bonds, stocks, real estate, etc.) shown in a company’s books.

BOP-businessowners policy

Similar to the commercial package policy (CPP), it provides broad property and liability protection in a single contract and is designed for small and medium-sized mercantile, service, office or apartment risks.

Bordereau

A report by an insurance company to its reinsurer listing and summarizing certain insurance transactions affecting the reinsurance.

Borderline risk

An average risk in terms of loss potential, neither unusually good or bad, but considered barely acceptable by an underwriter for insurance.

Bottomry

In the early days of marine insurance, a ship owner would borrow money by mortgaging the ship; the mortgage would provide that if the ship were lost, the borrower would not have to repay the loan. This was bottomry, which thus combined money lending with insurance. When cargo instead of hull was involved, it was called respondentia. (See respondentia.)

Bourse

A place where goods or services are exchanged. (See insurance exchanges.)

Boycott

As it relates to insurance, boycott falls into the category of unfair trade practices. It is when one party refuses to do business with a second party until that second party either complies with certain conditions or makes concessions.

Branch manager

Supervisory level professional charged with managing an insurance carrier or agency?s branch (subsidiary) office.

Branch office

A territorial office, reporting to the home or head office, supervising business in its operational area and providing agency service by a staff of special agents, underwriters, claims personnel, auditors, and engineers.

Brands and labels clause

This is a coverage provision that pays for the cost of re-labeling products or goods prior to sale (usually at a substantially reduced price). The need to re-label has to be a result of a covered occurrence.

Breach of warranty

Warranties are statements of commitments by the insured on the literal truth of which the insurance contract depends. Warranties may relate to matters existing at or before the time the policy is issued or may be undertakings by the insured that something be done or omitted after the policy takes effect and during its continuance. Breach of warranty exists when a warranty is broken or violated by an insured.

Break in service

A break in service in employee benefits plans (principally pension plans) is any time that the employee leaves the service of the company. After a break in service the employee is entitled to all vested benefits. Federal law provides rules for pension plan participants who return from a break in service relative to how much of their previously accumulated time in service can be carried over.

Breeders policy

Inland marine insurance to cover the high value livestock of breeders against the causes of loss as indicated.

Brick building

A type of construction in which the outer walls are at least the thickness of two bricks in width. (See brick veneer and frame building.)

Brick veneer

A building where the outer walls are made of wood faced with a single course of brick. In other words, it is a frame building with a brick outside covering, as distinguished from a brick building in which the supporting walls are brick. (See brick building and frame building.)

Bridge policy

Special inland marine forms which insure bridges against many hazards.

Broad cause of loss

Property coverage providing protection for loss from a specified group of causes including all of those provided in the basic cause of loss form (fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicle damage, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse, and volcanic action) plus additions which include breakage of glass, falling objects, weight of ice, sleet, or snow, water damage, and collapse as defined in the cause of loss form.

Broad form

An ISO homeowners form which covers the same causes of loss as the basic form, plus six additional causes of loss.

Broad form personal theft policy

Theft coverage for personal property at private homes or residences. Coverage is offered for all types of theft and on any personal property unless otherwise excluded or limited. Usually written in conjunction with a homeowners policy.

Broad form property damage endorsement

An endorsement to a commercial general liability policy which amends or modifies the care, custody, or control exclusion that normally eliminates this coverage. A standard endorsement is not currently available to delete the exclusion; thus each insurer endorsing this exclusion must develop its own company-specific version. Endorsements vary greatly as to the extent of coverage. (See care, custody or control.)

Broad form storekeepers policy

A package (now obsolete) designed to provide broad crime insurance for small retail stores. It insures principally against loss of money and securities, merchandise burglary losses, and losses from employee dishonesty and forgery. Combinations of the current crime coverage forms are now used to offer the equivalent protection.

Broadcasters liability insurance

Professional liability coverage for operations that distribute news, educational, entertainment or commercial information via the airwaves. Protection is usually against harm caused by distributing incorrect information (libel and slander) and allegations of copyright infringement, invasion of privacy rights, or illegal use of intellectual property. The coverage typically includes a separate provision for handling legal defense costs.

Broker

A licensed, legal representative of the insured who negotiates with underwriters on behalf of the insured; nevertheless, the broker receives a commission from the insurer (underwriter). (See agent and insurance agent.)

Broker of record

A licensed broker who has been designated by the policyholder to represent that policyholder.

Broker-dealer

A stock broker or similar equities business that employs or appoints sales persons who are licensed to sell equities based on life and other insurance products. Not all equities-licensed agents are also licensed to sell stocks. Broker-dealers also employ stock brokers who sell equities and may not be licensed to sell any form of insurance. Broker-dealers are financial intermediaries.

Broker?agent

broker-agent Large agents at times operate both as brokers representing the policyholder and as agents representing the company. Or they may have an office in one city which operates strictly on a brokerage basis and one in another city in which they are agents.

Brokerage commission

brokerage commission The fees paid to a broker for getting reinsurance coverage placed and for related services.

Brokerage market

brokerage market The insurance marketplace in which reinsurance coverage is handled through the use of reinsurance brokers.

Brownfields

Commercial and industrial facilities that are not used, abandoned or which are not fully utilized and a party is interested in expanding or reviving their use. However, such sites have to be evaluated for possible environmental contamination and, if contaminated, cleaned up before they can be put back into productive use.

Brownwater

Boating insurance term referring to inland lakes and rivers.

Bucking arrears

A form of embezzlement unique to the insurance industry where an agent will falsify records by manipulating the application of premiums paid for advance payments from one policy to the delinquent payments of another on a floating basis to cover the embezzlement of funds.

Buffer layer

An amount of insurance purchased to satisfy the requirement of an excess carrier with respect to underlying insurance. Also known as gap coverage.

Builders risk

1) A building or a ship in the course of construction. 2) A special form dealing with the unique loss exposure of property under construction.

Building and personal property coverage form

A commercial property coverage form which can be used to cover buildings, business personal property, and personal property of others.

Building code

A set of laws which prescribe the standards by which buildings must be constructed in a city which has adopted the code.

Building rate

The fire insurance rate on a building as distinguished from the rate for insurance on its contents.

Bullion

Gold or silver insured for its value as metal and not for its value as coin.

Bumbershoot

An umbrella or excess liability policy specifically for ocean marine risks.

Bureau

Usually bureaus are associations or organizations where members combine data, information and resources to accomplish a specific insurance function as in the case of a rating bureau. (See rating bureau or advisory organization.)

Burglar alarms

Devices of various types which give warning of entry into premises by unauthorized persons. Burglary insurance premium discounts are allowed for burglar alarm systems approved by the Underwriters Laboratories.

Burglary

Theft by forcible and illegal entry, evidenced by visible signs made by tools, explosives, electricity or chemicals.

Burglary and theft insurance

Insurance against loss of property (from the various types of theft or damage) caused by burglary or theft.

Burning cost

The ratio of actual (or “as if”) reinsured losses to a ceding company’s subject matter premium (either written or earned premium) for the same period. Used to analyze past experience and to predict future experience of a per-risk excess cover.

Burning layer

The bottom or first layer of coverage in property or casualty insurance which will experience the primary losses.

Burning ratio

The ratio of actual losses experienced to the amount of insurance in effect. This is not a “loss ratio,” which is the ratio of losses to premium.

Business

(See class of business.)

Business auto policy

Coverage designed to provide a “standard” form for insuring commercial vehicles (other than private passenger cars).

Business continuation insurance

Should one partner/corporate officer, etc., die or become disabled, business continuation insurance provides cash to the surviving partners/stockholders to continue the business and/or purchase the stock or interest of the deceased partner.

Business income insurance

A time element coverage which pays for loss of earnings or income when business operations are interrupted, curtailed or suspended due to property loss as a result of an insured cause of loss. Also covered are loss of rents and rental value. Extra expenses incurred to continue operations at another location are included as long as they reduce the total amount of loss. (See gross earnings form, use and occupancy, and business interruption insurance.)

Business interruption insurance

A time element coverage which pays for loss of earnings when business operations are curtailed or suspended due to property loss as a result of an insured cause of loss. This coverage is now obsolete and has been replaced by a more comprehensive and generic business income insurance. (See time element insurance and business income insurance.)

Business personal property

Refers to portable property that is owned by an insured business entity, including goods for sale, fixtures, equipment, machines, materials (raw through finished), and similar property. Such property must be used by the business operation.

Business Risk Management

business risk management A newer, broader application of the risk management concept. It refers to an aggressive approach to handling an organization?s multitude of exposure to loss of tangible and intangible property, including income. It may use a variety of tools to avoid loss, such as safety procedures, insurance, shifting of risk via contracts, arranging for alternate supply channels, etc. The concept focuses on growing concerns that face new, often unanticipated, risks.

Businessowners policy (BOP)

businessowners policy-BOP Similar to the commercial package policy (CPP), it provides broad property and liability protection in a single contract and is designed for small and medium-sized mercantile, service, office or apartment risks.

Buy-back deductible

A deductible which may be removed by payment of additional premium when full coverage is required.

Buyers guide

Many states require that an agent (or company) provide a prospective life insured with a buyers guide to life insurance at or about the time the sale is made. The buyers guide explains how the different life insurance policies work and what the policyowner’s rights are.

By Order of Civil Authority

A directive from city officials or other civil authority confirming that a building may be destroyed by the fire department in order to prevent the spread of conflagration. (See civil authority clause.)

C

CAFE

(See Corporate Average Fuel Economy.)

Cafeteria plan

Often called a Section 125 plan after the IRS code, a cafeteria plan provides an employee with options under an employee benefits plan. The employee may be enrolled in a basic health plan with a certain amount of unallocated dollars. These dollars may be used to purchase additional benefits such as orthodontia, additional life insurance or to pay health deductibles.

Calendar year experience

Calendar year experience is the statistical matching of all losses incurred (not necessarily occurring) within a given 12-month period, usually beginning on January 1, with all premium earned within the same amount of time. Accident year experience is the statistical matching of all losses occurring (regardless of when the losses are reported) during a given 12-month period of time, with all premium earned (regardless of when the premium was written) during the same period of time. Yet a third related term is policy year experience which, to put it simply, is the statistical segregation of all premiums and losses attributable to policies having an inception or renewal date within a given 12-month period. Also known as accident year experience. (See accident year experience, and policy year experience.)

California Insurance Wholesalers Association (CIWA)

An insurance trade association organized to promote education and good business practices, and to represent the interest of their members with insurance companies and vendors. Headquarters: Montrose, California.

Call center

In its simplest form, a physical site used by an organization (insurer) to handle large volumes of incoming and outgoing phone calls involving customer service, marketing, and other business transactions. Such centers are highly dependent upon sophisticated data management and technology. Also called contact centers.

Camera and musical instruments dealers coverage

An inland marine coverage designed for the property exposures of camera or musical instruments dealers to protect against loss to furniture, fixtures, and stock both on premises and while in transit, on an “all-risk” basis.

Camera floater

An inland marine form designed to insure cameras and their equipment.

Cancel

To terminate a contract. Usually applied to the termination of a policy before its natural expiration, but may be used to describe the ending of any contract during its natural life, such as an agent’s contract.

Cancelable policy

This type of insurance policy may be canceled by the insured or the insurer at any time, as long as the other party is notified according to the terms and conditions set forth in the policy, and the appropriate time is allowed during the notification process.

Cancellation

The termination of a contract. Usually applied to the termination of a policy before its natural expiration, but may be used to describe the ending of any contract during its natural life, such as an agent’s contract.

Cancellation clause

The provision in a policy that explains the conditions and terms to be complied with for the termination of a contract. Usually applied to the termination of a policy before its natural expiration, but may be used to describe the ending of any contract during its natural life, such as an agent’s contract.

Cancellation notice

The notice issued by one party of the policy to the other, informing of the intent and request to cancel. The policy provisions must be followed during the notification process with respect to how the notice must be given (normally in writing), the number of days that must be allowed, and how the notice must be delivered (registered mail, delivery, etc.).

Cancer policy

Also known as a dread disease policy because it covers one or more major maladies such as cancer, heart disease, etc. (See also dread disease policy.)

Capacity

The amount of insurance (measured either by face value of policies or by premium) which an insurer is able or willing to issue as a maximum, as limited by legal restrictions, corporate restrictions, or indirect restrictions. Legal restrictions (e.g., “no policy may be issued for an amount in excess of 10% of policyholder surplus”) or corporate restrictions (e.g., a board of directors resolution that “the company shall not knowingly commit itself to a policy amount in excess of $10 million”) establish the maximum capacity an insurer is able to write. Indirect restrictions on the capacity an insurer is willing to write include: 1) the financial strength (policyholder surplus) of the insurer, or 2) the willingness of the insurer to venture a portion of its current anticipated underwriting (or overall) profit on a single policy (this willingness could also be expressed as a percent of annual premium) and the confidence felt in that anticipated result.

Capital Asset Pricing Model

An actuarial method for determining how to pay back investors for taking two actions. One is to compensate investors for the value of supplying funds over a given period of time and the second is to compensate those same investors for facing a given level of loss of investment value.

Capital assets policy

All-risk property coverage for personal property of industrial firms away from the insured’s own manufacturing premises.

Capital gain

That part of a company’s income which is realized when its invested assets are sold at a price above book value (or below book value, for a capital loss). Unrealized capital gains or losses do not affect a company’s income; however, increases or decreases in the market values of equity securities produce a corresponding effect on policyholder surplus, although market value changes in other invested assets do not affect policyholder surplus. (See investment income.)

Capital loss

That part of a company’s income which is realized when its invested assets are sold at a price below book value.

Capital stock insurance

Insurance business transacted by an insurer whose ownership element is divided into shares of stock represented by certificates, as opposed to a mutual insurer which does not have capital stock and whose ownership element is divided among its policyholders. While a stock insurer has both stockholders (its owners) and policyholders (its customers), a mutual insurer has only policyholders (its owners and customers). (See mutual insurance and mutual insurance companies.)

Capital sum

The total policy amount, the entirety of which is made in a one-time payout to the beneficiary of an accident policy in the event of accidental death or dismemberment of the insured.

Capital transaction

The sale of a major (capital) asset such as stock or structures. Typically, when such sales involve securities, they must be taxed as ordinary rather than dividend income.

Capitalization

(See leverage.)

Capitation benefits

An HMO program which, instead of paying a fee for service, pays a physician a flat amount for each subscriber/patient. A physician with a relatively sick population of subscribers will earn less than the physician who has a healthy group of patients.

CAPM

(See Capital Asset Pricing Model.)

Captive agent

An agent who, by contract, represents only one company and its affiliates. Sometimes called an exclusive agent. (See agency and insurance agency.)

Captive insurance company

A company which is wholly owned by another organization (generally non-insurance), the main purpose of which is to insure the risks of the parent organization. A pure captive is owned by a single parent, while an association captive is owned by a group of companies usually in the same line of business.

Captive Insurance Company Association (CICA)

An association formed to educate persons working for or interested in captive insurance companies. It provides information, education and support services for both domestic and foreign captives. Headquarters: Minneapolis, MN.

Care, custody or control

Most liability policies have provisions that exclude coverage for physical damage or loss to property while it is in the care, custody or control of the insured. Two methods are available to buy back some or all of the care, custody or control coverage: either endorsements to the liability policy, such as the broad form property damage endorsement or its company-specific equivalent which will provide limited coverage, or the purchase of inland marine coverages such as bailees’ forms. (See broad form property damage endorsement.)

Career agent

career agent An agent who is licensed to write life insurance (usually) exclusively for one company.

Career average benefit formula

Defined benefit pension plans do not accumulate cash but calculate an accrued benefit. A career average formula averages the compensation of the employee over the entire career (years of participation in the plan) of the employee and pays benefits related to that average (perhaps 55% of the average less Social Security benefits). Contrast this with the backloaded plan that gives greater weight to the latter years of employment. (See also accrued benefit and backloaded.)

CARFRA-Coordinated Advertising Rate and Form Review Authority

An initiative created by the NAIC, it involves a special panel of insurance regulators who review various insurance product rates and forms on an expedited basis for use nationally. Primarily used for life and health insurance products and rates.

Cargo

Goods being transported by rail, plane, truck, ship, or other conveyance, excluding the equipment needed to operate the conveyor.

Cargo insurance

A generic term used in both inland marine and ocean marine insurance to designate the types of insurance available to provide coverage for cargo that is being transported by truck, rail, air, ship or boat.

Carpenter Plan

A form of excess of loss reinsurance in which a ceding company spreads its losses over a three- to five-year period, first introduced in the U.S. by a broker by that name. (See spread loss reinsurance.)

Carriage of Goods by Sea Act (COGSA)

An international agreement subscribed to by most maritime nations and ratified by the U.S. in 1936, prescribing the format and content of uniform ocean bills of lading on goods shipped internationally. (See bill of lading.)

Carrier

1) The insurance company which provides the protection for a particular risk. 2) A transporter of goods, a form of bailee for which insurance is provided. A common carrier is one which is available to the public for the transport of any goods. A private carrier transports only the goods of its owner.

Carriers legal liability

An insurance policy designed to provide coverage for the bailee exposure of cargo carriers that would result from damage to property of others that has been entrusted to the carrier for transport.

Carry-over provision

A provision found in many health plans which permits expenses arising out of claims that occur in the last three months of the year to carry over into the next year, without incurring new deductibles or coinsurance.

Carve-out insurance

A method of eliminating high-risk exposure from a general liability policy by excluding it (carving it out) and then providing coverage specifically designed for that exposure under a separate policy.

Case management

With regard to workers compensation, this refers to an approach for coordinating the medical care and communication necessary to handle persons who have suffered serious, work-related illness or disability and who are recuperating at their residence (rather than at a medical facility).

Cash flow plan

A method of paying casualty insurance premiums in which the insured (usually a large commercial concern) pays the fixed portion (administrative expenses) of the premium in installments and the variable portion (loss payments and loss reserves) as incurred.

Cash payment option

An option found in many participating life insurance policies in which a cash dividend is paid to the policy owner.

Cash refund annuity

In this type of annuity, if the annuitant dies before the balance of the annuity has been paid out in periodic disbursement, any amount remaining will be paid to a designated beneficiary in one lump sum.

Cash surrender value

In a life insurance policy, if the insured wishes to surrender the policy in order to collect the cash value of the policy, the cash surrender value is the amount the insured is entitled to, as stated in the policy, based upon time in the policy, limits and payments. The amount of cash the insured will receive may be reduced by a surrender fee, any outstanding loans, and applicable interest.

Cash value

The amount that a life insurance policy will pay the insured if the policy is terminated or canceled prior to maturity. The cash value is the amount the insured is entitled to, as stated in the policy, based upon time in the policy, limits and payments. The amount of cash the insured will receive may be reduced by a surrender fee, any outstanding loans, and applicable interest.

Cash-flow underwriting

Emphasis by an insurer on quick premium growth in its underwriting activities, at the expense of sound underwriting at adequate rates, with the hope that investment income from the increased premium writings will more than offset any unreasonable underwriting losses. The practice becomes more tempting as short-term interest rates rise.

Casualty Actuarial Society

An organization formed to promote actuarial and statistical knowledge applicable to casualty insurance. Following multiple line development in the insurance industry, the scope of the society has been enlarged to include all lines of insurance other than life. Headquarters: New York, NY. Its life and health counterpart is Society of Actuaries.

Casualty insurance

Insurance concerned with legal liability for personal injuries or damage to property of others, including many other types of insurance, such as workers compensation, plate glass, burglary, boiler and machinery, aviation, etc. “Casualty” is generally accepted to cover all classes outside the definition of “property insurance,” so that a property and casualty company would tend to handle all forms of insurance other than life.

Cat bond

Refers to catastrophe bonds. These instruments are typically issued by an entity that deals with insurance (private or public). The securities may consist of any single or multiple source of investment grade securities and, generally, pay a higher yield. However, the investor faces the risk of a lower return or even a total loss of investment should a catastrophe occur within the parameters set by the bond issue.

Cat modeling

Refers to programs used to predict the likelihood that severe circumstances will occur.

Catastrophe

A severe loss, usually involving many risks, or having substantial financial impact.

Catastrophe (excess) cover

1) In reinsurance, a form of excess of loss reinsurance which, subject to a specified limit, indemnifies the ceding company for the amount of loss in excess of a specified retention, with respect to an accumulation of losses resulting from a catastrophic event or series of events. The actual reinsurance document is referred to as “a catastrophe cover.” 2) In primary insurance, an amount of insurance on a single risk or group of risks in excess of self-insured retention or other primary insurance. (See catastrophe reinsurance.)

Catastrophe inflation

See demand surge.

Catastrophe number

Whenever a catastrophe occurs which produces losses within a prescribed period of time in excess of a certain amount (now $5 million), the amount of such losses is recorded separately from noncatastrophe losses, and is numbered by the American Insurance Association. Such losses may be treated differently in the state’s statistical experience records used in setting rate levels.

Catastrophe policy

1) A type of policy, primary or reinsurance, in the property or casualty industry, to provide protection against catastrophic events. 2) A major medical insurance policy purchased by an insured to provide adequate coverage in case of major illness such as cancer.

Catastrophe provision

Provision which gives consideration to the impact catastrophes have on loss experience; procedures are developed to include an allowance for the catastrophe exposure in the insurance rate.

Catastrophe reinsurance

1) In reinsurance, a form of excess of loss reinsurance which, subject to specified limits, indemnifies the ceding company for the amount of loss in excess of a specified retention, with respect to an accumulation of losses resulting from a catastrophic event or series of events. 2) In primary insurance, an amount of coverage on a single risk or group of risks in excess of self-retention or other primary insurance. (See catastrophe (excess) cover.)

Catastrophic loss funds

Reserves that have been specifically formed to provide funds to an insurer in case of catastrophic and cataclysmic losses.

Cause of loss

Previously called “peril,” this is the actual type of event that causes the loss. Examples are: theft, collision, earthquake, flood, fire or mischief.

Causes of loss forms

Forms that may be added to the Commercial Property Coverage Part. They describe the perils (basic, broad or special) and exclusions that apply to the covered property.

Caveat emptor

Latin term meaning “let the buyer beware.” It is an admonishment or reminder of the buyer’s responsibility for checking the quality of the product prior to purchase. It may also describe a purchase where the buyer has no recourse to the seller if the product or service is defective or of poor quality.

CBNR

(See chemical, biological, nuclear and radiological attacks.)

CCIP

(See Contractor Controlled Insurance Program; also see wrap.)

CCLA

Casualty Claim Law Associate designation sponsored by the American Educational Institute. Headquarters, Basking Ridge, NJ.

CCRA

(See Certified Catastrophe Risk Analyst.)

CDW

See collision damage waiver.

CE-continuing education

An on-going process in the insurance industry to keep its member professionals current, updated and responsive to the many legislative, coverage and marketing changes, through the offering of courses, workshops and seminars.

CEBS

Certified Employee Benefits Specialist designation sponsored by the International Foundation of Employee Benefit Plans CEBS Program, 18700 West Bluemound Road, Brookfield, WI 53008-1270.

Cede

To pass on to another insurer (the reinsurer) all or part of the insurance written by an insurer (the ceding insurer) with the object of reducing the possible liability of the latter.

Ceding commission

The commission paid by the reinsurer to the ceding company (primary insurer) on reinsurance agreements as compensation to place the business with the reinsurer and to cover the ceding company’s acquisition expenses.

Ceding company

An insurer that has bought reinsurance protection as distinguished from the reinsurer that has issued the reinsurance protection.

Cemetery professional liability insurance

Liability coverage specifically designed to meet the needs and exposures of owners or operators of a cemetery to protect for damages suffered by third parties, as a result of the rendering or failing to render professional services as the owner, operator, management or staff of a cemetery.

Central processing unit (CPU)

The part of an insurer’s computing system containing the circuits that calculate and perform logic decisions based on a manual program of operating instructions.

CERA

(See Chartered Enterprise Risk Analyst.)

Cert holder

(See certificate holder.)

Certificate holder

The individual or business that requests and receives written verification of insurance coverage on an individual or business. The insurance company issues the certificate of insurance.

Certificate of authority

A written certificate issued by one party showing the authority that party has granted to another to perform on the first party’s behalf. The two most common examples in insurance are state insurance department grants to insurers issuing authority to write insurance kinds of policies and contracts within that state, and the certificate which grants authority to agents to write policies on behalf of an insurer.

Certificate of convenience

An interim or temporary certificate that has been issued by a state insurance department allowing an agent to write business in that state during the licensing procedure, until a final license is issued or denied.

Certificate of insurance

A short-form documentation of an insurance policy.

Certificate of reinsurance

The certificate issued by reinsurers to confirm the reinsurance transaction. It is a form of an insurance contract as it contains the terms and conditions of the reinsurance transaction, as well as details as to who, what, where, and when coverage applies to that cession.

Certified act of terrorism

certified act of terrorism Any terrorist act that is described as an action that qualifies for coverage under the Terrorism Risk Insurance Act (TRIA) of 2002. Specifically, terrorist acts are certified when the U.S. secretary of the treasury, secretary of state and attorney general makes the determination. Any such act must involve an attempt to coerce the behavior of the targeted populace (civil or governmental), must exceed a certain dollar amount (five million dollars) in total damages, and must occur at the direction of a foreign party.

Certified Catastrophe Risk Analyst

A designation conferred after completing a special course created and offered by independent risk management and risk control services provider, Risk Management Solutions. Headquarters: Newark, CA.

Certified Fraud Examiner

A professional designation awarded by the Association of Certified Fraud Examiners (ACFE). The designation recognizes a person’s successful completion of courses and training in identifying and addressing instances of corporate fraud.

Certified Insurance Counselor (CIC)

CIC-Certified Insurance Counselor Certified Insurance Counselor designation sponsored by the Society of Certified Insurance Counselors. Headquarters: Austin, TX.

Certified Insurance Data Manager

A professional designation awarded by the Insurance Data Management Association (IDMA). The designation recognizes a person’s successful completion of courses and training in properly managing the information (particularly reporting system) needs of a modern insurance operation.

Certified Subrogation Recovery Professional

A designation awarded by the National Association of Subrogation Professionals. Besides successful completion of an exam covering major aspects of subrogation, a candidate must also meet an industry experience requirement.

Cession

1) The unit of insurance passed to a reinsurer by a primary company which issued a policy to the original insured. A cession may accordingly be the whole or a portion of single risks, defined policies, or defined divisions of business, all as agreed in the reinsurance contract. 2) The act of ceding where such an act is necessary to invoke the reinsurance protection.

Cession number

The identification numbering process applied to a reinsurance transaction to assist in the payment tracking of premiums. Similar to policy numbers on insurance contracts.

CFA

Chartered Financial Analyst designation sponsored by the Association for Investment Management and Research. Headquarters: Charlottesville, VA.

CFE

(See Certified Fraud Examiner.)

CFP

Certified Financial Planner designation sponsored by the National Endowment of Financial Education.

CGL-commercial general liability policy

The commercial general liability policy provides comprehensive general liability coverage for commercial risks covering all liability exposures for all locations and causes of loss except those specifically excluded or limited either within the coverage form or by endorsement. Protection may be provided on either an occurrence type of policy or on a claims-made basis.

Chain store multiple location policy

A commercial policy designed for a series of related stores under the same ownership with central management and selling the same type of merchandise at various locations. Examples include clothing chains, appliance stores, sporting goods stores, and card shops.

Change in occupancy or use

A provision contained in some property or casualty policies which requires the insured to inform the insurer of any change in occupancy or use of the premises. This allows the insurer to re-rate or add the necessary conditions or exclusions when the change adversely changes the exposures covered. Should the insured not comply and the change increases the hazard to the insurer, some states allow the insurer the option to cancel or void the policy.

Change in ownership clause

(See change of control clause.)

Change of control clause

A condition that allows one party to terminate an agreement when there has been a change in ownership or control of the other party involved in that agreement. The provision acknowledges the possibility that such changes would subject one party to unacceptable conditions.

Charitable immunity doctrine

A form of state law involving the level that a charitable organization (such as a nonprofit school, church or hospital) is relieved of legal liability for injury due to its negligent acts or decisions. The acts or decisions must be directly related to its function.

Charter

1) To rent or lease a boat, ship, vessel or aircraft. 2) The instrument issued by a governmental body (state) recognizing the organization of an insurance company and giving authority to operate within the stated jurisdiction. The charter also contains the condition under which the insurer must operate.

Charter fare protection insurance

A specially designed insurance coverage for persons who have paid for the cost of a trip or tour. This policy provides coverage for individual insureds who are unable to participate in the specified trip or tour should an accident, injury, sickness, death or other covered incident occur. Coverage is also provided for expenses should the insured become ill or suffer a covered event while on the trip or tour and need to return home prior to the end of the trip or tour. Also known as trip cancellation insurance.

Charter party

The document which outlines the agreements between a ship owner and the person or organization that chartered (or leased) a ship.

Chartered Enterprise Risk Analyst

A designation conferred by the Society of Actuaries after completing a series of five exams and electronic course modules, and after passing a separate validation process (regarding a required level of actual risk analyst experience).

Chartered Life Underwriter (CLU)

Chartered Life Underwriter designations sponsored by The American College. Headquarters: Bryn Mawr, PA.

Charterer’s liability

charterer’s liability A form of liability coverage that protects against the loss exposures faced by entities that charter (rent out) vessels.

Charters liability insurance

Liability coverage for parties or individuals who lease a vessel from another party.

Chattel mortgage

A mortgage, the collateral for which is personal or movable property, as distinguished from a mortgage on land or buildings.

Chemical, biological, nuclear and radiological attacks

A shorthand (CBNR) reference to the sources of cataclysmic exposures inherent to major acts of terrorism. Such exposures are seen as suited to be addressed by publicly subsidized (government) insurance.

ChFC

Chartered Financial Consultant designation sponsored by The American College. Headquarters: Bryn Mawr, PA.

Chief risk officer (CRO)

An executive charged with the task of creating, managing and implementing an organization?s risk strategy that, increasingly, encompasses financial, market, credit and operational risks.

ChoicePoint, Inc.

Formerly the insurance division of Equifax and now known as ChoicePoint, Inc., it is an organization widely used by insurance professionals to obtain information on applicants for underwriting purposes such as motor vehicle reports, prior loss or claims history (C.L.U.E.) reports, retail credit reports and even inspection reports. Headquarters: Atlanta, GA.

Chop shop

Slang term for illegitimate enterprises that sell parts from dismantled stolen vehicles.

CIAB

(See Council of Insurance Agents and Brokers.)

CICA-Captive Insurance Company Association

CIDM

(See Certified Insurance Data Manager.)

CIF-cost, insurance and freight

CIF (cost, insurance and freight) This refers to a common term in a sales contract that may be encountered in international trading when ocean marine travel is used. In this type of contract, the selling price includes the cost of the goods, all shipping charges and the cost of marine insurance. Although the seller is obligated to purchase marine insurance, the seller’s responsibility for the goods ends when the goods have been delivered to the marine carrier or have been delivered on board the shipping vessel, depending upon the terms of the contract.

CIP

Controlled Insurance Program, please see wrap.

Civil authority clause

A provision in a policy requiring the payment of the loss suffered by the policyholder if the insured property is destroyed by the city or other civil authority in an effort to prevent the spread of fire. (See By Order of Civil Authority.)

Civil commotion

A disturbance among, or a popular uprising of, a large number of people. (See riot and civil commotion insurance.)

Civil commotion exclusion

A property policy exclusion that specifies that there is no coverage for property damage suffered as a result of any type of civil commotion or riot.

Civil commotion policy

A special property policy to provide coverage for loss occurring as a result of civil commotion or riot.

CIWA

CIWA (Califorina Insurance Wholesalers Association) An insurance trade association organized to promote education and good business practices, and to represent the interest of their members with insurance companies and vendors. Headquarters: Montrose, California.

Claim

1) The formal request by a policyholder or a claimant for payment of loss under an insurance policy. 2) The final amount made in payment of a covered loss.

Claim agent

In marine insurance, a person authorized by a marine underwriter to survey and certify losses. Underwriters maintain claim agents in various important ports and cities throughout the world. Claim agents do not have the authority to pay losses as do settling agents.

Claim department

The personnel of an insurance company dealing with losses or claims. In casualty operations it is a “claim” department, in fire operations, a “loss” department. As the property and liability business develops more on a multiline basis, these distinctions are rapidly disappearing. (See loss department.)

Claim file

The paper or electronic file that contains information for a loss.

Claim handling

The function that processes demands for claim payments.6

Claimant

One who presents a claim or one who has suffered a collectible loss.

Claims adjustment

The process of handling and settling claims or the amount requested by a policyholder or claimant because of a loss or damages suffered.

Claims reserve

An estimate of the amount an insurance company expects to pay for reported and estimated claims. This may include amounts for loss adjustment expenses. In an insurance company’s financial statement, it includes losses incurred but not reported, losses due but not yet paid, and amount not yet due.

Claims series clause

Typically regarding product claims, refers to a provision that takes all product losses related to a given party’s product and classifies them as a single loss.

Claims-made

A liability insurance method covering losses from claims asserted against the insured during the policy period, regardless of whether the liability-imposing causes occurred during or prior to the policy period. (However, many underwriters may not cover liability-imposing causes occurring prior to the policy period.) The coverage trigger is based on the retroactive date stated in the Declarations. (See longtail and retroactive date.)

Claims-made trigger

In order to trigger coverage in a claims-made liability policy, a claim must be made against the insured during the policy period and the injury or damage alleged in the claim must not have occurred prior to the retroactive date specified in the policy Declarations.

Clarified and expanded condominium coverage

Refers to optional coverage that is attached to a condominium association’s Master policy. The coverage typically deals with several coverages such as protection caused by selecting an insurance policy that does not match what was required by the association’s rules, insuring against deliberate acts by individual board members, officers or unit owners, coverage of incidental construction activity that has not been completed and coverage of certain types of common property.

Clash cover

A reinsurance agreement applying to casualty insurance. This is an excess of loss agreement where the underlying amount to be retained by the ceding insurer is at an amount which is higher than the limit on any one reinsured policy. This agreement provides payment of loss when the unusual circumstances occur where two or more casualty policies experience the same occurrence of loss and the total amount of the payment of losses for the multiple policies exceeds the clash cover retention amount. This is sometimes known as contingency cover. (See contingency cover.)

Class action lawsuit

Legal action filed in court by one or more people on behalf of themselves and others having an identical interest in the alleged wrong.

Class beneficiary designation

Instead of naming each child as a beneficiary in a life insurance policy one can say “all children of the insured,” “all children of the marriage between Mike and Ethel” (if there are stepchildren and different plans have been provided for them). This class beneficiary designation may prevent disinheriting children who arrive after the policy has been issued.

Class of business

A term used by underwriters to describe a particular industry group or exposure, e.g., “We do not wish to write insurance for long-haul truckers.” “We do want to insure the class of business that includes homes valued at $25,000 and below.”

Class rate

Rates developed for a line of property/casualty business based on the concept of what is average for that particular class. For example: the class rate for fire on a frame grocery store would be based on the average statistics for all frame grocery stores and would be applied to all frame grocery stores unless otherwise specifically rated. Rates are then deviated for other factors such as the public protection class and, when applicable, individual risk characteristics.

Classification

The systematic arranging of properties, persons or business operations into groups or categories according to certain criteria. The purposes of such classification in insurance are to create bases for establishing statistical experience and determining rates, and to avoid unfair discrimination. The essential concept of establishing classifications is that each risk should bear its fair share of the overall cost of expenses and losses in relation to its own relevant expenses and hazards. It is unfair discrimination to charge different rates for similar risks, and it is equally wrong to treat in the same manner risks which have different costs and expenses. (See unfair discrimination, discrimination and selection.)

Classification society

An organization that institutes standards for construction of large vessels, with follow-up surveys periodically or after accidents. The objective of such a society is to maintain minimum standards for cargo carrying vessels to reduce hull and cargo insurance costs. The society is supported by fees charged to shipowners for services rendered and publishes an annual register of approved vessels.

Clause

Language in a policy that describes, limits or modifies coverage granted. (See provisions.)

Cleanup costs

Costs that a party incurs to clean pollutants from the ground, water or air after the occurrence of a pollution incident. These costs are usually mandated or assessed in response to a confirmed incident by the Environmental Protection Agency (EPA). (See corrective action costs.)

Clear?space clause

clear-space clause Language which requires that the property insured be separated from some other property, e.g., from stacks of lumber or from the forest.

Clergy professional liability

Professional liability for clergy members for claims that might arise out of rendering or failing to render services related to their professional duties, including counseling.

Close out

To complete a binder through issuance of the corresponding policy.

Closed corporation

A type of corporate entity that is controlled and operated by a small, closed group of individuals (often family members). The stock of this kind of corporation is not publicly traded.

Closed panel

A requirement of a health maintenance organization (HMO) mandating that the insured or subscriber must use only the medical treatment, services, physicians, and facilities approved by the HMO.

Closure and post-closure insurance

Insurance coverage that is purchased to protect owners and operators of hazardous waste treatment, storage and disposal facilities, in response to the Resource Conservation and Recovery Act of 1976 (RCRA).

CLU-Chartered Life Underwriter

Chartered Life Underwriter designations sponsored by The American College. Headquarters: Bryn Mawr, PA.

CLUE? Report

Stands for Comprehensive Loss Underwriting Exchange. CLUE reports provide information on a given person’s loss history, generally under an auto or homeowners policy. Insurers typically use these reports to assist in determining whether an applicant’s request for coverage is accepted.

Co-payment

copayment A flat, preset fee paid by an insured for office visits, drugs, and other medical services as member of an HMO or preferred provider service. These copayments are normally a small fraction of the overall cost and act much like a service charge or handling fee.

Coastal Barrier Resources Act

Federal law introduced in 1982. A major objective of the law is to discourage building/development of coastal property (particularly barrier islands). While it does not prohibit building and development, the act does exclude such areas from eligibility for disaster area assistance and National Flood Insurance Program coverage.

Coastal waters

For the insurance of yachts and outboard motor boats, the waters of bays and inlets, as well as of the sea along the coast. Also referred to as contiguous waters.

COB-coordination of benefits

In health insurance, policy provisions used by insurers to avoid duplicate payment for losses insured under more than one insurance policy (e.g., automobile or health) by making one of the insurers the primary payer, assuring that no more than 100% of the costs are covered and preventing the claimant from making a profit.

COBRA-Consolidated Omnibus Budget Reconciliation Act of 1985

A federal act making provision for the continuation of an employee’s health insurance coverage, as well as the coverage for dependents, should the employee terminate his or her employment. This act is in effect whether or not the termination was voluntary. Further, it applies to employer-sponsored group health plans with 20 or more employees.

Code

A number assigned to represent some characteristic of a risk, e.g., its state of location, its occupancy class, or the type of policy involved.

Coding

The act of translating data and information into numerical format to be used for statistical purposes in rate setting, actuarial and other reporting or report writing mechanisms.

Coercion

An unfair trade practice that is prohibited by most state insurance departments. It is when an agent, broker or other insurance professional applies physical, financial or mental pressure to persuade a second party to participate in an insurance transaction.

COGSA-Carriage of Goods by Sea Act

COIL-Conference of Insurance Legislators

An organization of state legislators that specialize in insurance legislation.

Coinsurance

See coinsurance clause

Coinsurance clause

1. In property insurance, a condition of the policy requiring the insured to maintain insurance at least equal to a stipulated percentage of value in order to collect partial losses in full. If the insurance is less than the minimum required, a penalty is applied to the amount of loss based on a proportionate formula of the amount of insurance carried divided by the amount of loss required to be carried. 2. In major medical insurance, the clause that specifies the percentage of a loss which the company will pay and the percentage which the insured will bear (e.g., 80/20, 75/25).

Coinsurer

1) An insured which has not carried the required amount of insurance and must bear a portion of the loss proportionate to the inadequacy. 2) In countries other than the United States, an insurer that shares a risk with one or more other insurers. 3) An insured or an insurance company that participates with an insurer in bearing losses covered by a particular policy.

COLA

Cost of Living Adjustment clauses can be found in many health, pension and disability plans, including Social Security. In order to match or keep up with inflation, benefits are increased (or decreased) in relation to particular indices such as the Consumer Products Index.

Collateral

With respect to a surety bond, collateral is anything of value that is pledged with the surety to protect that surety from a default loss by the principal.

Collateral assignment

When benefits in an insurance policy are transferred to a creditor or lienholder as part of the collateral for a loan. The creditor receives only that portion of the policy benefits or payments that compare to the amount of the creditor’s interest or value of the loan. Most common in property, life and inland marine coverages.

Collateral protection insurance

Insurance policies designed specifically to meet the exposure needs of financial institutions, by covering physical damage losses to collateral held by the lenders of loans.

College of Insurance, The

An accredited collegiate institution offering an associate degree with majors in various aspects of the insurance business, a Bachelor of Business Administration degree with an insurance major, a Bachelor of Science degree in actuarial science, and a Master of Business Administration degree with an insurance major. Offices are in New York City.

Collision

Damage to a motor vehicle which is caused by its impact with another vehicle or object, or by the vehicle’s overturn.

Collision damage waiver

When renting an automobile or other vehicle from a rental agency, the rental agreement between renter and rental agency may contain an option allowing the renter to pay an additional fee in exchange for the agreement by the rental agency to waive its rights to collect any collision losses to the vehicle from the renter.

Collision insurance

Coverage for the loss resulting from the striking of another object by a moving vehicle.

Collision of the load

The striking of another object by the cargo of a moving vehicle, as opposed to the vehicle itself striking the object. In insuring merchandise in transit by motor truck, many policies insure against collision damage only if the vehicle itself collides with something. This excludes collision damage if, for example, a part of the load extends beyond the limits of the truck and hits a bridge or some other object.

Collusion

When two or more entities secretly agree to conspire together in the act of defrauding or depriving another entity or other entities of their property or rights.

Combination automobile policy

A policy combining the coverages afforded under automobile physical damage and automobile liability policies. (See automobile physical damage insurance.)

Combined ratio

The addition of the ratio of losses incurred to earned premiums, and the ratio of underwriting expenses to written premiums.

Combined single limit:

combined single limit Insurance policy limits under a liability policy that indicate a single dollar amount that applies to either/or bodily injury and property damage that may occur during an eligible occurrence.

Coming and going rule

coming and going rule An informal term that typically refers to commuting to and from work and that time being excluded as part of a workday. This distinction is important in determining whether an employer may be held partially or totally responsible for a loss that occurs during a commute.

Commercial articles coverage

An inland marine policy providing coverage on an “all-risk” basis for loss or damage to cameras, fine arts, and musical instruments of a business insured.

Commercial auto

Coverage designed to provide a “standard” form for insuring commercial vehicles (other than private passenger cars).

Commercial blanket bond

A fidelity bond which insures an employer against loss from dishonest acts committed by employees, covering all employees in the regular service of the employer during the term of the bond. The bond is issued for a fixed amount which is the maximum sum payable for any one embezzlement, whether one or more employees are involved. (See blanket position bond.)

Commercial crime policy

This ISO crime policy incorporates most commercial crime coverages into one policy. It is an ala carte policy that starts with eight insuring agreements but can be expanded to include up to eleven additional insuring agreements. The insured can choose one or more insuring agreements.

Commercial general liability policy (CGL)

Commercial lines

Types of insurance written for businesses instead of individuals (for which the term personal lines applies)

Commercial multiple peril

A general term, sometimes shortened to commercial multiperil, relating to that class of package policies which provides coverage for more than one peril or cause of loss in one contract. Not the same as a commercial package policy, that contains more than one line of business.

Commercial package policy (CPP)

A package policy designed for commercial insureds that can provide in one policy several lines of insurance business as needed by that commercial venture. Lines of business which may be included in the CPP are property/glass, general liability, inland marine, crime, boiler and machinery insurance, and commercial automobile.

Commercial property policy

commercial property policy Commercial property policy provides coverage for real and personal property that is used in a business.

Commercial umbrella

A form of liability insurance protecting policyholders for claims in excess of the limits of their primary automobile, general liability and workers compensation policies, and for some (few) claims excluded by their primary policies which are subject to a deductible, which may range from $250 for a personal umbrella to a minimum of $10,000 for a commercial umbrella.

Commercial umbrella liability insurance

A form of liability insurance protecting policyholders for claims in excess of the limits of their primary business automobile, general liability, and workers compensation policies. It also provides coverage for some sources of loss that are not covered by their primary policies. Such cases are subject to a deductible (or self-insured retention).

Commission

The portion of the premium paid the agent or broker for having produced the business. (See agent’s commission.)

Commissioner of insurance

The official of a state charged with the duty of enforcing its insurance laws. Also called the superintendent of insurance (in three states) and director of insurance (in eight states). The official is elected in 11 states, appointed by a governor or state agency in 38 states, and is a civil service appointee in Colorado.

Commissioners’ Values

A list that is revised and published annually by the National Association of Insurance Commissioners. The list consists of values that insurance companies must use in order to post security values in their financial statements.

Commitment ceremony insurance

A special event policy that protects against loss from unforeseen circumstances that affect commitment ceremony plans (used in instances where legal marriage is not an option due to law or participant preference). Covered items include the cost to cancel and reschedule, having to replace a caterer or band, event party travel expense, gift coverage, loss of event attire or rings, etc.

Commitments

Amounts of insurance on risks which a company has written or agreed to write.

Common accident provision

Found in some health insurance plans. If two or more persons are injured in the same accident, the deductible applies only once. Some travel accident plans will also have a common accident provision that will pay out no more than a certain multiple if a certain number of employees are killed in a common accident, e.g., a plane crash.

Common area

Most often used in reference to the property and liability coverages for apartments, condominiums, townhouses, cooperatives, and other related risks. Common areas are those areas not specifically owned by a tenant or individual property owner, but are owned either by the landlord or all the occupant-owners, or are under the control of the landlord or association. Common areas are open to all. The most common examples are hallways, parking areas, and recreational facilities.

Common carrier

Common disaster clause

Found in life insurance policies. If the insured (husband) and the primary beneficiary (wife) die in the same car accident, the secondary beneficiary (Junior) will become the beneficiary. If wife survives for a while and then dies without a common disaster clause, her estate would receive the benefits of the policy. In addition to problems with survivors, there can be tax implications with the payment of benefits to the wife that could be mitigated by payment to Junior. The common disaster clause states that the primary beneficiary must survive the insured by (usually 30-90 days) or the benefit is automatically paid to the secondary beneficiary.

Common law

Law based on precedents that have been made by courts throughout the years in Great Britain and the United States. This is, therefore, law that has not been enacted into statutes by lawmaking bodies (which make “statute” law).

Common law liability

The legal responsibility that one party owes another (for injury or damage caused by negligent actions) which is based on common law principles.

Communications liability

(See Media Professional Liability.)

Community rating

In health insurance, particularly with Blue Cross-Blue Shield plans, rather than develop rates and experience based upon the individual or the group of employees within one business, the plan will accumulate the experience of all employees within a specific geographic territory or some other large population.

Commutation clause

A clause in a reinsurance agreement which provides for discharge of all obligations (past, present and future) between the parties for reinsurance losses incurred. This clause is usually optional but may be mandatory.

Comparative negligence

A more modern system of allocating damages between two or more persons than the method of contributory negligence, which remains effective in many states (under which one cannot collect damages for bodily injury or property damage caused by another party’s negligence if one were oneself in any way negligent). Under comparative negligence, the damages collectible in relation to another person are diminished in proportion to one’s degree of negligence. In most instances, damages cannot be collected at all if the claimant’s negligence was greater than that of the other party. Currently, in a few instances, the courts have awarded both parties damages as a percent of the total damages, depending on respective degrees of fault. (See contributory negligence.)

Compensation insurance

Protection which provides various benefits to employees for any injury or contracted disease arising out of and in the course of employment. All states have laws which require such protection for workers and prescribe the length and amount of such benefits that are provided. Originally, workers ceded their rights to sue in exchange for worker’s compensation benefits, but in recent years lawsuits have successfully eroded this concept.

Compensatory damages

Not to be confused with punitive damages, which are additional damages requested by an injured party to punish the party responsible for the loss. Compensatory damages are normally monetary damages alleged by the claimant to compensate for actual injuries or expenses sustained. These may include all types of medical expenses, as well as other expenses such as lost wages, legal fees, pain and suffering, mental anguish, loss of consortium, etc.

Completed operations coverage

Protection for a business which sells service instead of products against liability claims arising out of work completed away from the business premises. Differs from products liability coverage, which protects against products liability claims.

Composition roof

A roof made of asphalt shingles, asbestos shingles or tar paper roofing, or the usual forms of roofing materials. It does not refer to slate roofs, tile roofs, or metal roofs, which are not combustible, nor does it refer to wood shingle roofs, which are usually so designated.

Comprehensive automobile coverage

An “all-risk” type of physical damage protection for automobiles including theft but excluding loss by collision or upset (which may be added).

Comprehensive automobile liability policy

The broadest form of business coverage for claims alleging bodily injury or property damage resulting from the insured’s ownership, maintenance or use of an automobile. The premium, which is adjusted (audited) at the expiration of the policy term, is based on the insured’s actual exposure during the policy term.

Comprehensive crime coverage endorsement

Endorsement (now obsolete) that at one time could be attached to a special multiperil policy providing optional employee dishonesty, money and securities, money orders, counterfeit paper currency, and depositors’ forgery coverages.

Comprehensive dishonesty, disappearance and destruction policy

Commonly known as the 3-D policy, this is an obsolete package policy providing crime protection principally covering dishonesty, forgery, loss of money and securities, and safe deposit losses.

Comprehensive general liability policy

(See commercial general liability policy.)

Comprehensive major medical insurance

Coverage designed to provide protection including that which is otherwise contained in both the basic and the major medical insurance policies. A relatively small dollar amount deductible is found in this type policy, as well as coinsurance. Dollar amounts of the benefits provided are normally higher than those found in either a basic or a major medical policy by themselves.

Comprehensive medical expense policy

One form of health insurance that provides coverage for hospital expenses, surgical expense, physicians’ costs, drugs, and other medical coverages. Normally, the coverage is subject to a deductible and coinsurance provisions. This type of coverage is often offered as group insurance.

Comprehensive personal liability

A form of liability insurance which reimburses the policyholder, if liable, to pay money for damage or injury caused to others. This form does not include automobile liability but does include almost every activity of the policyholder except such as may arise from the operations of a business, hence “personal” liability. The coverage is a part of either homeowners or tenants policies and is almost obsolete as a separate policy.

Compulsory insurance

Coverage required by certain states of certain people in certain circumstances, e.g., workers compensation and automobile liability.

Computer fraud coverage form

A crime coverage form designed to protect against loss of money, securities and property when conversion occurs via computer fraud.

Computer insurance

Protects computers and related equipment in amounts that supplement the modest limit available under a standard HO policy. Generally, the coverage is written as an optional endorsement to homeowner coverage. Besides providing a higher, separate limit, the coverage tends to be broader, allowing for more off-premises protection as well as being applicable to certain business use.

Concealment

In insurance, failure to disclose a material fact which may void an insurance policy. (See material fact.)

Concurrent causation

A legal concept of applying insurance coverage when two or more hazards or perils (with at least one being a covered hazard/peril) contribute to creating a loss, essentially at the same time.

Concurrent insurance

Coverage in one policy on the same property under the same conditions as another policy.

Condition

Something established or agreed upon to be necessary to make a policy of insurance effective. (See warranty.)

Conditional delivery

Insurance policies containing provision preventing the policy from becoming effective until all terms and conditions stated have been fully met.

Conditional premium receipt

In life insurance there is usually no insurance granted until the first mode of premium is received by the company. However, the applicant may pay the first mode of premium at application or before the policy is issued. A conditional receipt is used to provide insurance should the insured die before the policy is issued. If the insured would have been otherwise insurable (but for the premature death), then the company, by the conditional receipt, would have to pay either the entire policy limit or some lesser limit as indicated on the receipt.

Conditional reserves

Insurer and reinsurer balance sheet items such as unauthorized reinsurance and unsecured and/or overdue reinsurance recoverables that, due to accounting regulations or restrictions, are treated as liabilities.

Conditional sales floater

An inland marine policy covering property which has been sold on the installment plan. Also known as installment sales floater.

Conditionally renewable policy

Found in health policies. Gives the company the right not to renew the policy for specific reasons enumerated in the contract. Conditions vary by contract and the conditional renewal is often at the next premium payment period, i.e., quarterly, annually, third year, etc. (See also guaranteed renewable and noncancelable or noncancelable/guaranteed renewable policy.)

Condominium

A form of real estate ownership becoming increasingly popular. It is the individual ownership of a single unit in a multiple-unit building or group of buildings, together with a percentage interest in that part of the total property owned jointly by all unit owners. In an apartment building, each apartment would be a unit and the stairways, pathways and parking areas would be in common ownership. Condominium property requires special insurance treatment.

Condominium association coverage

Insurance policies designed to meet the specific liability exposures of condominium associations and to provide protection for the property held in common, such as the building, hallways, recreational facilities, and maintenance equipment.

Condominium declarations map

A survey map or plat of the surface of the ground included within a condominium project.

Condominium unit owners form

Insurance policies designed to meet the liability and property needs of the condominium unit owner. Both personal and commercial versions of this type of policy are available.

Conduit

A trust established for the single purpose of receiving a given firm’s assets and issuing various types of debt, backed by those assets.

Conference of Insurance Legislators (COIL)

An organization of state legislators who specialize in insurance legislation.

Conflagration

A sweeping fire which destroys many properties and usually involves large values.

Conflagration area

An area in which property may be consumed by a sweeping fire or conflagration.

Consent-to-rate

consent-to-rate This rating rule is no longer widely used since it is prohibited by many state regulations. It refers to a company writing a risk that falls outside of underwriting guidelines by getting the insured’s written permission to use rates that are higher than those that have been filed for use with the applicable line of business.

Consent-to-settle clause

A provision that typically appears in professional liability policies. It requires the insurance company to secure the insured’s permission to settle a claim or lawsuit. It allows the insured to have control over an action that could affect his or her reputation. (Also see hammer clause.)

Consequential loss

In property insurance contracts, consequential losses are indirect losses, a reduction in the value of property that is a result of a direct damage loss. Usually associated with time element or other remote or indemnification type losses. Consequential losses are different than ensuing losses since consequential losses are indirect losses not direct damage losses, whereas ensuing losses are further or additional direct damage losses that have been initiated by the original direct damage cause of loss.

Conservation

The acts or efforts of a company or agent to attempt to prevent a life insurance policy from lapsing.

Consideration

In legal terms, it is the inducement to a contract or the promises made. It may be either express or implied. The insurance policy is a common example. The consideration provided by the insured is the premium dollar, and the consideration of the insurer is a promise to pay should loss, accident or injury occur. If a loss does not occur, nothing is paid by the insurer. Should there be a loss, however, the amount of coverage provided by the insurer may exceed the lifetime accumulation of premiums paid by the insured.

Consignee

The party listed on a bill of lading to whom the cargo is to be delivered.

Consignor

The party shipping the cargo as listed on a bill of lading.

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)

Consortium

Refers to the right shared in spousal (and sometimes parent-child) relationships to enjoy companionship, affection, intimacy and similar feelings for which, if lost because of injury or death, a suffering party may seek damages.

Construction bond

A surety bond designed to protect the owner of property on which a building or structure is being built should the contractor not complete the job. If the contractor fails to fulfill the construction contract, the insurer must then make sure the work is finished.

Constructive total loss

Damage to property which is so great that the cost of recovering and repairing the property would exceed the insured value. (See abandonment.)

Consumer reporting agency

An entity that provides various types of insurers with lifestyle, credit history, and other information about their potential and existing customers.

Contact center

Contact lens insurance

Reimburses for replacement of lost or damaged contact lenses.

Container

A portable, box-like metal structure (resembling the non-wheel portion of a railroad boxcar) used for transporting goods on ships, planes or trucks.

Personal property that is usually contained in a building or other structure.

Contents rate

The fire insurance rate on the contents of a building as distinguished from the rate for insurance on the building itself.

Contestable period

Typically a two-year contestability period during which an insurer has the right to void the contract if fraud or material misrepresentation by the insured is discovered in the application. (See also incontestable period.)

Contingency cover

Contingency reserve

1) Assets maintained by an insurance company to absorb some unexpected outgo or loss, such as the sudden fall in the value of securities owned. Companies may carry as a contingency reserve the excess between the market value of securities on the last day of the year over their NAIC required valuation. 2) A voluntary reserve not specifically assigned.

Contingent beneficiary

The party designated to receive the benefits or proceeds of a life insurance policy or retirement plan, should the primary beneficiary die.

Contingent business income

The insurance against loss due to interruption of business by fire or other insured cause of loss occurring at the premises of another on whom the continuation of the business is dependent, such as the premises of a supplier or a large customer.

Contingent commission

A profit-sharing commission paid to an agent, which depends upon the profit the company has realized from the agency’s operations. Also known as profit-sharing commission.

Contingent liability

1) A liability which may be incurred by an insured as a result of negligence on the part of independent persons engaged to perform work. The most common example is the contingent liability of a principal contractor, which may result from construction operations undertaken by subcontractors. Also applies to the liability of a principal for the acts of an agent or servant. (See protective liability insurance.) 2) In property damage insurance, the possibility of financial loss to a policyholder, resulting from damage or loss to the property of another, such as a supplier or a customer.

Contingent payee

In life insurance, the primary payee normally will receive all proceeds. However, proceeds may be paid out over a specific period and if the primary payee dies before all proceeds are paid, the designated contingent payee will receive the balance of payments.

Continuing education (CE)

An ongoing process in the insurance industry to keep its member professionals current, updated and responsive to the many legislative, coverage and marketing changes, through the offering of courses, workshops and seminars.

Continuing education requirement

Requirements imposed by state departments on insurance agents and in some cases adjusters and other professionals to periodically complete a minimum number of hours of insurance-related education in order to be eligible for a professional license or license renewal.

Continuing expenses

A term used in commercial time element coverage to indicate those expenses that will continue during the restoration period after a business is closed because of a loss. These expenses may include such items as taxes, certain executive and key person payroll, loan payments, utilities, and other expenses the insured may be contractually obligated to continue.

Continuous coverage or continuous liability insurance

Continuous coverage refers to the length of time you have maintained insurance on your vehicle.

Continuous premium whole life insurance

Life insurance that is payable for the life of the insured. Most whole life insurance policies are continuous premium whole life insurance because premiums are payable for life or until age 100, whichever comes first.

Continuous trigger theory

An event is recognized as an insurable loss (or occurrence) along a timeline from when damage first appears until it terminates. The continuous damage is eligible for coverage under every policy in existence during the period that damage occurred. Under this theory, each policy would cover its share of damage that occurred during the time the policy was in effect. (See exposure theory, injury-in-fact theory and manifestation theory.)

Contra proferentium

A Latin term used when any ambiguity in contract is construed against the drafting party.

Contract bond

In general terms, a surety bond guaranteeing the performance of a contract, usually associated with construction work, but possible for almost any kind of contract. Sometimes called a performance bond.

Contract carrier

A cargo transport operation that contracts with only one or a limited few shippers. This type of operation often has consistent delivery routes and rarely contracts with other operations.

Contract of indemnity

A contract agreeing to restore an injured party to the condition that was present prior to the occurrence of injury or loss.

Contract price

The entire cost of the contract between the owner of property and the contractor providing service to fulfill the obligations of the contract. It is used as the basis for the premium charge on many varieties of construction and supply bonds.

Contractor-controlled insurance program

An insurance program for larger construction projects that is purchased and administered by, typically, the project’s general contractor. Also see wrap.

Contractors protective liability

A policy which provides liability coverage for the insured for the negligent acts of contractors and subcontractors hired by the insured. May also cover for their own negligent supervision of the work performed.

Contractors’ equipment

Equipment used by contractors in their business operations. Examples may be anything from concrete forms, asphalt plants, bulldozers, cherrypickers, and scaffolding, to small hand tools. This equipment is most often protected by inland marine insurance coverages due to its mobile nature. (See mobile equipment.)

Contractors’ equipment floater

An inland marine form which insures the equipment, tools and materials of a contractor. (See equipment floater insurance.)

Contractual liability

A legal obligation voluntarily assumed under the terms of a contract, as distinguished from liability imposed by the law (legal liability).

Contractual liability insurance

Insurance coverage to provide protection for the additional liability exposure an insured has assumed in a contract. Only specified contractual liability exposures are covered in standard liability policies for items such as leases and related types of contracts because the assumption of such liability in a contract is not only voluntary, but may be extensive. When contractual liability insurance is purchased, the contracts covered must be individually evaluated for the type and amount of exposure posed.

Contributing excess

A reinsurance term for when more than one reinsurer shares coverage on a particular line of insurance, i.e., general liability, and all are in excess of a particular retained limit. Example: There are three reinsurers. Each agrees to one-third of the loss above the $500,000 retained limit up to a limit of $1,000,000. In a million dollar claim, the insured will pay the first $500,000 and each of the three reinsurers will pay $166,000.

Contribution

The amount payable by each of several policies when covering a loss.

Contribution clause

The clause in a policy which describes how much its issuer must pay if there is insurance in more than one company on a given loss. (See overlapping insurance.)

Contribution to surplus

A company that makes more in money than it spends in claims or underwriting expenses can contribute the excess to its surplus account. (See also surplus.)

Contributory group insurance

Group insurance in which all or part of the premium is paid by the employee or group member, with any remainder being paid by the employer or union. In noncontributory insurance, the employer pays all the premium without any contributions from employees.

Contributory negligence

A common law defense in which the plaintiff must be entirely free from fault in order to recover from a negligent defendant. If the plaintiff has in any way been guilty of neglect, the plaintiff cannot recover from the defendant. This principle has been modified in some states by legislation and interpretation by the courts. (See comparative negligence.)

Contributory plan

In a contributory pension plan, a participant has the option to or is required to make payments or contributions into the plan in addition to those contributions made by the employer. (See also noncontributory plan.)

Contributory value clause

Used in ocean marine hull, cargo and freight policies, setting forth the insured’s responsibilities and the underwriter’s obligations, with respect to the insured’s interest, when involved in a general average and/or an act of salvage. The insured can be a coinsurer if the insured’s interest is underinsured. (See general average.)

Controlled business

Business over which an agent is able to exercise his or her personal influence. Generally, such business includes the agent’s company, employees and immediate family. Most states limit the amount of controlled business which may be written by an agent. The limitation prevents persons from securing a license for the sole purpose of writing business more cheaply (such as by saving commission costs) for relatives, employers and employees.

Controlled Insurance Program

(See wrap.)

Convention blank

Another name for annual statement, a form of financial report prescribed by the NAIC.

Convention of Salvage

Via its 1989 revision, an international maritime provision that allows some level of compensation for unsuccessful salvage operations that were performed with a given level of expertise and which involved reduced environmental harm.

Convergence

The term refers to any instance of “coming together.” With regard to insurance, it refers to the trend of that service, as well as other, previously separate financial services, being offered by the same source, or risk managers arranging both traditional and nontraditional programs to address loss exposures.

Conversion

The wrongful exercise of ownership rights over another’s personal property, whether by taking, withholding or misusing.

Conversion privilege

A life and health insurance provision. It permits an insured to change from one type of policy to another or to increase coverage limits, without having to take additional physical examinations or prove insurability.

Converted losses

The factor indicative of the insured’s specific loss experience, used in some retrospective rating and retention plans, computed by multiplying incurred losses by a loss conversion factor.

Convertible collision

A form of full coverage collision insurance for automobiles in which 50% of the full coverage premium is charged as an initial premium, the remaining 50% being payable only if the policyholder makes a claim during the policy period. Thus, the effect is that the policyholder is not likely to make a claim unless the amount of the loss exceeds the initial premium, in which case the premium payable is changed (or converted) from 50% of the full cover rate to 100%, becoming obsolete

Convertible term insurance

Term insurance that is convertible to a higher premium paying plan (usually whole life) without evidence of insurability. Convertible term insurance can be convertible without medical examination for only a limited part of its term, e.g., a ten-year convertible term policy may be convertible only during the first seven years of the term.

Cooperative

One type of ownership arrangement for an apartment building. It is owned by the cooperative or cooperative association, a group of individuals, each of whom owns shares in the building, rather than the person’s individual units or apartments as with a condominium.

Coordinated Advertising Rate and Form Review Authority

Coordinated Advertising Rate and Form Review Authority An initiative created by the NAIC, it involves a special panel of insurance regulators who review various insurance product rates and forms on an expedited basis for use nationally. Primarily used for life and health insurance products and rates.

Coordination of benefits (COB)

COP-Commercial Output Policy

Essentially an updated version of a manufacturers output policy. The coverage is designed for medium and larger firms that make and/or distribute goods. The policy offers liability and property coverage. Covered property includes building and building personal property (particularly computers and equipment). Broad coverage is offered for both on-premises and off-premises exposures.

Corporate Average Fuel Economy

Refers to the provision of the Energy Policy and Conservation Act of 1975. It initially established vehicle fuel efficiency standards (miles per gallon) for manufactured vehicles and is periodically updated to take advantage of technological advancements and other policy considerations.

Corporate surety

A corporation which has obtained the necessary and proper licenses under applicable state insurance law, to legally act as the surety for others

Corrective action costs

Expenses that a party incurs to clean or correct the damage done by pollutants to the ground, water or air after the occurrence of a pollution incident. These costs are usually mandated or assessed in response to a confirmed incident by the Environmental Protection Agency (EPA). (See cleanup costs.)

Correlation

correlation A relationship or connection between (at least two) items. In credit scoring, it refers to the relationship between an individual’s score (that is derived from their credit history, existing accounts and debt service) and their likelihood of experiencing an insurable loss.

Corridor

In universal life insurance the corridor is the difference between the policy death benefit and the cash value. This corridor is important because the IRS will consider the size of the corridor (too narrow = too much cash value) to determine whether the contract meets the definition of life insurance and retains the tax-free inside buildup of cash value or is considered an investment vehicle and subject to more immediate taxation.

Corridor deductible

A corridor deductible is exclusive to the health insurance industry. Once a major medical policy has paid the full stated amount of limits or benefits to an insured, if additional expenses still exist, the corridor deductible is the amount that must be borne by the insured before additional coverage is available.

Cost Based Pricing

Cost Based Pricing-Method in which a fixed sum or a percentage of the total cost is added (as income or profit) to the cost of the product to arrive at its selling price.

Cost of living adjustment

cost of living adjustment (See COLA.)

Cost, insurance and freight (CIF)

This refers to a common term in a sales contract that may be encountered in international trading when ocean marine travel is used. In this type of contract, the selling price includes the cost of the goods, all shipping charges and the cost of marine insurance. Although the seller is obligated to purchase marine insurance, the seller’s responsibility for the goods ends when the goods have been delivered to the marine carrier or have been delivered on board the shipping vessel, depending upon the terms of the contract.

Cosurety

One of several who participate in underwriting a surety bond.

Council of Insurance Agents and Brokers

Established in 1913 as the NAIB, this organization is a trade association that is composed of the largest United States agents and brokers who handle property and casualty insurance and employment benefits. Headquarters: Washington D.C.

Counterclaim

counterclaim A party that is confronted by a legal action responds by filing a separate action, alleging a different set of circumstances.

Countersignature

1) An additional signature placed on a policy by an authorized person at the time it is issued, supplementing any other signature appearing on the printed form used for the policy. 2) When used to describe a countersignature law, the signature which must be obtained from an authorized person (usually a licensed agent or broker in a state having such a law) on a policy covering property in that state, but written by a party outside the state.

Countersignature law

State insurance laws, in some states, requiring that policies issued to insureds within that state, but written by agents or insurers outside the state, be countersigned by agents licensed within that state.

Country damage

In marine cargo insurance, damage to baled cotton caused from poor methods of baling, handling or storing which discolor and strain the cotton.

Countrywide rates

Refers to any vendor?s published, advisory rates (typically minimum) that apply on a national (rather than state) basis.

Countrywide Rules

Refers to any vendor?s published rating rules that apply on a national (rather than state) basis.

County clerks and recorders errors and omissions insurance

Insurance protection designed to protect against the liability exposures of county clerks and recorders for losses as a result of the rendering or failing to render official services and duties, including negligent acts, errors, and omissions of the insured and employees.

Court bonds

A generic term encompassing a variety of bonds that may be required of, or used by, the participants in a lawsuit. These bonds permit those participants to pursue certain legal remedies in court

Cover

1) To protect with insurance. 2) The insurance itself. Same as coverage.

Cover note

1) A document issued by an agent or broker which tells the insured that the agent or broker has effected the insurance described therein. Since there are often delays in issuing formal policies, a cover note gives the insured a description of what insurance the agent or broker has put into effect. A cover note is similar to a binder although a binder usually refers to a document given by a company to an agent instead of one given by the agent to a customer. 2) Used by surplus lines brokers to evidence coverage placed with nonadmitted companies. (See binder.)

Coverage

The extent of insurance protection afforded by a policy of insurance.

Coverage trigger

The event which determines when coverage of a liability policy applies. In an “occurrence” policy, the event is the occurrence of the injury or damage. In a “claims-made” policy, the event is the notification to the insurer or the insured, whichever comes first, of the happening of the injury or damage.

CPC

Certified Pension Consultant designation sponsored by the American Society of Pension Actuaries. Headquarters: Fairfax, VA.

CPCLA

Casualty Property Claim Law Associate designation sponsored by the American Educational Institute. Headquarters: Basking Ridge, NJ.

CPCU-Chartered Property Casualty Underwriter

The professional designation conferred by the American Institute for Property and Liability Underwriters.

CPIW/M

Certified Professional Insurance Woman/Man designation sponsored by the National Association of Insurance Women (International). Headquarters: Tulsa, OK.

CPP-commercial package policy

CPP (commercial package policy) A package policy designed for commercial insureds that can provide in one policy several lines of insurance business as needed by that commercial venture. Lines of business which may be included in the CPP are property/glass, general liability, inland marine, crime, boiler and machinery insurance, and commercial automobile.

CPSR

Certified Professional Service Representative designation sponsored by the National Association of Professional Insurance Agents. Headquarters: Alexandria, VA.

CPU-central processing unit

The part of an insurer’s computing system containing the circuits that calculate and perform logic decisions based on a manual program of operating instructions.

Crash manual

A book which describes procedures for estimating the cost to repair damage to vehicles; it also lists auto parts prices and typical labor times to repair or replace the part.

Credibility

The measure of credence or belief which is attached to a particular body of statistical experience for rate making purposes. Generally, as the body of experience increases in volume, the corresponding credibility also increases. This term would frequently be defined in terms of specific mathematical formulas.

Credit arbitrage

Now considered a method of alternative risk management, it refers to the buying and selling of corporate credit and, based on price discrepancies between different credit markets, realizing a profit from the transaction.

Credit card insurance

Covers against losses stemming from the misuse of lost or misappropriated credit cards. Usually written for individuals as an endorsement to the homeowners policy, but is also offered to business corporations as a separate contract or as part of forgery of comprehensive crime policies.

Credit health insurance

A form of health insurance to provide payments in case of disablement of debtors with respect to the amount owed on installment loans. If the debtor becomes disabled, the insurance will provide continued monthly payments, either to the end of the loan or for a specified number of months.

Credit insurance

1) A form of life and health insurance protecting the lender against loss from death or disability of the borrower, often written as group insurance. The coverage can be written to protect the interest of the creditor only (single interest), or the interests of both creditor and debtor (dual interest). (See single interest cover (or insurance) and margin account insurance.) 2) Protection against loss caused by the insolvency of a firm’s customers in excess of its normal credit losses; written by a few specialty casualty insurers. (See floor plan insurance.)

Credit life insurance

A form of life insurance to provide payments in case of death of debtors with respect to the amount owed on installment loans. In case of death of the debtor, the insurance pays the balance of the loan.

Credit report

A report on an individual’s personal characteristics, credit standing, habits, and including other facts which might influence the decision to insure that individual. (See inspection.)

Credit scoring

credit scoring Refers to assigning a numerical score to a number of attributes in an individual’s financial history in order to evaluate his or her desirability as a customer or loan prospect. Due to a discovery of a correlation between credit scores and loss probability, credit scores have been modified for use as an underwriting tool by insurers.

Credit-based scoring

credit-based scoring Refers to assigning a numerical score to a number of attributes in an individual’s financial history in order to evaluate his or her desirability as a customer or loan prospect. Due to a discovery of a correlation between credit scores and loss probability, credit scores have been modified for use as an underwriting tool by insurers.

Crime coverages

A generic term used to encompass the variety of crime coverage forms available to protect against losses of money, securities and property by such causes of loss as employee dishonesty, forgery, theft, burglary, robbery, kidnap, extortion and fraud.

Criticism

In reference to an audit, it refers to a suggestion that an outside party makes to an insurer regarding needed, corrective action

CRO

An executive charged with the task of creating, managing and implementing an organization?s risk strategy that, increasingly, encompasses financial, market, credit and operational risks.

Crop dusting and spraying liability insurance

Protection against claims alleging bodily injury or property damage arising from the normal business operations of crop dusters.

Crop insurance

Insurance against hail damage to growing crops. Although hail is the basic peril in these policies, cover is often granted for crop damage resulting from additional perils such as fire, windstorm, lightning, drought, frost, excessive heat, snow, sleet, etc.

Crop revenue coverage

crop revenue coverage Refers to a policy that pays for loss of farm income due to a low yield, low market prices or both.

Crop-hail insurance

Crop-Hail Insurance Actuarial Association

Rating organization, statistical and research association for crop-hail insurance and rain insurance on public events, business ventures and private proceedings. Headquarters: Chicago, IL.

Cross liability coverage

A provision that responds to a liability claim that is made against an insured by a person who is also an insured under the same policy. However, the total insurance limit available under the policy is unchanged.

Cross liability coverage endorsement

Most liability policies will not respond to claims between two or more insureds covered by the same insurance policy whether they be named insureds or additional insureds. This endorsement adds coverage for insureds who make a claim against another insured under specific circumstances. It is important to note that this endorsement does not increase the insurance company’s overall limit of liability.

Cross sell

cross sell In insurance, refers to the technique of reviewing one’s current clients for one type of business and selling them coverage in different lines (such as selling auto insurance to homeowner clients or selling life and health products to current property and casualty clients).

CSA

Customer Service Agent.

CSP

Certified Safety Professional designation sponsored by the Board of Certified Safety Professionals. Headquarters: Savoy, IL.

CSR

Customer Service Representative.

CSRP

See Certified Subrogation Recovery Professional.

Cumulative liability

Relates to fidelity bonds where a substantial claim could be made under a canceled bond containing a discovery period and also under another bond replacing it, since defalcations of dishonest employees often are spread over lengthy periods. To avoid this cumulative liability which could expose a surety company to a loss totaling the sum of two bonds, a clause-the superseded suretyship rider-is used, which picks up any liability under the prior bond and bars possibility of an accumulation of liability between the two bonds if issued by the same company.

Cure

An ocean marine term used to express the medical expenses made by the owner or operator of a vessel to a sailor who has become ill, injured or disabled while on a voyage or while performing the duties of a sailor for the owner/operator.

Current assets

Current assets consist of cash and other assets that can be quickly liquidated and converted to cash within one year.

Current assumption whole life insurance

This type of policy deviates from the whole life concept where premiums remain level. With current assumption whole life insurance, the premium payments are flexible and are linked to current interest rates. Premium adjustments are usually made on specific policy anniversary dates. Premium adjustments come from higher or lower mortality, expenses or investment returns of the insurer.

Current liabilities

Liabilities that must be paid within a one-year period, including the current (one year’s worth) portion of long-term debt.

Current ratio

The ratio of current assets to current liabilities. Normally, the greater or higher the ratio, the more liquid a firm is determined to be and thus is considered better able to pay debt. As a rule of thumb, a ratio of 2-to-1 is normally considered an acceptable minimum.

Curtain wall

Many buildings built of steel frames or concrete have walls which support no load, but serve merely to protect from the weather. Such walls are “curtain walls.” Modern fire-resistive construction usually calls for wall structure of this kind.

Custodian

A term typically used in crime insurance. It refers to any insured person (partner, officer, employee) who has custody of insured property while inside the covered premises.

Custom brokers and freight forwarders errors and omission

insurance insurance Special insurance policies designed for custom brokers which provide coverage for liability as a result of errors, omissions, or negligence in arranging for the clearance and forwarding of imports of behalf of the importer.

Cut rate

A generic reference to below market insurance rates or premiums.

Cut-off cancellation

The cancellation provision in a reinsurance agreement which clarifies that the reinsurer is not obligated to cover any loss that may occur after the specified cancellation date.

Cut-through clause

The cut-through clause is a provision in a reinsurance agreement which clarifies that, should the primary insurer becomes insolvent, the reinsurer is still liable for its stated share of the loss but that payment will be made directly to the insured and not to the insurer as is normally done. (See cut-through endorsement.)

Cut-through endorsement

An addition to an insurance policy between an insurance company and a policyholder which requires that, in the event of the company’s insolvency, any part of a loss covered by reinsurance be paid directly to the policyholder by the reinsurer. The cut-through endorsement is so named because it provides that the reinsurance claim payment “cuts-through” the usual route of payment from reinsured company-to-policyholder and then reinsurer-to-reinsured company, substituting instead the payment route of reinsurer-to-policyholder. The effect is to revise the route of payment only, and there is no intended increased risk to the reinsurer. Similar to the guarantee endorsement, the cut-through endorsement is also known as an assumption endorsement. (See cut-through clause.)

CWCLA

Casualty-Workers Compensation Claim Law Associate designation sponsored by the American Educational Institute. Headquarters: Basking Ridge, NJ.

Cyber forensics

A form of electronic discovery that involves examining an individual computer. The process consists of making a digital copy of its hard drive and examining its contents for relevancy to a criminal or civil case. The original PC is secured as evidence.

Cyber risks

Exposures to loss faced by organizations that conduct business online, particularly loss caused by unauthorized entry into their systems by hackers.

Cyber-insurance

cyber insurance A special form of commercial insurance created to protect businesses against cyber (Internet) risks, such as hackers and other breaches of computer system security.

D

D.H.-double hydrant

On a fire insurance diagram, this designates a double hydrant for the attachment of fire hose.

Daily report

A working copy of a policy, used as the agent’s or the company’s record.

Damage from strikers insurance

A special commercial property insurance policy designed to provide coverage for employers for damage and loss caused by vandalism or sabotage of strikers.

Damages

In liability insurance, refers to awards, which can be either compensatory or punitive. Compensatory consists of either general damages, which include pain and suffering, or special damages, which are out-of-pocket expenses. Punitive (or exemplary) are amounts that are awarded as a form of punishment or to act as an example.

Dangerous instrumentality

(See instrumentality.)

Data processing equipment insurance

Most often, an inland marine coverage form, for “all-risk” protection on equipment, software, extra expenses incurred as a result of the failure of such equipment caused by an insured loss, and loss of earnings. Also known as an “EDP” policy. May be extended to cover liability claims alleging errors and omissions by data processing companies. This coverage is known as data processors errors and omissions insurance. (See data processors errors and omissions insurance and EDP insurance.)

Data processors errors and omissions insurance

A special liability insurance policy designed to provide protection for insureds who offer data processing services to others. Coverage is for injury and damages resulting from negligent acts and errors or omissions in the rendering or failing to render of data processing service on the financial data or financial records of others. (See data processing equipment insurance and EDP insurance.)

Date of issue

Not to be confused with the policy effective date or the effective date of coverage, the date of issue is the date the policy was actually processed, typed, or issued by the insurer.

Deadheading coverage

Auto coverage for the liability exposure of operating a tractor/trailer rig (truck) with an empty trailer

Dean Schedule

A method (now obsolete) of rating fire insurance risks developed by A. F. Dean (Chicago, 1901). Geographically, much of the country was rated under this schedule which was known as the “Analytic System for the Measurement of Relative Fire Hazards.” Dean described a standard unoccupied risk for which a base rate was named depending on overall territorial factors. Each individual hazard or factor (construction, area, damageability, occupancy, exposure, etc.) that appeared in the risk added or subtracted a percentage of the base rate to produce the specific rate. A successful, logical method which contributed much to insurance thinking and practice.

Death benefit

The limit of insurance or the amount of benefit that will be paid in the event of the death of the covered person. (See additional death benefit.)

Death claim

When an insured dies, a death claim is made to the insurer. Prior to payment, if the policy is in its incontestable period, the claim may be investigated. Proof of death in the form of a death certificate is normally required.

Debit

With respect to life insurance: 1) The amount of premium that is charged (or debited) against an agent for collection. 2) The book of business the premiums charged against an agent consist of. 3) In regard to the book of business charged to an agent, it may be the territory those insureds are located in. 4) In regard to the book of business charged to an agent, it may be the number of insureds assigned for premium collection. With respect to commercial property and liability insurance: during the premium calculation process, debits refer to surcharges that may be assessed against an insured based on adverse individual risk characteristics or adverse loss experience, justifiable by verifiable facts. The factors qualifying for debit or surcharges are filed by the insurer and are approved by the various state jurisdictions.

Debit agent

The person who collects industrial insurance premiums (usually for life insurance) weekly or monthly from policyholders by personal contact.

Debit insurance

Insurance (usually life insurance) written in small amounts, the premium for which is payable in frequent installments (usually weekly or monthly) and collected by an agent known as a debit agent. The payment frequency and collection facilities were designed decades ago to accommodate workers at industrial factories who were paid weekly. Also called industrial insurance.

Debris removal clause

A property insurance provision which provides coverage for the cost of cleanup and debris removal after a covered cause of loss has occurred, such as cleanup after a fire or windstorm.

Decennial insurance

A form of international coverage. Essentially, it insures against damage related to structural defects in design, plans and materials. Its name comes from the fact that the coverage stays in effect for up to a decade after a given building project is complete.

Declaration or Declaration Page

1) With respect to property and liability insurance, the portion of the insurance policy itself, used to detail the name and address of the insured, the locations covered, the policy period, limits of insurance, endorsements attached and premiums for coverage. Commercial policies also contain such items as the type of entity and type of operation of the insured. 2) A statement made to the company or to its agents by a policyholder, upon which the company may rely in undertaking the insurance.

Declaratory judgment

declaratory judgment An opinion handed down by a court that determines a question that may be submitted by any party in a dispute. In insurance, declaratory judgments are typically requested on whether a loss qualifies for coverage or whether a policyholder should be provided with defense coverage.

Decreasing term life insurance

A life insurance policy in which the death benefit starts out at the full stated amount but declines on a set scale throughout the life of the policy, reaching zero at the end of the policy term.

Decrement

A pension plan that loses participants is said to be in decrement. Changes can occur from death, disability, retirement termination (plant closings, etc.). Loss of participants may affect the plan’s continuity or desirability.

Deductible

In a policy providing a deductible clause, the amount which must first be subtracted from the total damage incurred before determining the insurance company’s liability. Of several types used, the straight deductible establishes the insurer’s liability above the deductible but not below it; the franchise deductible establishes the insurer’s liability for the entire amount of damage once the deductible amount is exceeded in a loss; and the disappearing deductible establishes the insurer’s liability for an increasing proportion of the loss, as the total damage rises above the deductible, until the deductible finally “disappears.” Then the insurer is liable for the entire amount. The deductible may be in the form of an amount of dollars, a percent of the loss, a percent of the value of the insured property, or a period of time, as in health insurance. (See franchise clause.)

Deemed

deemed An agreement to treat a condition or circumstance in a given manner, regardless of any specific details.

Defalcation

Embezzlement of money, as used in fidelity bonds.

Defective product

There are three major areas of product defects: 1) defect occurring as a result of faulty manufacturing or assembly of the product 2) defective design 3) failure to give proper warning. Even in products that are not inherently dangerous, the principle of strict liability is being applied more and more, whenever serious injury or damage occurs. Strict liability will always be applied in those cases where the manufacturing, installing, marketing, or selling of products with known defects have occurred.

Defense Base Act Coverage

This item is an extension of the United States Longshore & Harborworkers Compensation Act. It applies to employees of American contractors and subcontractors involved in public works projects (including civilian support of overseas military bases, defense contracts and relief organization activity) located outside the continental U.S.

Defense clause

A provision in commercial and personal liability insurance policies whereby the insurer has the right and duty to defend a lawsuit against the insured, even when those suits are considered false, groundless or fraudulent. (See duty to defend.)

Defense Research Institute, Inc. (DRI)

A nonprofit organization of defense lawyers engaged in personal injury litigation, formed principally to increase the skills of legal defense. Headquarters: Milwaukee, WI.

Defensive Driver Course

These are classes either offered through or approved by Departments of Motor Vehicles to enhance driving skills. These courses may make drivers eligible for discounts on their premiums. Courses taken for traffic school because of a moving violation are not eligible.

Deferred annuity

A type of annuity where premiums are paid on an ongoing basis, but the benefit payments are deferred until a later date. The annuity can be scheduled to begin on a specific date or when a set age of the recipient is attained. A common example is an annuity that has been purchased for a child to pay for the child’s college education. Payments are ongoing, and the payout may be scheduled to begin when the child turns 18.

Deferred compensation plan

Employees may contract with their employers to defer compensation until some future date, i.e., retirement. Life insurance can be used to build cash for the deferred compensation (i.e., nonqualified deferred compensation plan). The death benefit can fully fund a plan at the premature death of the person for whom the compensation is being deferred.

Deferred life insurance

Life insurance policies designed to pay a higher death benefit after a specified period to allow the benefits to become vested.

Deferred premium

A premium payment method which allows an insured to pay premiums on an installment basis rather than the entire amount up front. Payments may be made monthly, quarterly or semiannually, but the payment amounts must be equal at least to the portion of the premium that has been earned.

Deferred premium payment plan

Provides for the payment of premium in installments. An initial installment is due upon attachment of liability with additional installments payable at monthly, bi?monthly or quarterly periods. The premiums due are usually in excess of the net premium earned on a short-rate basis.

Deficit

When the total amount outgoing owed exceeds the amount incoming owned in any given accounting period, or when debits exceed credits.

Defined benefit plan

A basic form of pension plan which requires contributions from both an employer and employee. In this plan, the amount of the benefit is known while the amount of the contributions needed to fund the plan varies.

Defined contribution plan

A basic form of pension plan that requires contributions from both an employer and employee. In this plan, the amount of the benefit varies according to factors such as the plan participant’s income, contribution amount, years until retirement, age, etc., while the amount of the contributions funding the plan is fixed.

Delay clause

1) In ocean marine insurance, a clause in the policy that excludes coverage for any loss experienced by the insured that results in damage to goods or loss of income/market that results from the vessels not arriving at its destination as scheduled (delayed). 2) In life insurance, a clause in the policy that allows the insurer to delay a loan on the cash surrender value of the policy, for a time period of normally six months, as clarified in the policy. The reasons and conditions allowing this delay are set forth in the contract; however, the purpose of this clause is to protect an insurer from excess demands by insureds for loans during periods of economic disasters or catastrophes.

Delayed payment clause

A life insurance clause which allows an insurer to defer the payment of the policy benefits to a beneficiary for a specified period of time after the death of the insured under certain conditions. This normally occurs when the insured and the primary beneficiary are both subjected to a common disaster, or in the case of other natural disaster. One example would be when a husband and wife are involved in the same airplane accident which kills the husband and leaves the wife in critical condition. The payment of the proceeds can be delayed and, if necessary, paid to the contingent beneficiary or the estate of the primary, in the event the primary beneficiary does not survive. Many life insurance policies clarify that a primary beneficiary must survive a stated period of time after the death of the insured in order to collect the benefits.

Demand surge

This refers to the substantial spike in the cost of materials and construction labor that occurs after a catastrophe such as an earthquake or hurricane. Demand surge represents a huge increase in loss settlement costs to insurers.

Demolition insurance

Insurance against the cost of removing the ruins of a building partially destroyed by an insured peril, when required by some city ordinances.

Demurrage

Refers to a vessel owner?s loss of use when that loss is caused by either damage to the vessel or due to delays in loading or unloading while in port.

Demutualization

The process where an insurance company owned by its policyholders (a mutual company) converts its charter to that of a company owned by shareholders (a stock company). The process may involve returning to the policyholders shares of stock or other value for their loss of ownership interest (membership rights) in the mutual company prior to the company conversion to a stock company. The process is regulated by the state where the demutualizing company is domiciled. More and more states are permitting a hybrid approach (mutual holding company) that combines both mutual policyholder ownership and marketable stock. (See mutual holding company.)

Dental insurance

Health insurance coverage for specified dental services, most often provided on a group basis.

Dentists professional liability insurance

Insurance designed to cover the professional liability exposures of dentists that result from claims for bodily injury and/or personal injury which may occur from alleged malpractice, errors or omissions in the rendering or failing to render professional services.

Dependent life insurance

Optional and voluntary life insurance benefits on dependents and spouse of a member in a group insurance contract. Limits of coverage are generally lower than on the life of the dependent and the dependent may be responsible for all or a portion of the premium payments on dependent life insurance.

Dependent property

dependent property Protects against income that is lost because of critical reliance on another property that has been damaged or destroyed (i.e., a key customer, supplier or processing partner).

Deposit administration plan

A group annuity plan, often to administer pensions, in which the members of the plan (or their employers) make scheduled deposits or payments to the plan. These payments go into a single group fund which may be invested. When each member reaches an agreed upon date, such as retirement, annuities are purchased by the plan, for that individual member for the benefit and payment of that member.

Deposit premium

A tentative charge made at the beginning of certain policies and reinsurance agreements, to be adjusted when the actual earned charge has been later determined. Also known as initial premium.

Deposit term insurance

A term insurance policy that, in the earlier years, has a higher premium than it does in the later years. In the beginning, the excess premium is considered savings, and this extra amount of money is set aside to earn interest. Later these dollars (interest plus the lump sum or deposit) will be used to reduce the premium payment. The entire deposit will be consumed in premium payments.

Depositor

A limited purpose entity which initially accepts assets intended for securitization from an originator firm and then transfers the assets to an SPV.

Depositors forgery bond

A bond where a person or corporation can insure against losses from forgery or alteration of outgoing negotiable instruments only, i.e., instruments drawn against the insured’s account.

Depository bond

Bonds specifically developed for use by financial institutions to guarantee the safety of funds made by depositors and their availability for withdrawal as indicated in the terms of deposit. It should be noted that this is not a federal deposit guarantee.

Depreciation

The reduction in value of tangible property caused by physical deterioration or obsolescence. (See appreciation.)

Depreciation insurance

Insurance which pays the difference between the depreciated value of property at the time it is damaged or destroyed by a covered cause of loss insured against, and the cost of replacing it with new property of similar kind and quality. Fast becoming obsolete and now provided for in replacement cost coverage of most personal and commercial property insurance policies.

Derivative

(See insurance derivative.)

Design professionals professional liability

A newer term for architects and engineers professional liability.

Detached structures

Structures located on the same premises, but not physically attached to each other.

Detention

Arrest or detention which involves the illegal restraint of an individual?s liberty; it is considered to be a type of personal injury.

Developed to net premiums earned

A financial ratio that compares an insurers premiums that have developed through a given year to its net earned premiums. The ration is a measure of whether a company’s loss reserves match its premium growth.

Development to policyholder surplus

A financial ratio that measures an insurer’s reserve status (deficiency or redundancy) with regard to its policyholder surplus.

Deviation

1) A rate filing which departs from the filing made by a rating bureau. Under all-industry prior approval rating laws (and some earlier laws), insurers who were members of and subscribers to rating bureaus (for the class of insurance involved) were required to use the rate filed by the bureau, unless the insurers deviated by making a filing with an insurance department and relating their variation to the bureau filing. Deviated filings should be distinguished from independent filings where an insurer withdraws from its affiliation with the bureau for the area of the filing and files directly with the insurance department separate and apart from the bureau filing. Deviations are no longer necessary in over half the states with open competition type rating laws, under which an insurer has no legal obligation to adhere to the filing and may make independent filings while remaining a member or subscriber. 2) In marine insurance, the route taken by a vessel going to some other port or taking some course other than that described in the policy of marine insurance, contract of carriage, or bill of lading.

Diagnostic Related Group (DRG)

A DRG is the medical claims reimbursement system, developed by Medicare for hospitals, where predetermined payment amounts have been set for listed procedures. The DRG systems have also been used by some employers and insurers as a cost commitment technique with health care providers.

Difference in conditions insurance (DIC)

A property policy insuring “all risks” of physical loss or damage, excluding fire and extended coverage perils. Any cause of loss that would result in the property being left in a condition different from what it was prior to the occurrence of the loss event, except for those causes of loss specifically excluded. Such unnamed losses would include collapse, water damage, theft and (optionally) flood and earthquake. Often, this coverage is provided on an inland marine basis.

Diminished value

Refers to either a real or perceived reduction in market value to a vehicle that has been damaged in an accident and then repaired.

Direct action statute

direct action statute Any law that permits a third party to sue an insurer or a reinsurer directly (instead of suing, respectively, an insured or a ceding insurance company).

Direct billing

A system for the collection of premiums where the insurance company sends a notice to the insured for the premium in lieu of the conventional collection of premiums by the agent. The company sends a statement to the agent, usually monthly recording the premiums collected direct, and credits the agent with commission due on those items.

Direct damage

Causes of loss that produce direct and straightforward property damage (without interruption in time or deviation in space) from the cause of the event to the damaged property.

Direct loss

Causes of loss that produce direct and straightforward property damage (without interruption in time or deviation in space) from the cause of the event to the damaged property.

Direct response system

direct response system An insurance sales system in which the insurer offers insurance directly to the public, using only its own employees and forgoing the use of agents. Common methods are the use of the U.S. mail, the telephone, or the Internet.

Direct selling system

An insurance sales system in which the insurer offers insurance directly to the public, using only its own employees and forgoing the use of agents. Common methods are the use of the U.S. mail, the telephone, or the Internet.

Direct writer

A company that sells insurance to the public either through employees licensed as agents or through licensed agents, compensated on a commission basis, who represent only one company; but not through independent agents representing more than one company. (See American agency system and independent agent.)

Director of insurance

The official of a state charged with the duty of enforcing its insurance laws. Also called the superintendent of insurance and commissioner of insurance. The official is elected in 11 states, appointed by a governor or state agency in 38 states, and is a civil service appointee in Colorado.

Directors and officers liability insurance

Protects officers and directors of a corporation against damages from claims resulting from negligent or wrongful acts in the course of their duties. Also covers the corporation (and even the officers and directors in some cases) for expenses incurred in defending lawsuits arising from alleged wrongful acts of officers or directors. These policies always require the insured to retain part of the risk uninsured.

Disability

Inability to work due to personal injury or illness. Each policy may contain its own modified definition.

Disability benefits

The benefits paid for one who becomes disabled. Normally these benefits are periodic, i.e., weekly or monthly. Occasionally benefits may be in the form of a lump sum. The qualification for benefit payout is determined by the definition of disability.

Disability buy-out insurance

If a partner or officer/shareholder of a business becomes permanently disabled, the other owners may want to buy out that partner’s or shareholder’s interest in the business. A contract is formed between the owners and funded by a disability policy that will pay if one of the owners becomes permanently disabled for more than six months, one year, two years, etc. The payment is usually in the form of one lump sum or a series of large payments.

Disability income insurance

A form of coverage which provides benefits to employees disabled by sickness or accident not related to employment. An extension of workers compensation acts in New York, New Jersey, California, Hawaii, Puerto Rico and Rhode Island. (See accident and sickness insurance.)

Disability insurance

A form of health insurance coverage which provides benefits in the form of income (usually weekly or monthly) to employees disabled by sickness or accident not related to employment. An extension of workers compensation acts in New York, New Jersey, California, Hawaii, Puerto Rico and Rhode Island. (See accident and sickness insurance.)

Disappearing deductible

A disappearing deductible is a dollar amount deducted from the amount of loss which is reduced as the size of losses increase, finally disappearing entirely (for a “large” loss) to provide full coverage when a loss reaches a certain specified figure. Deductible amounts vary from $500 to $5,000, and the limit at which the deductible disappears is usually between $5,000 and $25,000. Disappearing deductible plans are principally associated with fire policies, which thus qualify for reduced rates.

Disappearing deficit

Elimination of a deficit (loss) year (should one occur) from the computation of contingent commission in exchange for an annual charge in the contingent commission statement, such charge being a percentage of earned premiums.

Disaster

Any event that creates an inability on an organization?s part to provide critical business functions for some predetermined period of time.

Disaster prevention

Any course of action that identifies, mitigates or prevents occurrences that could result in a substantial disruption of business operations.

Disaster prevention checklist

A list of questions for evaluating disaster prevention measures that are in place in an organization?s critical areas of operation.

Disaster recovery

Refers to an organization?s ability to restore critical functions and to resume operations after activity is disrupted by a disaster.

Disaster recovery plan

A plan that documents the steps necessary for an organization to begin recovery from operations that are being disrupted by a disaster. The plan should include specific objectives, such as finding a replacement site within 48 hours, contacting alternate suppliers, etc.

Disaster recovery plan

disbursements Prior to the sailing of a vessel, it is necessary to spend money for supplies, labor and other things which will be totally lost if the vessel does not complete its voyage. Insurance on “disbursements” reimburses the owner for these expenses in case the ship becomes a total loss before reaching its destination.

Disclaimer

1) The denial of liability or an obligation. 2) The denial of a claim or coverage based on just grounds.

Discounted premium

An insurance premium that has received a discount or credit because it was paid in full in advance of the due date.

Discovery period

A period of time after cancellation of an insurance contract or bond during which the insured can discover whether there would have ben a recoverable loss if the contract had remained in force. The period varies considerably and, in the case of certain bonds, could be indefinite by statutory requirements.

Discrimination

The exercise of choices in selecting risks, as an essential function of any insurance system, when used in matching individual risks with the rates representing their chances of loss or their expenses. Often used erroneously to imply unfair discrimination, which is illegal. (See classification, selection, and unfair discrimination.)

Dishonesty, disappearance and destruction policy

A now obsolete crime insurance policy that provided a combination of fidelity coverages with other crime coverages. It was previously called the 3-D policy. This policy has been replaced by more inclusive commercial crime coverage forms.

Disinterested party

Refers to any individual who does not have a reason for a dispute to be resolved in any particular manner. A party who has nothing to gain from how an argument is decided is valuable as a party to help resolve a dispute, such as an arbitrator or mediator.

Dismemberment

Loss of, and sometimes loss of use of, specified members of the body.

Dismemberment benefit

In accident and health insurance coverages, the schedule of benefits that will be paid should dismemberment occur. The schedule includes the amount of payment for each of the various types of dismemberment.

Distribution clause

A provision in a property insurance policy stating that the coverage is “blanket,” in other words, one amount covering several items shall be limited on each item to the proportionate amount which the value of the particular item bears to the total value of all the insured items. (See average clause.)

Diversification

The practice insurance companies employ to spread their risks geographically by type of insured and by peril in order to minimize the catastrophe potential.

Dividend

An amount of money paid to the policyholders of a mutual insurer because of their ownership interest. A stock corporation may also pay a dividend to its policyholders if it writes participating insurance. In either event, the amount is payable on the basis of certain savings in losses or expenses realized by the insurer on that participating class of business. (See participating insurance.)

Dividend accumulation

An option in some life insurance policies which allows the insured to choose to leave the dividends earned by the policy with the insurer, in order to accumulate interest income for the insured.

Dividend option

In some life insurance policies, insureds may select from specified options for the method best suited to that insured, with respect to the handling of the dividends earned by the policy. Some of the most common options available are reduced premiums on continuing coverage, payment to the policyholder in cash, the ability to purchase paid-up additions of whole life insurance, to leave the dividends on deposit to accumulate at compound interest, or to apply the dividends to the purchase of extended term insurance.

Division wall

A wall which effectively separates a building into two separate fire areas. Must meet certain standards to qualify in the making of fire insurance rates. (See fire wall.)

Dockominiums

Trendy reference to a situation in which vessels are owned individually (similar to a condominium unit owner), but the applicable docks and piers are under association ownership.

Doctrine of reasonable expectations

A term courts use to interpret policy language. A court may chose to rule that coverage applies if a reasonable person would assume, by the nature of the policy, that a particular circumstance should be covered.

Domestic company

An insurance company incorporated or organized under state law is a domestic insurer in that particular state. (See alien company and foreign company.)

Domestic partners

Two adults of the same or opposite sex sharing a household and involved in a spousal relationship.

Domestic preference

The practice of some state governments to impose more favorable tax rates for domestic insurers than foreign or alien insurers.

Domestic terrorism

Describes an intentional act to cause serious property damage or bodily injury for political purpose that is perpetrated by a country’s citizen against persons or property in that same country.

Domiciliary state or state of domicile

The state in which an insurer is incorporated. In the case of an insurer incorporated in a foreign country, the state which such insurer “desiring to be an authorized insurer in the U.S.” has designated as its state of entry.

Door-to-door coverage

An inland marine and ocean marine insurance that covers goods or cargo shipped for the entire time of transport from the premises of the manufacturer to its final destination.

Double indemnity

Twice the life insurance benefit, payable if death is caused by accident. Multiple indemnity is often available beyond that of double indemnity for death due to certain accidents. (See accidental death benefit and additional death benefit.)

Double trigger contract

Any contractual situation that requires two independent events or conditions to be satisfied in order to initiate (trigger) an obligation. Such agreements are increasingly used in complex reinsurance or alternative risk transfer arrangements.

Downgrade clause

downgrade clause A contract provision used by ceding insurers asking reinsurers, as part of their treaty agreement, to make adjustments to strengthen their balance sheet if a financial rating service lowers their financial rating.

Draft

A substitute for a check, used by many insurance companies to pay claims. A draft is payable through a named bank, which collects the amount of the draft from the issuing insurance company and then gives credit to the claimant payee’s local bank.

Draft authority

The authority that an insurer gives to an agent which allows the agent to settle and pay certain types of claims up to a specified limit.

Dram shop laws

The laws will vary by state, but for the most part, the owner or operator of an establishment serving or providing alcoholic beverages is liable for injury or damages caused by or to an intoxicated customer, if it can be established that the owner or operator caused or contributed to the intoxication of the person through the sale of alcoholic beverages. These laws are sometimes called liquor liability laws. (See liquor liability laws.)

Dram shop liability insurance

A form of liquor liability coverage in which the basis for legal liability is a dram shop, liquor control, or alcoholic beverage law. The laws vary, but most provide that the owner of an establishment that serves alcoholic beverages is liable for injury or damage caused by an intoxicated person if it can be established that the liquor licensee caused or contributed to the intoxication of the person. (See liquor liability laws.)

Dread disease policy

Often called a cancer policy because it covers only one or more dread diseases: cancer, heart disease or other major malady. (See also cancer policy.)

DRG-Diagnostic Related Group

DRI-Defense Research Institute, Inc.

A nonprofit organization of defense lawyers engaged in personal injury litigation, formed principally to increase the skills of legal defense. Headquarters: Milwaukee, WI.

Drive to and from work

A personal lines auto insurance rating category. It is used to classify vehicle usage with respect to the distance driven by the principal operator when traveling to or from the workplace. Traditional categories have been: under 3 miles to work one way; 3 to 15 miles to work one way; over 15 miles to work one way.

Drive-by claims

An informal reference to Americans With Disabilities Act (ADA) compliance lawsuits that are filed by disabled persons and lawyers against, typically, small businessowners. Usually such suits are typically filed without contact or notice to the plaintiffs. They are nuisance actions intended to force settlement or to collect attorney fees rather than to influence ADA compliance.

Drive?in claims service

drive-in claims service A system employed by some automobile insurers where vehicles with minor insured damage can be driven to the company’s local “drive-in” claims office for inspection and immediate settlement of the damage claim.

Drive?other?car coverage

drive-other-car coverage A provision in an automobile policy designed to protect the policyholder (and insureds other than the policyholder) when driving cars other than the one described in the policy.

Driver training credit

To encourage driver education courses at schools and colleges, many insurers grant lower rates to applicants for private passenger automobile insurance who have successfully completed an approved training program.

Drop down coverage

Refers either to an excess or reinsurance policy that extends its coverage to provide protection on either a primary or a lower layer basis. The coverage may exist as a result of the applicable policy language or by written agreement. Note: Distinct from drop down provision.

Drop down provision

Refers to a private auto insurer policy wording that affects youthful operators. When a younger driver is involved in an auto accident that includes injuries and damage to third parties, a separate, substantially lower set of liability limits are applied. This applies in policies that have no youthful operators rated on the policy as regular drivers. Note: Distinct from drop down coverage.

Dry valve

A device in automatic sprinklers which uses air pressure to prevent water from entering the pipes in a sprinkler system until released by the opening of a sprinkler head. The purpose of such a dry valve is to prevent freezing of water-filled pipes and consequent bursting.

Dual coverage

An insurance term with respect to claims handling, used to indicate that more than one policy or coverage form may be available to respond to payment of a claim or loss.

Dual valuation clause

An ocean marine policy provision that applies to the hulls of older vessels. The clause values a vessel differently for total and partial losses. In the case of a total loss, the settlement amount will reflect the age and condition of the vessel. For partial losses, settlement amounts will reflect the added cost of repair and refurbishing to make a damaged vessel seaworthy. Another purpose of this type of valuation clause is to discourage incidents of intentional total losses.

Duty to defend

A provision in commercial and personal liability insurance policies where the insurer has the right and duty to defend lawsuits against the insured, even when those suits are considered false, groundless or fraudulent. (See defense clause.)

Clarified and expanded condominium coverage

DV

DV (Diminished Value) Refers to either a real or perceived reduction in market value to a vehicle that has been damaged in an accident and then repaired.

Dwelling

A house in which people live as distinguished from a store, a factory or any other building.

Dwelling policy or dwelling fire policy

A property policy available for owners of dwellings. Usually used for those dwelling risks that are not eligible for the homeowners package policies. There are three groupings of covered causes of loss available. Form 1 provides protection for basic causes of loss. Form 2 provides broad and Form 3 provides special perils coverage. Personal liability protection may be available as an endorsement to the dwelling policy but is not automatic.

E

E&O

1) A form of professional liability insurance which provides coverage for mistakes made by a person or persons in a profession not involved with the human body, such as lawyers, architects, engineers, or for mistakes made in a service business, such as insurance, real estate, and others. (See nonrecording chattel mortgage policy.) 2) A form of coverage for financial institutions protecting against loss to lending institutions which fail to effect insurance coverage. (See malpractice and medical malpractice.)

E-discovery

See electronic discovery.

E-filing

(See System for Electronic Rate and Form Filing.)

E-insurance

An evolving term that typically refers (theoretically) to any form of insurance coverage that is sold, delivered and serviced electronically, specifically via the Internet. Another term is virtual insurance.

E-mediation

Any on-line process that allows disputing parties to resolve an argument over the amount of damage suffered in a loss. One popular method allows the parties to submit separate, blind offers electronically; agreement is then reached if the submissions fall within a predetermined value range.

E-signature

Electronic signature that is a valid, legally binding signature which facilitates transactions, such as insurance applications and purchases, via the Internet

Early retirement age

early retirement age If a person retires before the target retirement date in a pension plan, that person is taking early retirement. Plans usually have a minimum early retirement date which may be a specific age or a combination of age and years of service. Benefits are lower than if the person would have retired at the target retirement date because there is less time to accrue benefit (in a target retirement plan) or the years of service are not as great (in a defined benefit plan).

Early Warning System

Now known as the NAIC Insurance Regulatory Information System (IRIS), it is a financial ratio and performance criterion designed by the National Association of Insurance Commissioners to identify insurance companies which may need close surveillance by state insurance departments.

Earned premium

The portion of the policy premium allocated to the expired or used portion of the policy term. This also includes any short-rate charge made on policy cancellation.

Earned reinsurance premium

The earned portion of the policy premium paid to a reinsurer by the primary or ceding company.

Earnings test

Regarding disability insurance, refers to the amount an injured worker may earn via part-time work and still remain eligible for disability benefits.

Earth movement exclusion

A provision to exclude coverage for loss caused by settlement of earth, creep or slide of soil, or other instability of the earth.

Earthquake

Sudden slipping or movement of a portion of the earth’s crust that is accompanied and followed by a series of vibrations.

Earthquake insurance

Insurance against damage by earthquakes and earth movement. Written most frequently on the Pacific coast.

Earthquake sprinkler leakage coverage

Optional coverage against direct damage to insured property that is due to water that escapes from a sprinkler system after earth movement activity.

Easement

A legal term used to express the privilege, convenience or right of an owner of a piece of property to use nonowned property, usually adjoining the owned property, without which the property owner might not have full access to or enjoyment of his/her owned property.

ECO (extra contractual obligations)

Where an insurer is judged to owe a responsibility for coverage that falls outside of the actual policy provisions.

Economic perils

One of the three common categories of perils used in the insurance industry to classify causes of loss. Economic perils are those caused by loss of market, loss of income, local, national, or worldwide economic conditions, inflation, or obsolescence of an industry. The other two common categories of perils are human perils and natural perils. (See human perils, natural perils and peril.)

Edits or underwriting edits

Account or risk elements selected by an insurer as evaluation points. Most often associated with automated underwriting systems (AUS).

EDP insurance

An “all-risk” policy that provides protection on equipment, software and extra expenses incurred as a result of failure of such equipment caused by an insured loss and loss of earnings. Also know as an EDP policy. Coverage may be extended to include liability claims alleging errors and omissions by data processing companies. (See data processors errors and omissions insurance and data processing equipment insurance.)

Edr

(See event data recorder.)

Educators professional liability insurance

Professional liability coverage specifically designed to offer protection for the hazards and exposures faced by educators, teachers, and school boards from claims or suits that may result from the acts, negligence, errors, omissions, rendering or failing to render of the professional services of school board members, faculty, staff, aides, or volunteers. Coverage for bodily injury resulting from corporal punishment is also available.

EEOC-Equal Employment Opportunity Commission

Federal commission designed to provide employees with employment opportunities and environments that are free of discrimination based upon such items as race, nationality, religion, gender, physical handicap or enviornments that involve improper working conditions such as sexual harassment. This commission provides protection against such abuses in accordance with federal law. The EEOC provides a method of recourse for employees who feel that they have been unfairly treated in the course of employment or possible employment.

Effective date

The day upon which a policy first becomes eligible to pay covered losses.

Effects

Personal property, goods, chattels, clothes and documents.

Efficient proximate cause

While proximate cause generally refers to a chain of events that lead to injury or damage, efficient proximate cause refers to identifying a particular event as the chief or primary contributor to such loss or damage, even when other events occur in between.

EFT

(See Electronic Forms Transmittal.)

EHS

(See environmental health and safety.)

EIFS

Refers to exterior wall systems typically consisting of insulation board attached to a home?s exterior, covered by a base coat, a mesh reinforcement and a rigid finish coat. The system?s installation is promoted as being more energy efficient, reducing infiltration by elements.

EIFS Problem

In recent years, a widespread problem has developed with certain installations of EIFS. When not properly installed, gaps exist that allow water and moisture to seep in and then gets trapped. The trapped moisture results in large scale rotting of the home’s framing and walls. This damage is considered ineligible for coverage under a homeowners policy. (See exterior insulation and finish systems (EIFS).)

Election period (COBRA)

election period (COBRA) When a participant leaves a group health plan, the person has up to 60 days to elect to accept the COBRA continuation coverage. This period is called the election period. (See also COBRA.)

Election to avoid a policy

When important information related to seeking insurance coverage has been concealed, misrepresented or is fraudulent, the insurer may have the right to dissolve a policy’s coverage as though the policy never existed.

Elective contributions 401(k)

elective contributions 401(k) The amount of money the employee elects to contribute towards his/her 401(k) plan. As qualified elective contributions are tax deferred, the employer actually reduces the participant’s income by the amount of the elective contribution. The accumulations and earnings in a 401(k) plan build on a tax deferred basis as well. (See also 401(k) plan.)

Electrical exemption clause

A clause in a policy that provides that damage to electrical machinery by electrical current is limited to such damage as is followed by fire damage. Several different clauses of this nature are used in different circumstances.

Electronic data processing coverage (EDP)

(See EDP insurance) (See data processors errors and omissions insurance, and data processing equipment insurance.)

Electronic discovery

At its simplest, refers to the process of investigating individual computers and networks for any information that may be relevant for a criminal or civil judicial proceeding. Discoverable information includes a wide array of content, such as audio files, graphics, viruses, e-mail, spreadsheets, videos, calendars, databases, etc.

Electronic Forms Transmittal

Software that enables an insurance carrier to send rate, rule and/or form filings to state regulators electronically. This is a format being required by an increasing number of jurisdictions.

Electronically stored information

With regard to legal proceedings, refers to the massive amount of information, documents, records, etc. that is initially created, handled and stored electronically (via computer word processing, e-mail, blogs, IM, VOIP, cell phones and other media which becomes accessible via legal discovery.

Elements of negligence

Negligence is established by considering whether a duty exists to act in a certain manner, that a person has failed to act as required and whether actual damage or injury is a direct result of failing to act properly.

Elevator liability insurance

Liability coverage for elevators, escalators and other hoisting devices. This coverage is no longer written as a policy by itself but is now included in the standard commercial general liability coverage form.

Eligibility period

Once an employee has become eligible for company benefits such as life and health insurance, the employee is usually given a limited period of time to decide which benefits to subscribe to without having to go through physical examinations and prove insurability. This is called the eligibility period. Once the eligibility period has expired, should the employee decide to purchase or subscribe to the insurance benefit programs, proof of insurability is normally required and the insurer may reject the employee’s request.

Elimination period

In health insurance, an amount of time after the occurrence of a disability during which no indemnities are payable, as provided in the policy. An elimination period can apply to accident, sickness, or to both. Commonly referred to as the waiting period. Also used in boiler and machinery business interruption insurance.

Embezzlement

Fraud in using money for yourself that has been entrusted by another. A similar term, conversion, applies to property instead of money.

Emergency fund

Life insurance policies often have a benefit provision that extends a set amount of money to the beneficiary or insured’s family in the event of the insured’s death, to handle emergency and funeral expenses until the final disposition of the policy has been determined.

Emergency road service

Refers to coverage agreements that respond to risks of the road such as dealing with dead batteries, flat tires, towing charges, locksmith services, etc.

Emotional distress

A type of injury where the victim suffers anguish and other disorders as a result of the infliction of duress such as threat of physical abuse, sexual harassment or racial/gender/religious discrimination. Emotional distress is not considered to be bodily injury in many jurisdictions; however, physical manifestations may result which may be considered bodily injury.

Employed lawyers coverage

employed lawyers coverage A variation of professional liability coverage. It is designed to address the liability exposures faced by lawyers who are employed as general or in-house counsel (corporate legal departments), as opposed to law firms or private practice. It is meant to fill the gap that exists in standard general liability policies that exclude professional liability.

Employee benefit plan

The benefit package offered by employers to their employees which may include such items as health, dental, accident, disability, and life insurance, as well as other non-insurance items such as vacation and retirement plans. The cost of the package or plan may be paid in its entirety by the employer but is most often subsidized by the employer so that the employee pays only a portion of the cost.

Employee benefit plans liability

Protects the insured employer against any claims made against him or her by employees or former employees caused by a negligent act, error or omission in the administration of the insured’s employee benefit programs. Exposures such as providing incorrect advice concerning an employee’s pension plan or failure to enroll employees under a benefit program are covered under this insurance. The coverage is provided either under a separate policy or as an endorsement to the employer’s general liability policy.

Employee Retirement Income Security Act of 1974 (ERISA)

This act is sometimes called the “pension reform act.” One of the purposes of this act is to force employers to protect the assets of the business that have been designated as employee pension benefits. (See fiduciary liability insurance.)

Employee Stock Ownership Plan (ESOP)

Employee Stock Ownership Plan (ESOP) Any qualified employee benefit plan that invests in the stock of the employer. ESOP plans can be designed as qualified stock bonus plans, pension plans that invest entirely in the stock of the company and where the employees are the owners of the company, or a hybrid plan that combines some employer stock funding with other funding methods.

Employers liability insurance

Coverage against the common law liability of an employer for injuries sustained by employees, as distinguished from liability imposed by a workers compensation law.

Employment-related practices liability (ERPL) or (EPL) or

(EPLI) (EPLI) Impetus for this coverage started with public interest in the allegations made by Anita Hill during the confirmation hearings of Supreme Court Justice Clarence Thomas. Changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, resulted in increased consumer awareness of sexual harassment and discrimination in the workplace. Coverage is available for legal costs to defend claims involving sexual harassment, wrongful termination and discrimination including legal liability for such acts. The coverage is known by various titles. Employment-related practices liability, management risk protection, employers E&O and Americans with Disabilities Act insurance are basically the same coverage. Most policies provide limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

Employment-related practices liability (ERPL) or employment

practices liability insurance (EPLI) employment-related practices liability (ERPL) or employment practices liability insurance (EPLI) Impetus for this coverage started with public interest in the allegations made by Anita Hill during the confirmation hearings of Supreme Court Justice Clarence Thomas. Changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, resulted in increased consumer awareness of sexual harassment and discrimination in the workplace. Coverage is available for legal costs to defend claims involving sexual harassment, wrongful termination and discrimination including legal liability for such acts. The coverage is known by various titles. Employment-related practices liability, management risk protection, employers E&O and Americans with Disabilities Act insurance are basically the same coverage. Most policies provide limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

Endorsement

Endorsement in blank

An assignment method used in both ocean and inland marine insurance in order to be able to allow the insurance coverage on cargo to transfer with the cargo and to protect the various interests involved. To handle this approach, a special type of cargo insurance on a bill of lading may be issued, allowing the insured to sign off on the certificate of insurance, thus assigning the policy to the other interests as needed. (See bill of lading and open cargo policy.)

Endowment policy

A type of life insurance policy in which the stated benefit or face amount is paid to the insured on the maturity date. Often, this type of policy is used as a retirement account. Should the insured die before the maturity date has been reached, a beneficiary will receive the benefit amount.

Engineer

An individual in the insurance business who specializes in loss or accident prevention work and also develops rating and underwriting information.

Engineers professional liability policy

Protects engineers against claims arising out of their professional services caused by error, omission or negligent acts. Most often written as architects and engineers professional liability policy or engineers and architects professional liability policy.

Enrolled actuary

enrolled actuary Defined benefit pension plans generally require the services of an enrolled actuary to calculate the amount of contribution required and to perform other services required by the plan. Other plans may require the services of an enrolled actuary from time to time. An enrolled actuary is one who meets the standards set by and is enrolled by the federal agency called the Joint Board for the Enrollment of Actuaries.

Ensuing losses

In commercial property insurance contracts, ensuing losses are further or additional direct damage losses that have been initiated by the original direct damage cause of loss. Different from consequential losses which are indirect property losses such as time element (loss of business income or extra expense) losses.

Enterprise Risk Management

enterprise risk management Described in a variety of ways, the term refers to implementing an integrated process for continually assessing risks that are obstacles to an organization’s financial and operational goals. Under this concept, risks are viewed in two ways: as threats and as opportunities.

Entertainment insurance

A category of insurance developed to address the exposures of a wide range of entertainment activities (theatrical events, contests, competitions, special events, etc.). This type of insurance may include liability, property and crime protection. It meets the insurable interests of promoters, entertainment venue property owners, show producers, and so forth. Coverage is also available for loss of income caused by the interruption, cancellation or postponement of a given event.

Entire contract provision

entire contract provision In life insurance, the entire contract is the policy itself and the application for insurance (if attached). No change is valid unless an endorsement (signed by an executive officer of the company) is attached to the policy. No agent can change any of the policy provisions.

Entitlement, psychology of

A concept or societal phenomenon expressing the expectation of people that their desires and wants are their legitimate needs which society can and must fulfill. The concept affects insurance when the law expands to permit increasing numbers of plaintiffs to recover from insurers in cases where questionable coverage exists (e.g., when courts appear eager to find that insurance coverage exists if there is any indication that the insured expected such coverage to exist, or when jury awards increase beyond economic justification).

Environmental health and safety

Refers broadly to industrial or commercial resources dedicated to addressing various environmental and safety concerns such as workplace ergonomics, brownfield development, waste management, wastewater handling, and compliance with related workplace or industry regulations.

Environmental impairment liability insurance

environmental impairment liability insurance Insurance designed to provide protection for the liability exposures that may result from damage, injury and, in some cases, clean-up costs caused by pollution. This coverage is excluded in the standard CGL, and the attempt has been to make the CGL exclusion as broad or absolute as possible.

Environmental Protection Agency (EPA)

A United States government agency charged with the responsibility of protecting and defending the environment for the peoples of the nation. This agency has the responsibility to test, monitor and evaluate possible damage to the environment for all varieties of pollution to ground, water and air. The EPA may set standards of controls, determine responsible parties, assess costs for cleanup and corrective actions, and impose fines and penalties for noncompliance.

EPA-Environmental Protection Agency

Epicenter

The surface location that is directly above the point where an earthquake began and from which movement expands along the fault line.

EPL-employment-related practices liability (also known as

ERPL or EPLI) ERPL or EPLI) Impetus for this coverage started with public interest in the allegations made by Anita Hill during the confirmation hearings of Supreme Court Justice Clarence Thomas. Changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, resulted in increased consumer awareness of sexual harassment and discrimination in the workplace. Coverage is available for legal costs to defend claims involving sexual harassment, wrongful termination and discrimination including legal liability for such acts. The coverage is known by various titles. Employment-related practices liability, management risk protection, employers E&O and Americans with Disabilities Act insurance are basically the same coverage. Most policies provide limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

EPLI-employment-related practices liability (also known as

ERPL or EPL) ERPL or EPL) Impetus for this coverage started with public interest in the allegations made by Anita Hill during the confirmation hearings of Supreme Court Justice Clarence Thomas, Changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, and increased consumer awareness of sexual harassment and discrimination in the workplace. Coverage is available for legal costs to defend claims involving sexual harassment, wrongful termination and discrimination including legal liability for such acts. The coverage is known by various titles. Employment-related practices liability, management risk protection, employers E&O and Americans with Disabilities Act insurance are basically the same coverage. Most policies provide limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

Equal Employment Opportunity Commission (EEOC)

Equifax

The insurance end of Equifax is now known as ChoicePoint, Inc. It is an organization widely used by insurance professionals to obtain information on applicants for underwriting purposes such as motor vehicle reports, prior loss or claims history (C.L.U.E.) reports, retail credit reports and even inspection reports. Equifax was formerly known as the Retail Credit Company. (See ChoicePoint, Inc.)

Equipment

Personal property of a business which is not inventory or supplies; machinery and vehicles may be considered to be “equipment” for insurance purposes.

Equipment breakdown coverage

Equipment floater insurance

A form of inland marine insurance, often on an “all-risk” basis, covering various kinds of equipment. (See contractors’ equipment floater.)

Equity

1) When referring to property, it is the owner’s actual interest or worth in a property. Computed by subtracting the amount owed on the property from the value of the property. The amount remaining is the equity in the property. 2) When referring to owner’s equity in a business, it is the total amount of liabilities for that business, subtracted from total assets. The amount remaining is the owner’s equity in the business.

Equity in unearned premium reserve

An overstatement in the amount shown for this liability in the annual statement of an insurer. The overstatement is approximately 20-40% of an insurer’s unearned premium reserve and is caused by statutory accounting requirements: 1) that initial expenses must be recorded immediately and cannot be deferred to track with premiums as they are earned and taken into revenue (as is done for expenses and income for other businesses). 2) that the sum of all premiums representing the unexpired portions of policies on the books must be kept in the reserve. The overstatement is the amount of initial expenses recognized, which will eventually flow to the surplus account with the passage of time. (See unearned premium reserve.)

Erection all risks

A form of comprehensive coverage that focuses on loss to plants and machinery under construction (rather than buildings).

Ergonomics

The applied science involving the factors and interaction of the workplace environment on its workers. Although it is most often associated with automation in the workplace, this science covers the cause and effect of any workplace environment. (See human factors engineering.)

Ergonomists

ergonomists An expert, usually a consultant, in the study (some argue science) of ergonomics.

ERISA-Employee Retirement Income Security Act of 1974

ERP-extended reporting period

ERPL-employment-related practices liability (also known as

EPL or EPLI) EPL or EPLI) Impetus for this coverage started with public interest in the confirmation hearings of Supreme Court Justice Clarence Thomas and his alleged relationship with a woman coworker, other changes in federal and state laws, such as the Americans with Disabilities Act and the Civil Rights Act of 1991, and new consumer awareness of the practice of sexual harassment and discrimination in business. Coverage previously has been available for legal costs to defend claims against sexual harassment, wrongful termination and discrimination, but only recently has any policy covered actual legal liability for such acts. The coverage is known by various titles through a few insurers. Employment-related practices liability, management risk protection, employers E&O and Americans with Disabilities Act insurance are basically one and the same coverage. Most policies provide varying limits ranging from as low as $25,000 per claim up to $1 million. Policies may cover employees as additional insureds.

Errors and omissions clause

Obligatory reinsurance treaties contain a provision to clarify that because of the nature of the treaty, should an error or omission occur in the process of recording or describing of the ceded risk, and if the risk is otherwise covered by the treaty, the reinsurer will still respond despite the error or omission.

Errors and omissions insurance

Escape clause

A provision in an agreement that, under certain conditions, releases a party from its obligation to perform.

ESI

(See Electronically Stored Information.)

ESOP employee stock ownership plan

ESOP employee stock ownership plan Any qualified employee benefit plan that invests in the stock of the employer. ESOP plans can be designed as qualified stock bonus plans, pension plans that invest entirely in the stock of the company and where the employees are the owners of the company, or a hybrid plan that combines some employer stock funding with other funding methods.

Estate plan

The plan for the disposition of a person’s assets, including property, at the time of death. Estate plans include contingencies for the handling of property in the event of the incompetence or some type of disability of the estate owner. A will is one part of an estate plan.

Estoppel

The prevention of one party from asserting rights that might otherwise have existed, by reason of that party’s inequitable conduct. Waiver is a term sometimes used interchangeably.

Event data recorder

A type of “black box” for personal and commercial vehicles. Depending upon the type of device, it can record and store various information regarding vehicle operation, particularly key information that happened during a collision. Data typically gathered is braking information, time, vehicle speed, operation of vehicle?s safety equipment, etc.

Event loss trigger

event loss trigger Where a given event’s date is deemed to be the loss date for all losses or claims that are related to that event, ignoring whether an applicable policy was written on a claims-made or an occurrence basis.

Eviction destruction

A fairly recent trend, it describes homeowners who, while abandoning a home due to eviction/foreclosure, commit serious acts of vandalism to the residence’s interior and/or exterior as an act of retaliation, anger or frustration (typically against the mortgage holder).

Evidence and duties provision

A condition in most insurance policies requiring the insured to cooperate with the insurer in any (and all) investigation, settlement or defense of a claim or suit.

Evidence of insurability

In life and health policies, a statement on the application that provides proof of an individual’s occupation and/or physical condition. Used to help determine that individual’s acceptability for insurance.

Ex gratia payment

A payment made even though the company is not technically liable under the terms of its policy, usually made in order to avoid incurring greater legal expenses in defending a claim.

Examination

An inspection of an insurance company or organization by a representative of a state insurance department to determine whether the laws of that state have been obeyed.

Examination of records clause

A policy provision that gives an insurance company the right to examine (audit) a policy against relevant policyholder records to insure that the proper premium has been paid (under premiums that are subject to audit).

Examination under oath

Securing testimony after being duly sworn that such information supplied is true to the best knowledge of the testifier, under penalty of perjury or voided insurance for false statements.

Examiner

A representative or employee of a state insurance department to whom is delegated the task of verifying a company’s records and procedures to determine that the law has been observed.

Exceptions

Circumstances, causes of loss or property types that are excepted from either the coverage provided or from the exclusion listed. Example: There is no coverage for pollution losses except those exposures that result from a hostile fire.

Excess and surplus insurance

excess and surplus insurance An amount of protection which bears all or a portion of a loss after the loss exceeds an agreed amount. This amount may or may not be insured elsewhere by the company issuing the policy. Excess policies are not subject to the basic principle of contribution with non-excess policies, although they may contribute or share the loss with other excess policies.

Excess clause

An insurance policy provision that requires an insurer to respond to a loss only after any other source of coverage has been exhausted. (Also see pro rata clause and escape clause.)

Excess insurance

An amount of protection which bears all or a portion of a loss after the loss exceeds an agreed amount. This amount may or may not be insured elsewhere by the company issuing the policy. Excess policies are not subject to the basic principle of contribution with non-excess policies, although they may contribute or share the loss with other excess policies.

Excess judgment loss

excess judgment loss A judgment levied against an insurer due to a court determining that it acted in bad faith. Such judgments exceed any written limit of liability that ordinarily would apply to the loss.

Excess liability insurance

Liability insurance designed to provide an extra layer of coverage above the primary layer. The excess insurance does not respond, however, until the limits of liability in the primary layer have been exhausted. Because of the method of response, it is often much less costly than the primary layer, per $1,000,000 of coverage. The excess layer provides not only higher limits, but catastrophic protection for very large losses.

Excess line

A line of insurance provided by insurers not licensed in the states where the risks are located and placed under the surplus lines laws of the various states. Before such placements can be made through specially licensed surplus lines agents and brokers, state laws generally require evidence that placements could not readily be made in licensed insurers- or broadly referred to as being all lines of insurance placed with nonadmitted insurers. (See surplus line.)

Excess of loss ratio insurance or reinsurance

A company wishing to protect itself in the event its net loss ratio for a given year rises above a certain percentage may buy reinsurance which pays in excess of that figure up to a higher agreed percentage, beyond which the company is once more liable. In short, a plan which takes the sting out of an above-average net loss ratio. (See stop loss reinsurance.)

Excess of loss reinsurance

Excess property insurance

Insurance protection for large property risks that provides a layer of coverage above the primary layer. The primary policy will cover most property losses while the excess layer of coverage does not respond until the primary layer has exhausted all applicable limits. The primary layer acts much the same as a very large deductible.

Excess verdict

See excess judgment loss.

Exchange

A place where goods or services are traded. Also known as insurance exchanges.

Exclusion

The peril, hazard, condition or circumstance that is not covered by the insurance and is so stated in the policy. A clause in an insurance policy which specifies what is excluded from the policy’s coverage.

Exclusive agent

An agent who, by contract, represents only one company and its affiliates. Sometimes called a captive agent. (See agent, independent agent and insurance agent.)

Exculpatory clause

Any provision within a contract or agreement that is designed to relieve a party from their liability for any responsibility, obligation or duty. Generally, wording meant to shield parties against their negligence, particularly fiduciaries or trustees is voided as being against public policy.

Exculpatory statute

In a community property state, both spouses jointly own all property acquired during the marriage. However, a life insurance policy (property) may be established by one spouse without the other knowing, with a beneficiary who may not be the spouse. An exculpatory statute allows the insurer to pay the proceeds from the policy as the policy directs without being obligated to also pay the surviving spouse what should have been his/hers as it relates to their community property.

Executor

A person or a corporation named in a will to administer the decedent’s estate. (See administrator.)

Executrix

A female executor-the person named in a will to administer the decedent’s estate. (See administrator.)

Exemplary damages

Damages awarded separately and in addition to compensatory damages, usually because of malicious or wanton misconduct, to make an example of the wrongdoer and, possibly, as a deterrent to others. Sometimes referred to as punitive damages when intended to punish the actions of the wrongdoer. (See punitive damages.)

Exhausted limits

Refers to a situation where the total amount of payments made for a given loss or provided during a policy period relieves the insurance company from its obligation to provide further coverage. The payment amounts are defined by the insurance policy’s stated per-loss and aggregate coverage limits.

Expediting charges

Money spent to speed up the repair or replacement of destroyed or damaged property. Important in the adjustment of time element losses, such as those under business interruption forms.

Expediting expenses

expediting expenses This coverage applies to the extra cost the insured incurs to make temporary repairs and expedite (speed up) the permanent repairs or replacement of the damaged property.

Expense constant

A flat premium charge made on small workers compensation policies based upon the fact that the expense factor on such risks is inadequate to cover the cost of issuing and handling the policy.

Expense loading

When determining the rate per exposure unit of a risk, the expense loading is the amount that is added to the base rate to handle the cost of administrative expenses experienced by insurers.

Expense ratio

Expenses incurred, expressed as a percentage of net written premiums.

Experience

Classified statistics of claims and losses related to insurance, of outgo or of income, actual or estimated. (See actuarial gains and losses.)

Experience rating

A form of individual risk rating which takes into consideration the loss experience of the particular risk as a credit or a debit to the manual rate for the insured’s classification. As the size and number of exposure units increase (e.g., a multiple location risk), more credibility is given to the insured’s own experience. (See merit rating.)

Expert systems

Computer software programs that aid the underwriting decision making process. These systems ask for the information necessary to make an underwriting decision and ensure that no information is overlooked.

Expiration

1) The cessation of insurance when the time period for which it was written has ended. 2) The date on which insurance expires. 3) The detailed policy records of customers served which are owned by independent insurance agents. (See ownership of expirations and American agency system.)

DV

DV (Diminished Value) Refers to either a real or perceived reduction in market value to a vehicle that has been damaged in an accident and then repaired.

Expiration notice

A notice sent (by an insurer to an agent or broker, by an agent to a client, or by an insurer to a policyholder) to the effect that a policy is about to expire on a given date.

Explosion

1) A bursting of forces, usually from pressure within. 2) In general, a rupture of a pressure vessel of some kind due to too much internal pressure, accompanied by a loud noise. Courts, however, have interpreted it in many ways.

Exposure

1) Synonymous with risk: chance of loss by fire, radiation, accident, etc. 2) The danger of loss (particularly by fire) arising from what happens to another risk close by. 3) The sum total of values which, if damaged or destroyed, would cause loss under a policy, i.e., the value of everything a policy insures. 4) A measure of the rating units or premium basis of a risk, e.g., payroll or number of automobiles. 5) A unit of loss potential (e.g., a life, a house, an automobile, a ship, a package in shipment, an acre of growing crops, a plate glass window, a fur coat) in which case the term “exposure unit” is used.

Exposure rating

A method of rating a per-risk excess reinsurance cover where the rate is determined by the number of policies and limits of those policies which actually expose the cover being rated to loss. Generally requires a detailed profile of the policies in force for the reinsured company. This method is often used for rating upper layers that have not shown sufficient credible past experience to justify using a rate based on burning cost.

Exposure theory

An event is recognized as an insurable loss (or occurrence) when the covered entity or property was first exposed to the source of loss that creates damage or injury. (See continuous trigger theory, injury-in-fact theory and manifestation theory.)

Exposure unit

1) During the premium computation phase of insurance issuance, the exposure unit is the unit of measure that is used to associate the premium charged with some credible factor that relates directly to the exposure covered by the insurance policy. Examples are: per $100 of property value, per square foot area of a building, per $100 or $1,000 of payroll, admissions or gross receipts. 2) The property or location covered by the insurance policy.

Express authority

Is derived from the specific authorizations given by the company to the agent in their agreement, e.g. the agent manual says that an agent can bind a homeowners policy if the value on the dwelling is not more than $250,000. (See also implied authority.)

Extended coverage insurance

Protection against loss or damage caused by windstorm, hail, smoke, explosion, riot, civil commotion, vehicles, and aircraft. Written in conjunction with a fire policy either as part of the basic contract or by endorsement.

Extended health insurance

Health insurance coverages available for retired persons to cover the surplus after retirement health insurance and Medicare benefits are exhausted.

Extended period of indemnity

This endorsement option is available only for business income insurance coverage and may be purchased to provide additional income protection while a risk gets back on its feet and re-establishes a customer base, after that risk had been closed by a covered loss and after it had resumed operations, but was still not making the income it had prior to the direct physical loss.

Extended reporting period (ERP)

Extended term life insurance

An option available in some whole life insurance policies, allowing the insured to use the cash value of the policy to purchase additional term life insurance. The insured uses the whole life cash value to pay the premiums of the term coverage until the whole life cash value is exhausted.

Exterior Insulation and Finish Systems (EIFS)

Exterminators liability insurance

Liability insurance designed specifically to cover the exposures and hazards faced by exterminators of all types of insects, pests, and rodents, and any chemical applications those operations may use.

Extortion insurance

A type of crime coverage designed to protect any type of operation from loss of money, property, stock, or other tangible assets that are extorted during a threat of harm to persons or property.

Extra contractual obligations (ECO)

Where an insurer is judged to owe coverage that falls outside of the actual policy provisions. Courts impose such obligations when determining that an insurer dealt unfairly or in bad faith with an insured (or beneficiary) while handling a claim.

Extra expense insurance

Reimbursement for additional expenses incurred because of an insured loss. Written either as a separate policy or as an endorsement.

Extra percentage tables

Life and health insurance tables that have been developed to assist in the computation of premium charges. These tables apply to the additional charges that need to be factored into the premiums based on the standard mortality or morbidity tables for certain health conditions, the most common being cancer or AIDS. The term “extra percentage table” is used because the calculation is normally expressed in terms of an additional percent to be added onto the base.

F

F.I.A.-full interest admitted

An agreement in a policy of marine insurance that the named insured’s ownership or right to collect the proceeds of the insurance is agreed to at the inception of risk without further proof of an insurable interest at time of loss.

Face

The first page of an insurance policy, normally the Declarations.

Face amount

As used in life insurance, the amount stated on the first page of the policy that will be paid at maturity, upon death of the insured or expiration of the endowment period. Additional benefits may be provided by riders or dividends. Also known as face value.

Face value

Facility of payment clause

A provision found in group life and industrial insurance policies that allows the insurer to pay benefits to persons or parties other than the insured or a beneficiary, under certain specified conditions. This clause was designed to assist in benefit payments when there is lack of clarity as to the actual beneficiary, and thus to prevent potential litigation against the insurer.

Factor

In rating a property-casualty insurance policy, a factor is a multiplicative item. The base rate may be 1.00 with an increase factor of 10% applied because of a higher than expected exposure to theft. Thus, the new rate would be $1.10.

Factory Insurance Association

Now called Industrial Risk Insurers, this is a consortium of major stock property and casualty insurers formed to write large, highly protected risks and to provide fire laboratory facilities and engineering services. The organization was formed in 1975 by the merger of the Factory Insurance Association and the Oil Insurance Association. Headquarters: Hartford, CT.

Factory mutuals

A group of direct-writing mutual insurance companies, independently owned and operated, which underwrite highly protected risks of substantial value on a reciprocal reinsurance basis. The central organization in New England maintains extensive fire laboratory facilities and provides its members with engineering services.

Facultative certificate

The formal document between the ceding company and the reinsurer with respect to the reinsurance cession for facultative reinsurance.

Facultative reinsurance

Reinsurance effected item by item and accepted or declined by the reinsuring company after scrutiny, as opposed to reinsurance effected by treaty. The word facultative connotes that both the primary insurer and the reinsurer have the faculty or option of accepting or rejecting the individual submission, as distinguished from the preset obligation to cede and accept already agreed upon by the parties in treaty reinsurance.

Facultative treaty

A contract between a ceding company and a reinsurer with regard to the handling of the placement of individual risk. In a facultative treaty there is no automatic requirement to cede by the ceding company, nor is there a requirement to accept a risk by the reinsurer. Each may be negotiated individually.

Fair Credit Reporting Act (FCRA)

Became law in 1971. The purpose of the law is to protect consumers against the circulation of inaccurate or obsolete information and to ensure that consumer reporting agencies are fair and equitable in their treatment of customers. The Federal Trade Commission administers the law.

Fair Plan

A program to provide “fair access to insurance requirements” for property owners who experience difficulty in buying insurance on property located in blighted or deteriorating urban areas. Basically the plan assures a property owner of physical inspection of property and a promise to provide fire and allied lines insurance if the property is adequately maintained and if recommended improvements necessary to make the property insurable have been made. Many of these plans have been extended to cover statewide in those states adopting them.

Fair rental value

Used in Coverage D-Loss of Use homeowners policy, this is the amount of rent (less any discontinued expenses) that the insured would have received for the residence, or any part of the residence rented to another individual for residential purposes, if the residence had not been damaged.

Fallen building clause

A provision in some property insurance policies that voids coverage should a significant portion of the insured building collapse from causes of loss other than those covered in the insurance policy. For example, if the policy covers fire or explosion, and the building collapses as a result of flood, the fire coverage becomes void.

False arrest

Arrest or detention which involves the illegal restraint of an individual?s liberty; it is considered to be a type of personal injury.

Family automobile policy

A predecessor personal automobile policy insuring liability, medical expense, physical damage and uninsured motorists, available only for individually owned, private passenger cars and some small trucks. It is somewhat similar to the combination automobile policy but provides broader coverage. This type of policy has been replaced by the personal auto policy, PAP, in most state jurisdictions.

Family deductible

A health insurance policy deductible that was designed to address the expenses for services of the entire family unit rather than application to each person.

Family health plan

Health insurance protection designed to cover the family unit as a whole instead of on a per-person basis.

Family income life insurance

A type of life insurance program with both whole life and term life insurance products. Should the insured die before a specified date in the policy, benefits are paid in the form of monthly income. After that date, a flat amount is paid.

Family life policy

A type of life insurance program with both whole life and term life insurance products in one policy, designed to cover all the members of a family unit.

Farmers comprehensive personal liability insurance

Similar to comprehensive personal liability coverage, but amended to take care of the special accident risks found around the farm. A legal liability or third-party policy, i.e., it protects the farmer against bodily injury or property damage claims from others, including at times claims from farm employees.

Farmers mutual insurers

An affiliation of small, domestic, mutual insurance companies that were originally formed by farmers to offer insurance coverage for farm property and farm-related causes of loss such as hail and crop, as well as other traditional coverages such as fire and wind.

Farmowners?ranchowners policy (FO-RO)

farmowners-ranchowners policy (FO-RO) A package policy for farming and ranching risks which can be described as a homeowners policy adapted for farm and ranch properties. Basically, the policy provides property and liability insurance to which may be added appropriate additional coverages such as animal collision, employers liability, custom farming, etc.

FAS-free along side

A marine insurance term indicating that when goods are shipped FAS, the shipper agrees to assume all costs and liabilities for loss until the goods are safely on the pier or dock alongside the vessel.

FASB-Financial Accounting Standards Board

National board set up to review and administer accounting standards.

Fault (earthquake)

The area of surface that is displaced during an earthquake which can be scarcely noticeable or yards in width.

Fault Liability System

(See tort liability.)

Faulty workmanship exclusion

Most liability policies contain this property damage exclusion for products-completed operations losses, although it is now more often referred to as the work performed exclusion. The intent of this exclusion is to make sure that insureds are maintaining acceptable standards of performance and are not using the insurance contract to recover for poor training or poor business practices by the insured. Coverage does not exist for property losses to work performed or as a result of the work performed by the insured.

FC&S

Fire, Casualty and Surety Bulletins; a reference manual published by National Underwriter (owned by Summit Media) that analyzes property and casualty coverage forms and endorsements. Headquarters: Erlanger, KY

FC&S-free of capture and seizure

A clause which exempts the marine insurance company from paying losses caused by capture or seizure by enemies of a country.

FCAS

Fellow Casualty Actuarial Society designation sponsored by the Casualty Actuarial Society. Headquarters: Arlington, VA.

FCIA-Foreign Credit Insurance Association

A group of insurance companies cooperating with the Export-Import Bank of Washington (Exim-bank) to provide foreign credit insurance for American exporters, thus assisting United States business to become more competitive in foreign trade. Coverage provides for credit and political risks. Headquarters: New York, NY.

FCLA

Fraud Claim Law Associate designation sponsored by the American Educational Institute. Headquarters: Basking Ridge, NJ.

Federal Crime Insurance Program

This discontinued program was administered by the Federal Insurance Administration to provide limited burglary and robbery coverage for property owners who experienced difficulty in buying insurance on property located in blighted or deteriorating urban areas. It was successful in using federal reinsurance to encourage insurance carriers to continue writing in distressed areas and was phased out in the 1980s. It has gained new interest as a roadmap to move terrorism coverage from a governmental protected program to a fully private coverage.

Federal Employees’ Group Life Insurance Policy (FEGLI)

Group life insurance policies offered to federal employees. Premiums are paid by insureds through payroll (or benefits) deductions.

Federal Insurance Administration

A government office (part of the Department of Housing and Urban Development) handling insurance programs such as the Federal Riot and Civil Commotion Reinsurance Contract (which backs up policies provided by FAIR Plans in force in a number of states), Federal Crime Insurance and the Federal Flood Insurance Program.

Federal risk retention act

An insurance company organized by a group of businesses or institutions in the same line of business to provide liability insurance for the owners or organizers. As permitted by federal legislation passed in 1986, such a group is eligible to provide insurance for its members in any state after being licensed in any one state.

Federal Tort Claims Act

Historically, the sovereign, or government, cannot be sued without its consent. The Federal Tort Claims Act altered this principle and allows persons to sue the United States for personal injury or damage to property under circumstances in which the United States, if a private individual, would be liable for such injury or damage.

Fee for service

In health insurance, it is the type of coverage where the insurer pays the specified portion of the charges when a patient goes to the physician, service or hospital of choice. Often considered to be the “traditional” form of health insurance coverage, fee for service protection is rivaled by HMOs, PPOs and other similar types of plans.

FEGLI-Federal Employees’ Group Life Insurance Policy

Group life insurance policies offered to federal employees. Premiums are paid by insureds through payroll (or benefits) deductions.

Fellow of the Institute of Actuaries (FIA)

A degree or title held by one who has passed examinations and has been admitted to the Institute of Actuaries in England.

Fellow servant or employee defense

A common law defense that is generally used in cases that are related to work (one employee injures another).

FFD

(See Full Family Direct.)

FIA-Fellow of the Institute of Actuaries

A degree or title held by one who has passed examinations and has been admitted to the Institute of Actuaries in England.

FIC

(See Financially Impaired Company.)

Fidelity bond

An insurance policy which reimburses an employer for losses resulting from dishonest acts of employees. May be written to cover specific employees or all employees, using either a schedule or blanket basis, or by scheduling positions versus named persons.

Fiduciary

A person who occupies a position of trust, especially one who manages the affairs of another. For example, the guardian of a minor is a fiduciary.

Fiduciary bond

fiduciary bond A fidelity bond that protects a dependent party (such as a legal estate) against the dishonest acts of a fiduciary.

Fiduciary liability insurance

Protection for those who administer pension and welfare funds, profit-sharing and other employee benefit programs against loss for errors and omissions by the administrator. The need for this coverage was created by the Employee Retirement Income Security Act (ERISA) of 1974. Also known as pension trust liability insurance. (See Employee Retirement Income Security Act of 1974 (ERISA).)

Field

Territory away from the office.

Field underwriter

In property-casualty insurance a field underwriter may be a company-employed underwriter who works out of a branch or in-home office and who spends a considerable amount of time in the field with agents, prospective insureds and policyholders. A field underwriter in life insurance is often synonymous with an agent.

Fifth dividend option

The additional term insurance nonforfeiture option found in life insurance. (See also nonforfeiture benefit or nonforfeiture value.)

File-and-use law

The state law under which insurance rates must be filed with the state insurance department; they then can be used immediately.

Film coverage insurance

An inland marine coverage providing protection for broad or “all-risk” causes of loss to exposed motion picture, magnetic or video tapes, which also include sound tracks and recordings.

Final average benefit formula

Used in pension plans. Unlike career average benefit formulas that average earnings over the entire employment career in the plan, the final average formula looks at the last few years of earnings: i.e., the formula will use the average of the three highest earning years out of the last five to calculate the benefit. This formula is often thought to encourage workers to work just as hard before retirement as they did during their earlier working years.

Final rate

The price per exposure unit which is determined by adjusting the prospective loss costs for expenses, profits and contingencies.

Financed premium

Insurance premiums that are financed, either by an outside financial institution or, in some cases, through a financing agreement arranged with the insurer, which involves interest and collateral. This is not the same as an installment premium whereby the insurer allows the insured to pay the earned premium as it becomes due on an installment basis.

Financial Accounting Standards Board (FASB)

National board set up to review and administer accounting standards.

Financial guaranty

A guaranty that a sum of money will be paid. A form of bond.

Financial planner

An entity that offers direction and advice regarding finances, investments, retirement income and various other aspects in handling the overall finances of the individual.

Financial responsibility clause

Language in a policy describing coverage required by any financial responsibility law.

Financial responsibility law

A statute (in force in most states) which requires a motorist to provide evidence of the ability to pay for negligence in causing losses to others from the operation of a motor vehicle. Typically, the evidence furnished is an insurance policy, although most states also permit a bond or cash deposit to be used in lieu of a policy.

Financial underwriting

Financial underwriting is when an insurer uses the investigation and evaluation of the financial data on a risk under consideration in order to determine the acceptability of that risk for insurance coverage. Financial indicators, such as profitability and liquidity provide the insurer with information on the stability and quality of management of the potential insured.

Financially impaired company

This term refers to an insurer that may not be insolvent, but may suffer from difficulties that cause insurance regulators to begin action. A common triggering event may be evidence that the insurer has inadequate capital (surplus).

Fine arts insurance

A personal lines coverage on works of arts, usually written by inland marine underwriters on an “all-risk” and a “valued” basis. The commercial lines equivalent is most often covered under a commercial articles floater which combines not only fine arts coverage, but also camera and musical instruments in one coverage form.

Finished stock

Merchandise of a manufacturer which has been completely processed and is ready for sale.

Finite risk reinsurance

A form or reinsurance that takes into account an insured’s timing risk (regarding payments of losses) and the time value of money, and addresses them over a multi-year agreement.

Fire

Combustion manifested in light, flame and heat for useful purposes (known as friendly fire), or for destructive purposes (called hostile fire). Insurance covers loss only from the latter.

Fire clause

A condition in a lease which provides that in case fire should damage the property to some agreed extent, certain agreed modifications in the lease automatically take place.

Fire department service clause

Sometimes when property is located outside the boundaries of a city or town, the fire department will agree to come to a fire, but a charge is made for it. This clause extends the policy to pay such charges in the event of loss.

Fire insurance

1) Covers losses caused by fire, lightning and removal of insured property from the premises to avoid further loss. All resultant damage such as that done by water and smoke is also covered. Usually supplemented by extended coverage. Currently, this insurance is referred to as property insurance. 2) A type or line of insurance, as opposed to marine, casualty or fidelity bonding. The term fire insurance is now referred to as property insurance when denoting a line of insurance.

Fire insurance company

An insurance company chartered and licensed under the fire insurance provisions of the laws of its home state, as opposed to one under the casualty section. Since the term fire insurance has been replaced in many state laws with property insurance, its legal use is limited; but fire insurance is still applied in a colloquial sense to describe those companies engaged principally in the property insurance business.

Fire mark

fire mark A small sign or a medallion placed on a building by the company that provided fire insurance. It is commonly believed that the signs were proof to private fire departments that such buildings were insured. Therefore, they would be paid if they handled the fire call. It is more likely that such signs were merely an early form of advertising.

Fire marshal

A public official involved in fire prevention and investigation of fires, particularly where arson is suspected.

Fire prevention

Loss control methods used to prevent fire from occurring.

Fire protection

The combination of loss control methods to prevent fire from occurring, to detect a fire that has occurred as quickly as possible and, should fire occur, to extinguish it immediately while reducing the severity of the potential injury to persons or damage to property.

Fire Protection Class

A 10-category ranking or schedule of public fire protection of cities and towns established in 1916. The grading is currently maintained by the Insurance Services Office for use in making fire insurance rates and to encourage local governments to maintain better fire fighting equipment and personnel. A city or town is ranked in one of the categories by receiving deficiency points for failing to meet established standards under each of these major headings: water supply, fire department, fire service communications, fire safety control, climate, and divergence between fire department and water supply. Fire Protection Class 1 is the best class (a city or town having fewer than 501 points), and Fire Protection Class 10 is the worst (more than 4,500 points). Also known as town class or town grading.

Fire resistive

The construction of a building with steel and concrete or other noncombustible materials designed to prevent the frequency of fire or to reduce its effect once started. A better term than fireproof, since few materials are not subject to damage or destruction by fire. (See fireproof.)

Fire retardant

Chemical treatments applied to a variety of items, such as clothing, furniture, carpets, and curtains in order to prevent or reduce the possibility of the item’s catching fire and burning.

Fire wall

A wall designed to prevent the spread of a hostile fire. (See division wall.)

Fireproof

The construction of a building with steel and concrete or other noncombustible materials designed to prevent the frequency of fire or to reduce its effect once started. (See fire resistive.)

First class mail insurance

All-risk coverage on bonds, stock certificates and other securities shipped first class mail by banks, trust companies, investment corporations, and other firms engaged in security transactions.

First dollar coverage

Insurance coverages or benefits that pay the entire covered amount without subtraction of or use of a deductible.

First loss insurance

An insurance policy which is called upon to pay a loss before others covering the same loss, or a contract written to cover only the insured’s expected loss during the policy period with no other insurance in force.

First loss retention

first loss retention The limit or amount at which reinsurance attaches or comes into play. The limit or amount below that point is retained by the ceding company.

First named insured

The party named first in the Declarations of an insurance policy. The first named insured has become significant in commercial insurance because the terms and conditions of the policy itself detail that many of the duties and obligations to the contract must be performed by, or are the responsibility of, the first named insured versus any or all named insureds. Additionally, the insurer has obligations, such as proper notice of cancellation or nonrenewal and return premium refund, that need go only to the first named insured.

First party benefits

Any insurance payments that are received by policyholders (and others eligible as insureds) under a policy in the event of injury, regardless of fault. The benefits may include medical expenses, loss of income, funeral and death benefits. This may also be called personal injury protection.

First party insurance

Insurance that pays for loss to an insured who is considered the first party to an insurance contract. The second party is the insurance company and other persons claiming injury are called third parties.

First surplus (reinsurance) treaty

As a reinsurance term, first surplus means the amount of liability assumed on a certain risk, which is in addition to the amount which the primary company cares to hold for its net account. A treaty or contract which reinsures this “surplus” on a pro rata basis is called a first surplus treaty. Since there usually is a limit on the amount which may be ceded, there may be second or third surplus treaties to permit the writing of larger direct lines.

FISCAA (Flood Insurance Servicing Companies Association of America, Inc.)

FISCAA (Flood Insurance Servicing Companies Association of America, Inc.) An organization of insurers who provide flood insurance under the National Flood Insurance Program’s Write Your Own (WYO) program. Its goal is to educate the public about the protection available from the NFIP. It was established in 1992. Headquarters: Orlando, FL.

Fitness for a particular purpose

A product warranty affirming not only the fitness of the product for its intended use, but also for any known use the purchaser has expressed to the seller or manufacturer and for which that seller or manufacturer has affirmed the fitness for the specified use.

Fixed amount option

A life insurance option which allows the beneficiary to select to receive the proceeds in monthly installments of fixed amounts instead of a lump sum. The remaining principal will continue to earn interest until such time as the payouts exhaust both the principal and the interest earned.

Fixed annuity

A life insurance annuity providing guaranteed or fixed benefit payments for the term of the annuity.

Fixed benefit

A life insurance benefit or annuity benefit paid on a regular basis that does not vary.

Fixed charges

1) Costs of transacting business, e.g., rents, which are incurred regardless of the amount of business transacted. 2) A term used in business interruption insurance

Fixed period option

A life insurance benefit option that allows the beneficiary to receive the settlement in periodic payments for a fixed period of time or specified number of years instead of a lump sum. The unused portion of the principal sum will continue to earn interest during that period of time.

Fixtures

Something attached to real estate which is removable. (See furniture and fixtures.)

Flat benefit

A life insurance benefit in which the amount does not fluctuate.

Flat cancellation

The cancellation of a policy as of the time it attached, with all of the premium refunded to the policyholder.

Flat commission

A fee for selling and servicing insurance, payable to an agent or broker, which is the same percentage of the premium regardless of the size of the premium. (See graded commission.)

Flat deductible

A flat deductible is a set amount that will be subtracted from each claim or loss, as indicated in the policy, for that coverage. It does not vary with each loss.

Flat extra premium method

In life insurance, if a person does not meet health or other qualifications, insurance can be declined or rated. The flat extra premium method of rating the life insurance policy charges an extra flat dollar amount per $1,000 of policy value.

Flat rate

1) In reinsurance, the rate agreed upon between the reinsurer and ceding company to be charged the insured for the coverage, which is a final rate and not adjusted for loss experience, size of the risk, or any other credits or debits. 2) A rate set for a coverage that remains unchanged throughout the policy period, even if the insured suffers unexpected losses. 3) A property insurance rate used when no coinsurance applies to the policy.

Fleet

1) A group of ships, aircraft, or automobiles under common ownership or insured as if they were. 2) A group of companies under common ownership or management.

Fleet policy

In automobile insurance, coverage for a number of cars for one owner. In marine insurance, coverage for a number of ships for one owner or manager.

Flex rating law

The state law under which prior approval is required only if the new rates exceed a certain percentage above (and sometimes below) the rates previously filed.

Flexible benefit plan

Benefit plans offered by employers to employees that allow the employee some choices in the benefits, coverages, and limits selected. For example, a health insurance package that allows the employee the option to choose between vision benefits or dental benefits or to select both if the employee wishes to bear the burden of the additional costs. Other options are higher or lower deductibles, coinsurance, whether or not to make the benefits pretax, and so forth. (See flexible spending accounts.)

Flexible premium life insurance

A variable life insurance where the insured has the flexibility to choose the amount and timing of the premium payments, as well as the ability to change those options after inception.

Flexible spending accounts

Amounts set aside by employees or employers to provide a choice of taxable or tax?free benefits to employees at their option, as allowed under Section 125 of the Internal Revenue Code, for health expenses otherwise not covered by insurance, such as dental care, deductibles, co-payments, vision and orthodontic care, and legal expenses. (See flexible benefit plan.)

FLMI

Fellow, Life Management Institute designation sponsored by the Life Office Management Association. Headquarters: Atlanta, GA.

Floater

A policy which covers property at many locations, even worldwide and in the course of transit, i.e., the protection “floats around” with the objects insured.

Flood

Overflow of water from its natural boundaries. More specifically defined by the National Flood Act of 1968 as “a general and temporary condition of partial or complete inundation of normally dry land areas from the overflow of inland or tidal waters, or the unusual and rapid accumulation or runoff of surface waters from any source.”

Flood insurance

Coverage against damage done by the rising or overflowing of bodies of water.

Flood Insurance Rate Map

A map published by the Federal Insurance Administration to plot the layout of communities in flood prone areas, based upon comprehensive study and used as the actuarial basis for the promulgation of flood rates. Once a community has been charted and the map completed, that community becomes eligible for the National Flood Insurance Program.

Flood Insurance Servicing Companies Association of America, Inc. (FISCAA)

Flood Insurance Servicing Companies Association of America, Inc. (FISCAA) An organization of insurers that provide flood insurance under the National Flood Insurance Program’s Write Your Own (WYO) program. Its goal is to educate the public about the protection available from the NFIP. It was established in 1992. Headquarters: Orlando, FL.

Floor plan insurance

Coverage acquired by the financier, whether finance company or bank, to protect either its interest alone or its joint interest with the merchant, in which a special form is used. Merchants of high valued articles, such as automobiles and expensive household equipment such as refrigerators, often borrow money from finance companies or banks on the collateral of their stock of specifically identified property “on the floor” for sale. (See single interest cover (or insurance) and credit insurance.)

FOB-free on board

When goods are shipped FOB, the shipper is responsible only until the goods have been placed on board the vessel, freight car, truck, or other means of transport. After that the risk belongs to the consignee.

Following form excess liability insurance

An excess liability policy which extends an additional limit of insurance above the primary policy and provides exactly the same coverage as the underlying primary liability policy.

Following form excess property insurance

An excess property policy which extends an additional limit of insurance above the primary policy and provides exactly the same coverage as the underlying primary property policy.

Following the fortunes

A reinsurance principle stipulating that whatever the reinsured may find necessary to do in good faith, in connection with ceded business, is expected to be followed by the reinsurer. Reinsurance is strictly an honorable undertaking, from either side to the other.

For account of whom it may concern

A phrase used to protect the interests of others than the “named insureds,” that is, other than the persons actually named in the policy.

Force majeure

(See Act of God.)

Foreign company

In insurance, a company doing business in one state but incorporated in another. A company incorporated in another country is an alien company. Some insurance codes (Florida, for example) define foreign company to include alien companies unless the contrary is stated. Each specific law should be checked for its particular meaning. (See domestic company.)

Foreign Credit Insurance Association (FCIA)

Foreign reinsurer

foreign reinsurer In insurance, a company doing business in one state but incorporated in another. A company incorporated in another country is an alien company. Some insurance codes (Florida, for example) define foreign company to include alien companies unless the contrary is stated. Each specific law should be checked for its particular meaning.

Forfeiture

In a pension or profit sharing plan, the participant has vested (owned) and unvested (not yet owned) benefits. If an employee leaves before the benefits vest, the unvested benefits are called a forfeiture.

Forgery

False or fraudulent making or altering of a written instrument. Also, the illegal signing of another’s name to a document such as a check.

Form

A document providing the specifics of the insurance issued, either separate unto itself or attached to other descriptive language.

Form 5500

The form that must be filed annually to the IRS for any pension plan. It contains details about the plan’s finances and plan participant funding levels, vesting and other information.

Fortuitous cause

An accidental and unexpected cause of loss. A happening by chance.

Foundation exclusion clause

A clause in a fire policy which states that it does not insure foundations; hence, their value may not be used to determine the proper amount of insurance under a coinsurance clause.

Foundation wall

A masonry wall below the surface which supports a building

Foundering

Sinking below the surface of water.

FPA-free of particular average

A clause which exempts the company insuring cargo from partial losses, usually limited to apply only if the amount is less than an agreed sum, or if some other described condition exists.

Frame building

A type of construction in which the outer walls are made of lumber. (See brick building, and brick veneer.)

Franchise clause

A provision in marine policies that no loss shall be paid by the insurer unless the damage exceeds an agreed amount called the franchise; but if the damage equals or exceeds the franchise, the company pays the entire amount. (See deductible.)

Exposure unit

Franchise insurance

A form of mass merchandising of insurance where policies are sold to members of some common group or association individually on the basis of individual rates, but with some discount based on expense savings. Franchise insurance should be contrasted with group or true group, where premiums are determined for the group on the basis of its own expenses and losses and where all or most of the group are insured. (See group merchandising.)

Fraternal benefit society

Any incorporated society, order or supreme lodge. In order to purchase the insurance of a fraternal benefit society, a person must first become a member of the organization. Only members and their families can be covered by a fraternal benefit society insurance plan.

Fraternal insurance

A form of cooperative life or disability insurance sold by certain fraternal organizations, usually as legal reserve insurers, to their members.

Fraud

Dishonesty.

Free along side (FAS)

Free of capture and seizure (FC&S)

A clause which exempts the marine insurance company from paying losses caused by capture or seizure by enemies of a country.

Free of particular average (FPA)

A clause which exempts the company insuring cargo from partial losses, usually limited to apply only if the amount is less than an agreed sum, or if some other described condition exists.

Free on board (FOB)

Free on board destination

When applying to cargo insurance, this is a provision in the term of sale making the shipper responsible for the cargo until the consignee accepts it.

Free Trade Zone

A special section of the New York State Insurance Law that exempts from rate regulation certain risks which develop property-liability policy premiums in excess of $100,000 annually, as well as certain other classes of unusual or exotic risks.

Free-look period

The time period allowed a new insured to look over the terms and conditions of the final policy after delivery, during which the insured may cancel the policy with full premium refund. The free-look period is often 10 days after delivery of the policy for life and health, or up to 30 days on property and liability.

Friendly fire

A visible flame or glow started voluntarily, under control, and in its intended place. (See hostile fire.)

Front-loaded policy

Universal and variable universal life insurance plans may either be front-loaded or back-loaded. Front load means that the expense charges are taken out of the policy when premiums are paid. Back-loaded policies take the expense charges out when cash is withdrawn from the policy or the policy is surrendered.

Fronting

Typically involves an admitted insurance company that, for a fee, serves as a policy issuer and primary insurer for an unlicensed firm that reinsures the liability it placed with the issuing carrier. The fronting company performs a variety of functions, including product/rate filings and handling required assessments and fees.

Frustration clause

In an ocean marine policy that has been endorsed or extended to cover the peril of war, the frustration clause is a provision which clarifies that the cargo or goods must experience a direct physical loss or actual property damage to be covered. The delay of a voyage or termination of the voyage is not grounds for a claim even if that delay or termination occurred due to the outbreak of war, as otherwise covered.

FSA

Fellow of the Society of Actuaries designation sponsored by the Society of Actuaries. Headquarters: Shaumburg, IL.

FSPA

Fellow, Society of Pension Actuaries designation sponsored by the American Society of Pension Actuaries. Headquarters: Fairfax, VA.

FTCA

(See Federal Torts Claims Act.)

Full coverage

The use of this terminology usually refers to a coverage that has been written without a deductible. The entire amount of loss is covered, up to the state policy limit.

Full family direct

Refers to the process of determining all sources of Social Security payments and using that amount to reduce (offset) any payments an injured worker receives from a disability policy.

Full family direct

Refers to the process of determining all sources of Social Security payments and using that amount to reduce (offset) any payments an injured worker receives from a disability policy.

Full reporting clause

A clause in many reporting policies that provides for a penalty in the event of loss if the insured has reported less value than required by the policy. Formerly called honesty clause

Full value declared

An ocean and inland marine insurance provision which requires the shipper to declare the full value of the cargo to the carrier when shipped

Functional replacement cost

An endorsement available for property policies which provides for replacement of the operation or function portion of a building or property, even if the replacement is for a building of less size or the more modern equipment is of less value. To illustrate, an insured owns an aged, four-story building in which only two floors are currently used. The remaining floors have been closed and are unused. Should the building suffer a total loss, functional replacement cost would provide for the rebuild of the square footage of the two functional floors.

Funds control

Refers to a party who takes the place of a contractor that can’t secure a bond for a building project. the fund controller gets the bond and handles responsibilities in the contractor’s place.

Funds held account

funds held account Money that a ceding company holds for use to pay losses under a reinsurance agreement. The held funds would normally be paid to a reinsurer and the money represents either an unearned premium or outstanding loss reserve.

Funds withheld

funds withheld Money that a ceding company holds for use to pay losses under a reinsurance agreement. The held funds would normally be paid to a reinsurer and the money represents either an unearned premium or outstanding loss reserve.

Fur floater

An inland marine policy insuring furs and garments containing fur on a scheduled item basis against all risks, wherever the furs may be.

Furnace explosion

A bursting in the fire box of a furnace or boiler, as distinguished from one in the water bearing part. Usually, boiler explosion policies cover the latter, while extended coverage endorsements issued by fire insurance companies cover the former.

Furniture and fixtures

In insurance language, usually the contents of a building, excepting merchandise for sale or in the course of manufacture (stock) and excepting machinery. Fixtures are the items fixed, that is, attached to the building. (See fixtures.)

Furriers customers insurance

An inland marine form of insurance in which the customer of a furrier who stores fur garments is insured under a policy arranged by the furrier.

G

GAAP-generally accepted accounting principles

A method of reporting the financial results of an insurer more in accordance with the “going-concern” basis used by other businesses. GAAP assigns income and disbursements to their proper period, as distinguished from the more conservative requirements of statutory accounting affecting insurers. (See statutory accounting principles (SAP).)

Gain share program

With regards to P&C insurance, it refers to companies that offer employees a financial incentive to actively participate in safety programs IF adherence results in reduced losses. Typically, participating employees may qualify for some established amount or percentage of a described, realized gain (savings).

Gambling

Creating risk by agreeing with another to win or lose something on the outcome of a certain event. Insurance is the opposite of gambling: gambling creates risk, while insurance shifts risk already in existence from one party to another.

Gap coverage

An amount of insurance purchased to satisfy the requirement of an excess carrier with respect to underlying insurance. For example, if an excess insurer requires the insured to carry $500,000 of underlying coverage, but the primary insurer will write only $300,000, $200,000 is purchased to fill the gap. Also known as buffer layer.

Gap insurance

gap insurance For auto insurance, refers to coverage against loss caused by the amount an insurer may pay for a vehicle that is lost/destroyed and the outstanding balance that is due under a loan or lease arrangement.

Garage policy

Protects garage or service station operators, vehicle rental agencies, car washes, auto or vehicle dealers, and trailer or RV dealers for claims alleging bodily injury or property damage caused by the operator’s negligence in business operations and the sale or use of automobiles.

Garagekeepers Legal Liability (GKLL)

Garagekeepers legal liability (GKLL) Pays amounts an insured is legally obligated to pay because of damage or loss to property of others that is in the insured?s care, custody or control.

Garment contractors floater

An inland marine form of policy which insures the goods of the manufacturer against physical loss or damage while in transit. May be extended to cover while on the premises of the manufacturer.

Garnishment

A court order issued to a person holding property or money of another: the order states not to give it to the owner or anyone else because suit has been filed or other legal steps have been taken to provide for other courses of action. Money due under insurance policies is sometimes subject to such procedure because of obligations of one to whom the loss would be paid.

Gatekeeper programs

A program that creates and implements complete insurance packages for residential homeowners associations.

GCW-gross carriage weight

GCW The gross carriage weight of vehicles?usually trucks. It indicates how much cargo a vehicle can haul.

Gender rating

When different sets of rates are developed for each gender based on the “verifiable” actuarial statistics of that gender, most often used in life, health and auto insurance.

General Adjustment Bureau, Inc.

A national firm providing extensive loss settling, appraisal, and other services for insurance companies and firms practicing risk retention. Headquarters: New York, NY. (See adjustment bureau.)

General agency system

An insurance sales and distribution system found most often in life and health insurance, where a general agent is appointed by the insurer to administer the insurance operations for that insurer in a specified territory. The general agency performs most of the same functions as a branch office would, saving the insurer much of the expense of a branch office.

General agent

1) An independent agent who represents one or more insurers with the authority to appoint subagents who report their business through the general agent, who receives an overriding commission for services provided. In some territories a general agent also sells insurance, while functioning in others solely as a manager. 2) A title used by some insurers for those agents receiving a higher commission rate than other agents (because of a higher volume of business placed with the insurer). Such a general agent normally has no additional authority or responsibility, and the title is used to designate the higher commission rate. (See agency and insurance agency.)

General aggregate limit

The sum or total amount that will be paid in any one policy period, regardless of how many claims, losses, suits, or insureds may be involved. Some policies allow the aggregate limit to be reinstated after it has been exhausted, by endorsement and for additional premium.

General average

In ocean marine insurance, a loss which is common to all interests, such as the hull owners, the cargo owners and the receivers of the freight and charges, etc., which may arise due to a peril to the entire venture, which requires a sacrifice or expenditure for the benefit of all. An example is the stranding of the vessel wherein the vessel must engage a tug to remove her from the strand. Without the tug’s assistance, all would be lost. The expenses incurred are shared pro rata based on the value of each interest, whether insured or not. (See particular average, contributory value clause, general average bond, general average deposit, jettison and sacrifice.)

General average bond

As it applies to ocean marine insurance, this bond is issued for the obligation of the cargo owner with respect to that cargo owner’s proportion of the general average. (See general average.)

General average deposit

A cash deposit required of cargo owners for the payment of that cargo owner’s proportion of the general average. (See general average.)

General aviation

A term for any aviation exposure or risk except commercial airlines and military risks.

General cover

A policy covering property at several locations, the premium for which is determined by averaging the stated amounts of value, which the policyholder is required to report to the company at stated intervals.

General damages

In liability insurance, refers to awards which may fall into either compensatory or punitive. Compensatory consists of either general damages, which include pain and suffering, and special damages, which are out-of ?pocket expenses. Punitive (or exemplary) are amounts that are awarded as a form of punishment or to act as an example.

General interrogatory

A question such as found in the NAIC Annual Statement or as addressed by one party to another party in a lawsuit.

General liability

A form of insurance sold to businesses to indemnify the business for third party liability claims due to negligence. Coverages can include premises and operations liability for onsite and jobsite accidents and products liability claims for products that injure third parties.

General partners liability coverage

A policy that protects a partnership’s general (managing) partner from his liability for causing loss to limited partners due to business-related errors and omissions, such as breach of duty and accusations of lack of devotion to operations.

Generally accepted accounting principles (GAAP)

Geneva Association

International organization of chief executives of major insurers from U.S., Europe and Japan, dedicated to the research and study of insurance and risk management and their impact on the global economy. Headquarters: Geneva, Switzerland

Geocoding

geocoding Refers to the use of automation to process geographic information for specific locations. Its ability to identify a location’s physical surroundings (such as distance to a shore line or other buildings) allows the information to be used by insurers as an underwriting tool.

Geopositioning

Any method that facilitates the location of one point relative to the surface of the earth (i.e., intersection of an object’s latitude and longitude).

GIC (guaranteed investment contract)

GIC-guaranteed investment contract Found in pension plans. Similar concept to a CD (Certificate of Deposit). The pension plan agrees to give the insurer a large block of money to invest. The insurer agrees to pay a fixed percent of interest on that block of money for a fixed period of time.

Gift tax

Taxes against gifts that one person or one party makes to another. These taxes include both state and federal.

Glass insurance

Coverage against the breakage of glass.

GLB

GLB (Gramm-Leach-Bliley Act) Also known as the Financial Services Modernization Act, which took effect in November 1999. The GLB?s major impact is on the greater freedoms of banks, insurers and security firms to participate more widely in financial areas that used to be strictly defined, such as banks, through holding companies, being able to purchase insurers or brokerages and sell such products. The other area concerns privacy rights and the new requirements placed on companies regarding how customer data is collected, used and shared.

Global insurance

global insurance Refers to coverage that applies to losses from all classes of insurance policies.

GNWPI-gross net written premium income

The generic term to describe the rating base for excess of loss reinsurance: 1) the ceding company’s premium income, as opposed to premium receipts 2) measured net, meaning after cancellations, refunds and premiums paid for reinsurance protecting the cover being rated 3) gross, meaning before deducting any expenses. (See subject premium.)

Going and coming rule

going and coming rule An informal term that typically refers to commuting to and from work and that time being excluded as part of a workday. This distinction is important in determining whether an employer may be held partially or totally responsible for a loss that occurs during a commute.

Golfer’s insurance

A package policy that responds to legal liability arising out of golfing as well as loss to golfing equipment (clubs, bags, clothing, etc.)

Good driver discount

Credits or discounts allowed by some insurers in some jurisdictions that are applied to reduce automobile insurance premiums for drivers with a good driving records.

Good student discount

A reduced automobile insurance premium is sometimes granted students with high scholastic achievement because some studies have indicated a relationship between good grades and safe driving.

Goodwill

An intangible business asset. It refers to the value of a business which has been built up through the reputation of the business concern and its owners.

Governing classification

In determining rates for compensation insurance, the principal occupation of the insured.

Governmental action exclusion

A property exclusion which clarifies that the insurance policy does not cover physical damage losses which result from any governmental seizure or destruction, except when the destruction is to prevent the spread of fire.

Grace period

An amount of time (usually one month) after the life insurance policy’s premium due date, during which the policy continues in effect when the premium due is not paid. Many policies that have cash values also provide an automatic premium loan provision, in which part of the cash value is used as a loan to pay the premium due, thereby keeping the policy in force for a longer period. Most state laws require a grace period in life insurance policies.

Graded commission

Compensation for selling and servicing insurance, payable to an agent or broker, the percentage of which is dependent on the size of the premium. The higher the premium, the lower the commission percentage. The opposite of flat commission in which the same rate of commission applies for any size of premium. (See flat commission.)

Graded premium whole life insurance

The premiums start out low and then jump to a higher level after a period of time. Used with medical students and others who have high future earnings potential but have limited funds today.

Grading of cities and towns

A 10-category ranking or schedule of public fire protection of cities and towns established in 1916. The grading is currently maintained by the Insurance Services Office for use in making fire insurance rates and to encourage local governments to maintain better fire fighting equipment and personnel. A city or town is ranked in one of the categories by receiving deficiency points for failing to meet established standards under each of these major headings: water supply, fire department, fire service communications, fire safety control, climate, and divergence between fire department and water supply. Town Class I is the best class (a city or town having fewer than 501 points), and Town Class 10 is the worst (more than 4,500 points).

Gramm-Leach-Bliley Act (GLB)

Also known as the Financial Services Modernization Act, which took effect in November 1999. The GLB?s major impact is on the greater freedoms of banks, insurers and security firms to participate more widely in financial areas that used to be strictly defined, such as banks, through holding companies, being able to purchase insurers or brokerages and sell such products. The other area concerns privacy rights and the new requirements placed on companies regarding how customer data is collected, used and shared.

Grantee

The buyer of real estate.

Grantor

The seller of real estate.

Greenmail exclusion

Greenmail refers to sales of corporate stock at a discounted price in order to dissuade certain stockholders who may be contemplating a hostile takeover. The greenmail exclusion is found in Directors Errors and Omissions policies and bars insurance protection for lawsuits (typically filed by stockholders who were not offered discounted shares) alleging harm from greenmail.

Grey fleet

A business auto fleet comprised of employees required to use their personal vehicles for business purposes, exposing a company to greater risk due to fewer safety controls.

Gross earnings form

A form of time element insurance which is now obsolete, where the premium consideration is based upon the policyholder’s sales less cost of merchandise. The current coverage form available is business income coverage. (See business income insurance.)

Gross line

The amount of insurance written on a particular exposure by an insurer. Gross line differs from the net line by the amount of reinsurance placed.

Gross net premiums

In company language, gross written premiums less return premiums, but not less reinsurance.

Gross net written premium income (GNWPI)

The generic term to describe the rating base for excess of loss reinsurance: 1) the ceding company’s premium income (as opposed to premium receipts) 2) measured net, meaning after cancellations, refunds and premiums paid for reinsurance protecting the cover being rated 3) gross, meaning before deducting any expenses. (See subject premium.)

Gross premium

In company language, the written premium before deducting any premium paid for reinsurance and, in some cases, before paying any return premium.

Gross rate

gross rate The adjusted premium that is derived by adding a loading (a factor or fee) to a pure premium amount.

Gross vehicle weight (GVW)

As it applies to auto coverages, this is the total of the combined weight of the vehicle itself plus the weight or tonnage that the vehicle is capable of carrying.

Group accident and health insurance

Group insurance programs designed to offer affordable accident and/or health coverage to a natural group, such as employees of an employer or members of an association and their families. A single contract is provided for the entire group which outlines the standard benefits, terms and provisions that apply to all members of the group. Individual certificates are usually issued to the members to verify that they are covered.

Group captive insurance company

A captive insurer formed and controlled by more than one entity.

Group contract

Group credit life insurance

Life insurance coverage designed to protect lenders should any of their borrowers become disabled or die. The limit of insurance is written on the total amount that the lender has outstanding to borrowers, but the lender will receive only the amount of the balance of the outstanding loan of each borrower who becomes disabled or dies, as the event occurs.

Group deferred annuity

A funding method for pension plans. Employer contributions are made to purchase deferred retirement annuities for plan participants.

Group disability insurance

Group insurance programs designed to offer affordable disability coverage to a natural group, such as employees of an employer or members of an association and their families. A single contract is provided for the entire group which outlines the compensation benefits available should accident or illness occur to a member of the plan. Normally the compensation is a percent of the actual income of the member and is limited in the length of time that a member can collect those benefits. These limitations are designed to encourage recovery and return to work. Individual certificates are usually issued to the members to verify that they are covered.

Group health insurance

Group insurance programs designed to offer affordable health coverage to a natural group, such as employees of an employer or members of an association and their families. A single contract is provided for the entire group which outlines the standard benefits, terms and provisions that apply to all members of the group. Individual certificates are usually issued to the members to verify that they are covered.

Group insurance

1) Insuring a number of persons under a single master contract. The persons have a common sponsor, such as an employer, a union or an association. 2) “True” group insurance precludes individual underwriting by the insurer, requires the employer to insure all employees if the employer pays any portion of the premium, and allows employees the option of participating in any coverage for which the employees must pay.

Group life insurance

Group life insurance programs designed to offer affordable coverage to a natural group, such as employees of an employer or members of an association and their families. A single contract is provided for the entire group which outlines the standard benefits, terms and provisions that apply to all members of the group. Normally the life insurance benefits offered are based on the compensation earned by the individual member. Most of the group life insurance programs also offer the members the ability to convert to other permanent, whole or term life products upon termination of employment. Individual certificates are usually issued to the members to verify that they are covered.

Group merchandising

A term often used in a misleading sense to cover all forms of mass merchandising. More accurately used to cover the sale of insurance to the members of a particular group or association under a single group contract, where premiums for the participants are determined for the group on the basis of its own expenses and losses and where all or most of the group are insured. (See mass merchandising and franchise insurance.)

Group ordinary life insurance

A group life insurance plan that includes permanent life insurance.

Group permanent life insurance

Permanent life insurance underwritten on a group basis, i.e., with limited medical questions. Group paid-up insurance is often the vehicle used in pension plans that include permanent life insurance.

Group property and liability insurance

Group insurance programs designed to offer affordable property and liability insurance, most often automobile or homeowners coverages to a natural group such as employees of an employer or members of an association. This is usually an optional benefit that the group member may purchase and is not subsidized by the employer or group. The cost to the member, however, is usually less than what is otherwise available because of lower marketing, sales and administrative expenses saved by the insurer.

Group universal life insurance

A group life insurance plan that includes universal life insurance with all its inherent flexibilities. (See also universal life.).

Guaranteed annuity payments

A type of annuity that guarantees the continued payment of an annuity, even if the annuitant should die. At the death of the annuitant, payments are made either to a secondary annuitant or to the estate of the primary annuitant should a secondary not be mentioned.

Guaranteed insurability

Life and health insurance provisions which guarantee the insured the right and ability to increase or purchase additional coverage without proving insurability.

Guaranteed investment contract (GIC)

Found in pension plans. Similar concept to a CD (Certificate of Deposit). The pension plan agrees to give the insurer a large block of money to invest. The insurer agrees to pay a fixed percent of interest on that block of money for a fixed period of time.

Guaranteed issue

Group insurance programs designed to offer affordable health coverage to a natural group, such as employees of an employer or members of an association and their families. The difference between this and other group insurance is that no proof of insurability is required. It is guaranteed that all participants will be issued. A single contract is provided for the entire group which outlines the standard benefits, terms and provisions that apply to all members of the group. These benefits, however, may be tempered by the age and size of the group. Individual certificates are usually issued to the members to verify that they are covered.

Guaranteed renewable

In some life and health insurance programs, the insurer has guaranteed the renewal of policies for a set period of time or until an insured becomes a specified age. The insured has the option to renew. The insurer does not and must renew at the insured’s request. The insurer cannot change benefits, terms, or conditions except rates, and then those rates cannot be changed for any one individual but must apply to an entire class.

Guaranty association

Found in both life and property-casualty. Voluntary or state-mandated funds that insurers pay into to reimburse policyholders and claimants of an insolvent insurance company. (See also guaranty fund.)

Guaranty fund

An amount of money assessed certain insurers in a given state to reimburse policyholders and claimants of an insolvent insurer in that state. The fund may be created before an insolvency occurs (pre-assessment, as in New York) or afterward (post-assessment), and virtually all states now have such protection. (See Insurance Guaranty (Insolvency Act), and insurance insolvency act.)

Guard

Any person the insured retains specifically to have custody of property inside a covered premises.

Guest statutes

In some states, legislation requiring that a guest passenger must prove something higher than ordinary negligence in order to recover from the host driver. Apart from such laws, the guest passenger would have the same rights as any other member of the public and would only be required to prove ordinary negligence.

Guiding principles

Rules agreed on by most insurers for apportioning loss payments among two or more policies covering a given loss. (See overlapping insurance.)

GVW-gross vehicle weight

As it applies to auto coverages, this is the total of the combined weight of the vehicle itself plus the weight or tonnage that the vehicle is capable of carrying.

H

Habitational insurance

Typically refers to coverage designed for commercial apartments (including high-rises), condos, multi-unit dwellings, hotels and motels.

Haddon Matrix

A method used in evaluating and controlling injuries. It is a four-column, three-row table where three stages of a given event (pre-event, event and post-event) is examined across four different factors (personal, agent, physical and social) that influence the event.

Hague Rules

Maritime rules that were developed in Hague, Holland, in the early 1920s regarding the transport of cargo by sea. Many countries have adopted and abide by these rules.

Hague-Visby Rules

A set of international maritime rules that describe the responsibilities and obligations held by insurers and shippers when transporting goods over water.

Hail insurance

Insurance against hail damage to growing crops. Although hail is the basic cause of loss protected against in these policies, coverage is often granted for crop damage resulting from additional causes of loss such as fire, windstorm, lightning, drought, frost, excessive heat, snow, sleet, etc.

Hammer clause

An informal title for a provision that is a modification of a consent-to-settle clause. It requires the insurance company to secure the insured’s permission to settle a claim or lawsuit. It allows the insured to have control over an action that could affect his or her reputation. However, if permission is not given, the typical clause usually caps any subsequent settlement at the amount the insurer originally sought to pay and/or it may limit or eliminate an insurer’s obligation to continue to defend a lawsuit.

Hangarkeepers legal liability insurance

Protection for the aircraft hangarkeeper for losses caused by negligence in storing aircraft as a bailee.

Hard market

In the property and liability insurance business, underwriting philosophies fluctuate between periods called the hard market and the soft market. The hard market is the period during which underwriting standards are very tight and the rates are high. Normally the hard market closely follows a soft market period during which the underwriting standards had been soft and the price or rates are very low, resulting in substantial underwriting losses. The cycle swings back and forth between the two cycles and bounces between soft underwriting with low rates and heavy losses, to the hard market with subsequent tightening of standards and dramatic increases in price.

Hardware

The mechanical, electronic and electrical devices comprising a computer. (See software.)

Harter Act

A law passed by Congress in 1893 which provides that a vessel owner is not responsible for loss or damage caused by faults or errors in navigation, provided the shipowner has taken proper care to see that the ship is in all respects seaworthy and properly manned and equipped. (See bill of lading.)

Hazard

A condition which may lead to a loss, such as oily rags leading to a fire. (See moral hazard, morale hazard, and physical hazard.)

Hazardous waste

Products or residues known or suspected to be toxic that require special care in their handling and disposal. Examples are asbestos, dioxin or radioactive substances.

Hazardous waste site

1) A site that has been contaminated by hazardous waste and is subject to cleanup and EPA regulation. 2) A dump site used to dispose of hazardous waste.

HCFA

An agency established under the U.S. Department of Health and Human Services which administrates two major national health care programs: Medicaid and Medicare. Headquarters: Baltimore, Maryland.

Head office

1) The principal place of business of a company; the head office or the chief office. 2) The term may be modified to include regional offices in some jurisdictions (Florida) for tax purposes, with a company’s principal place of business referred to as its home office.

Heads of damages

A legal and claims term referring to type or categories of damages that are sought to be recovered through litigation.

Health Care Financing Administration (HCFA)

An agency established under the U.S. Department of Health and Human Services which administrates two major national health care programs: Medicaid and Medicare. Headquarters: Baltimore, Maryland.

Health indemnity plan

A group health insurance program that reimburses insureds for covered medical expenses, minus deductibles and co-payments, after they have paid the health care provider.

Health insurance

A broad term describing protection from loss due to illness or injury, resulting in loss of life, loss of earnings, or expenses incurred. Within the broad area of health insurance, there are several major coverages which focus on more specific needs, for example, accident insurance, disability income insurance, hospitalization insurance, and sickness insurance. (See accident and sickness insurance.)

Health Insurance Portability and Accountability Act

Health Insurance Portability and Accountability Act A federal law that affects how confidential information is collected, used and shared. It has created new standards for insurers who must now take more precautions to protect the private information of their customers. The Act has also created constraints to the industry’s ability to access medical records related to investigating claims-related injuries.

Health maintenance organization (HMO)

An entity with four essential characteristics: 1) an organized system for providing health care in a geographic area 2) delivering an agreed upon set of basic and supplemental health maintenance and treatment services 3) to a voluntarily enrolled group of persons 4) for which services the HMO is reimbursed through a predetermined and periodic prepayment made by or on behalf of each person or family unit enrolled in the HMO, without regard to the amounts of actual services provided.

Health promotion

Planned activities designed to support changes in behavior and the environment to enhance health by reducing risks, e.g., disease prevention, risk screening, medical self-care, and lifestyle modification. (See wellness programs.)

Held in trust

A clause in property insurance extending the policy to cover property of others held by the insured as a bailee. Such coverage is always qualified by the requirement that the bailee is legally responsible for such property.

Herbicide applicator coverage

This coverage supplements the protection of a Commercial General Liability policy by providing protection against loss or damage an insured causes by a pesticide or herbicide application. The loss must involve accidental introduction of a substance at a site that is not owned or controlled by the insured. Typically, the loss must occur in relation to an operation that complies with all government regulations.

Hidden defect

A term used in connection with products liability coverage to designate a product that has a hidden or concealed flaw or problem which could cause injury or damage when used.

High risk

high risk Insurance coverages that are outside those considered “standard” with respect to the coverages, forms and endorsements provided. Standard insurance is those policies and forms that share common policy language and verbiage as well as same or similar clauses and provisions. Standard also refers to business types and the exposures that the business represents. Businesses that pose only commonly expected exposures are considered standard while businesses that pose unique, unusually or very high exposures are considered nonstandard and thus require nonstandard insurance.

High-risk automobile insurer

(See nonstandard insurance.)

Highly protected risk (HPR)

A program for larger commercial properties meeting higher safety standards in order to obtain significantly lower premiums. Protection includes automatic sprinkler systems, better than average construction and occupancy.

HIPAA-Health Insurance Portability and Accountability Act

HIPAA-Health Insurance Portability and Accountability Act A federal law that affects how confidential information is collected, used and shared. It has created new standards for insurers who must now take more precautions to protect the private information of their customers. The Act has also created constraints to the industry’s ability to access medical records related to investigating claims-related injuries.

Historical insurance audit

A process, similar to an audit, for researching internal and external sources to reconstruct and document an organization?s history of insurance coverage. This is particularly important to assist with liability arising from past years or even decades, such as damage related to environmental liability or asbestos.

Hit and run

An accident caused by someone who does not stop to assist or provide information related to that accident.

HMO-health maintenance organization

HO-1

A package of basic homeowners insurance that covers a number of specified causes of direct loss to a residence and personal property as well as liability insurance.

HO-2

A package of basic homeowners insurance that covers a number of specified causes of direct loss to a residence and personal property as well as liability insurance. It responds to several more causes of loss than an HO-1 form.

HO-3

A broad package of homeowners insurance that, with exception of earthquake, flood, military and nuclear activity, covers all of direct loss to a residence that is not specifically excluded. It also provides personal property protection on a specified cause basis, as well as liability insurance.

HO-4

A package of basic homeowners insurance that covers a number of specified causes of direct loss to personal property as well as liability insurance. It responds similarly to an HO-2 form and is designed for tenants.

HO-5

A broad package of homeowners insurance that, with exception for earthquake, flood, military and nuclear activity, covers all of direct loss to a residence that is not specifically excluded. It also provides personal property protection on a specified cause basis, as well as liability insurance. It is broader than an HO-3 as it settles all eligible property losses on a replacement cost basis.

HO-6

A package of basic homeowners insurance that covers a number of specified causes of direct loss to certain types of structural and personal property as well as liability insurance. It also provides some coverage for structural property that is under joint ownership and limited coverage for property loss assessments. It responds similarly to an HO-2 form and is designed for condominium owners.

HO-8

A package of basic homeowners insurance that covers a number of specified causes of direct loss to a residence and personal property as well as liability insurance. However, losses are handled according to the cost of making adequate repairs, rather than replacement cost. This form is designed for older homes that, due to architectural, material or other characteristics, have a replacement cost that substantially exceeds their market value.

Hold harmless agreement

A contractual arrangement in which one party agrees to assume certain liability which otherwise would be borne by the other party. For example, an insurer may wish to pay a loss when it is uncertain whether it may be called upon a second time to some other party. The payee may be asked to execute an agreement whereby the company will be reimbursed or held harmless by the payee if such request should happen. Another example is when the principal in a large construction project frequently demands hold harmless agreements from all subcontractors in respect to claims made against the principal arising out of the subcontractors’ negligence. The principal often stipulates the purchase of a liability policy by the subcontractor to support the hold harmless agreement.

Holdup

The taking of property by violence or threat of violence.

Hole-in-one insurance

hole-in-one insurance Hole-in-one coverage is a form of prize indemnification insurance usually purchased by a sponsor of a local golf tournament who donates a prize, such as a new car, tractor, clothes or other merchandise or cash, to be given to any golfer who scores a hole-in-one on a specified hole on the golf course. The insurance is arranged prior to the event and indemnifies the insured only if the hole-in-one is made and the prize awarded. The policy warrants that certification of the hole-in-one must be made by at least two tournament officials prior to payment of the insured’s loss.

Holistic Risk Management

holistic risk management A newer, broader application of the risk management concept. It refers to an aggressive approach to handling an organization?s multitude of exposure to loss of tangible and intangible property, including income. It may use a variety of tools to avoid loss, such as safety procedures, insurance, shifting of risk via contracts, arranging for alternate supply channels, etc. The concept focuses on growing concerns that face new, often unanticipated, risks.

Home automation

Home office

Homeowners policy

A package policy for dwelling and contents risks combining fire and allied line coverage with comprehensive personal liability and theft insurance for homeowners and tenants. This policy carries an indivisible premium in that the premium is not separately stated or broken down for the various hazards insured against. There are different homeowners forms, varying in extent of coverage and cost from the broad cause of loss policy (HO2), to the special cause of loss policy (HO3), to the renter’s policy (HO6).

Homogeneous exposure unit

An insurance concept on which the actuarial credibility of insurance rate-making is based. Data and statistics of large numbers of similar or homogeneous exposure units (the persons or properties exposed to insurance losses), with similar characteristics and thus similar exposure to loss, are used to determine the frequency and severity of loss to that exposure group per exposure unit. The homogeneous exposure units are placed into rating categories based on their similar characteristics called classes.

Honesty clause

The former name for the full reporting clause in reporting forms of fire policies. A clause in many reporting policies that provides for a penalty in the event of loss if the insured has reported less value than required by the policy.

Honorable undertaking

A clause used in some reinsurance treaties, the purpose of which is that the agreement not be defeated by a strict or narrow interpretation of the language in the treaty.

Hospice

A program that provides palliative and supportive care for terminally ill patients and their families, either directly or on a consulting basis with the patient’s physician or another community agency, such as a visiting nurse association. The entire family is considered the unit of care, and care extends through the mourning process.

Hospital benefits

In health and accident insurance, if an insured must be hospitalized for illness, accident, or injury, hospital benefits are the amounts provided in the insurance coverage for hospital expenses.

Hospital confinement insurance

A type of health insurance policy which pays a specified periodic benefit should the insured be confined to a hospital for accident, illness or injury. This benefit is paid regardless of whether or not there is other insurance available and is not reflective of or dependent upon the amount of medical expenses involved. Sometimes called hospital income insurance.

Hospital expense insurance

Reimbursement for certain limited expenses incurred while being hospitalized due to injury or illness. Also known as hospital-surgical expense insurance.

Hospital income insurance

A type of health insurance policy which pays a specified periodic benefit should the insured be confined to a hospital for accident, illness, or injury. This benefit is paid regardless of whether or not there is other insurance available and is not reflective of or dependent upon the amount of medical expenses involved. Sometimes called hospital confinement insurance.

Hospital indemnity insurance

(See hospital confinement insurance.)

Hospital professional liability insurance

Protects a hospital against claims for injury resulting from malpractice, professional errors, or a mistake by the hospital staff.

Hospital-surgical expense insurance

Reimbursement for certain limited expenses incurred while being hospitalized due to injury or illness. Also known as hospital expense insurance.

Hospitality insurance

Package policies or entire coverage programs that are tailored to insure the property, liability, contingent liability, and specialty exposures faced by entities in the hospitality industry such as casinos, hotels, inns, motels and resorts.

Hospitalization insurance

Reimbursement for certain expenses incurred while being hospitalized due to injury or illness. (See accident and sickness insurance.)

Host liquor liability

A form of liquor liability directed at hosts of business or social functions where liquor or alcohol is served, with or without a charge. The basis for legal liability is a dram shop, liquor control or alcoholic beverage law. The laws vary by state, but most provide that the owner, operator or host serving or selling alcoholic beverages is liable for injury or damage caused by or to an intoxicated person if it can be established that the owner, operator or host caused or contributed to the intoxication of the person through the sale or serving of alcoholic beverages.

Host liquor liability insurance

A form of liquor liability coverage where the basis for legal liability is a dram shop, liquor control, or alcoholic beverage law. The laws vary, but most provide that the owner of an establishment which serves alcoholic beverages is liable for injury or damage caused by an intoxicated person if it can be established that the liquor licensee caused or contributed to the intoxication of the person.

Hostile fire

A fire occurring where it is not supposed to be, as distinguished from a friendly fire which occurs in its proper place, such as in a stove or a fireplace. Fire insurance policies do not insure losses caused by friendly fires. (See friendly fire.)

Hostile work environment

A source of harassment that may be a basis of a lawsuit under federal law. It refers to improper or inappropriate (typically sexist or racist) behavior in the workplace that creates an atmosphere that is hostile or intimidating to other workers.

Hotel safe deposit box liability

This crime coverage form was replaced with the Guest’s Property Optional Insurance Agreement that is part of the ISO Commercial Crime policy. It combines coverage for an insured’s bailee exposure for physical damage to the property of guests contained in safe deposit boxes or vaults of the insured. Both physical damage and the insured’s legal liability are covered.

Household goods

The normal contents of a dwelling, such as furniture, clothing, etc.

Housekeeping

The care and management of property and the provision of equipment and services (as for a home or industrial organization).

HPR-highly protected risk

HR-10

(See Keogh plan.)

Hull

1) In ocean marine insurance, the frame, body, machinery and equipment of a ship, excluding masts, yards, sails and rigging. 2) In aviation insurance, the fuselage, wings, tail, rudders, and other major structural features of an aircraft, including machinery and equipment.

Hull and machinery

hull and machinery Hull and machinery insurance may be used to insure a very wide variety of commercial vessels. It protects a vessel’s hull and any equipment and/or machinery that is aboard the vessel. Policy protection also includes damage from colliding with other vessels.

Hull Clauses

General reference to various sources of standard policy provisions that provide named peril coverage against damage to ship exteriors.

Hull policy

1) An ocean marine policy designed to cover physical damage losses to the hull of a ship. 2) An aviation policy designed to cover physical damage losses to aircraft.

Hull syndicate

A group of ocean marine underwriters who insure certain ships or who perform certain functions in the insurance of ships on a joint or cooperative basis to spread the risk automatically and to save expense. (See syndicate.)

Human factors engineering

Human life value

The monetary value placed on an individual’s life, based on set criteria of economic and social factors.

Human perils

One of three broad categories of perils commonly referred to in the insurance industry which include not only human perils, but also natural perils and economic perils. Human perils are those caused directly by people and include crime, liability, fidelity, and some types of property damage such as vehicle damage or arson. Contrast those with natural perils which include wind, flood, or earthquake, or economic perils such as inflation or obsolescence. (See economic perils and natural perils.)

Hurricane

Violent, revolving-pattern windstorms that originate in the North Atlantic or in parts (particularly northeast and south) of the Pacific Ocean. They are classified in five categories, having a minimum wind speed of 74 mph (Category 1) to 156 mph (Category 5).

Hurricane insurance

A type of property insurance policy specifically designed to cover physical damage as a result of wind from a hurricane. (See beachfront plans.)

I

I.C.C. Endorsement-Interstate Commerce Endorsement To Motor

Truck Cargo Policies Truck Cargo Policies Truck Cargo Policies In inland marine insurance, this is the provision which broadens the policy coverage to conform to Interstate Commerce Commission requirements with respect to a carrier’s liability for customers’ goods.

IASA-Insurance Accounting and Systems Association

An international organization to promote the study, research and development of modern theory, practice and procedure as applied to insurance accounting and statistics. Headquarters: Durham, NC.

IBHS

(See Institute for Business and Home Safety.)

IBNR-incurred but not reported

The liability for future payments on losses which have already occurred but have not yet been reported to the insurer. This definition may be extended to include expected future development on claims already reported.

ICMIF

(See International Cooperative and Mutual Insurance Federation.)

ICPI-Insurance Crime Prevention Institute

Serves casualty insurers for the investigation of fraudulent insurance claims other than for accident and health or workers compensation, and provides a deterrent to such losses. Headquarters: Westport, CT.

Identity fraud

identity fraud A generic reference to any crime involving the unauthorized use of key pieces of personal information, such as Social Security or driver’s license numbers, in order to impersonate someone else. The information can be used to obtain credit, merchandise and services in the name of the victim, or to provide the thief with false credentials. The stolen information may be used either to open new accounts or to access current accounts.

Identity fraud expense insurance

identity fraud expense insurance A person who has been victimized by identity theft faces the daunting task of correcting their account information, credit history, and initiating extensive communication with a multitude of lenders, businesses and legal authorities. ID fraud expense insurance helps to cover some of the related expenses, particularly postage and phone charges.

IDL

(See Independent Director Liability.)

IDM

(See integrated disability management.)

IDMA

(See Insurance Data Management Association.)

IGIE

(See Institute for Global Insurance Education.)

IIA-Insurance Institute of America, Inc.

An educational organization which sets standards and gives examinations for diplomas or fellowships in general insurance, loss adjusting, underwriting, management and risk management. Headquarters: Malvern, PA.

IIAA-Independent Insurance Agents of America

Formerly the National Association of Insurance Agents, a large trade association whose purpose is to protect the business interests of its members, who are also members of state associations. Headquarters: Alexandria, VA (Washington, DC in 1988).

IIPRC

(See Interstate Insurance Product Regulation Commission.)

IIS

(See International Insurance Society.)

ILW

(See industry loss warranty.)

IMB

(See International Maritime Bureau.)

IMCA-Insurance Marketing Communications Association

A trade association of those in charge of insurance company advertising, marketing and public relations functions. Formerly known as the Insurance Advertising Conference.

Immature policies

Liability policies that are written on a claims-made basis are not considered to be mature until they have been in effect for five uninterrupted years as claims-made. Prior to that, claims are considered not to be fully developed. The premiums for these policies are given a credit that decreases yearly until it disappears after five years.

Immediate annuity

A type of annuity policy that begins making benefit payments as soon as the last premium payment has been made.

Impaired capital

The capital of an insurance company is said to be impaired if its liabilities, subtracted from its assets, leave less than the stated amount of capital. Most states have statutes outlining procedures to be taken by the insurance superintendent or commissioner in the event of such impairment. The word “impaired” has specific statutory meaning in state laws which may vary from state to state. Relevant state laws should be checked for meaning and effect.

Impaired property

Property is considered to be impaired when it has not been physically damaged, but either cannot be used for its intended purpose or has lost monetary value because it contains a defective product or the work performed on it is defective or inadequate, or because the insured has not fulfilled a contractual obligation.

Impaired risk

In life and health insurance, when an applicant has a substandard physical condition or a hazardous occupation or hobby, he/she is an impaired risk. Many insurers avoid such risks, while others specialize in them.

Impairment exclusion rider

An endorsement or rider added to a health insurance contract; this rider excludes losses that occur because of pre-existing conditions.

Implied authority

Specific authority is granted an agent or representative by contractual agreement. Other types of authority, not specifically mentioned by contract but assumed or implied by the nature of the relationship, are presumed to be given to an agent if that authority is necessary to perform the duties or responsibilities otherwise assigned to the agent or representative.

Implied warranty

An indirect expression or inference, not in writing, by the policyholder that certain conditions exist or will be met; for example, that a building is not on fire when insured, or that a vessel is seaworthy.

Improvements and betterments

Additions made to real estate enhancing its value and amounting to more than mere repairs or replacement of waste. When made by a tenant, such additions are normally included in the tenant’s own property insurance. (See betterments.)

Imputed negligence

imputed negligence Refers to a situation in which the responsibility for loss or damage is transferred from one party to another, such as a child to a parent or from a worker to his employer.

In kind

Replacement of damaged, destroyed, or lost property with other property instead of cash.

In motion

An aviation term that is used to express when an aircraft is in flight or under its own power or momentum.

In trust policy

A type of inland marine policy which provides protection for the covered property, no matter where located or in whose care, custody or control.

In-force business

The total premium amount of a book of business that is active and in effect at any specific period in time.

In-force premiums

The original premiums paid on all policies not yet expired, as distinguished from unearned premiums.

Inactive risks

A term used to express a risk that is not presently operating or exposed to the hazards and potential for covered losses.

Incendiary

1) The person who deliberately sets fire to a property. 2) A destructive fire intentionally set.

Inchmaree clause

A clause used in ocean marine policies to identify additional named perils beyond the basic marine perils. In the more recent hull insurance policies, the clause is now identified as the “additional perils” clause. The original clause grew out of a lawsuit brought in 1887 by the owners of a ship named “Inchmaree.”

Incidental contracts

Contracts that are considered necessary to conducting business and are covered as part of premises-operations liability coverage.

Incidental medical malpractice liability

This coverage is for operations that have a medical professional exposure which is incidental to but is not the major function of their business. The coverage responds to injury arising out of either providing or failing to provide medical services. A school nurse is an example of a qualifying incidental medical malpractice liability situation.

Incidents of ownership

Life insurance contains the following incidents of ownership. (A) The right to change the beneficiary (unless irrevocable); (B) the ability to use the policy as collateral in a loan; (C) the right to assign the policy to another; (D) the right to surrender the policy or cancel it; and (E) the right to obtain a loan against cash value (if there is any).

Incontestable clause

A clause in many life and health policies that sets a time period (two years is common) in the contract during which the insurer has to investigate and determine any grounds for voiding or contesting coverage because of facts or material provided by the insured in the application. Once the policy has been in effect past the stated period, the insurer no longer has the right to deny or contest any claim or loss, or void coverage based on the statements or material facts from the application.

Increase in hazard

The standard fire insurance policy is suspended from liability while the hazard in a risk has been increased beyond what was contemplated at the time the policy was written. For example, if a dwelling house, insured as such, should be occupied for manufacturing purposes without getting consent from the insurer for such increase in hazard, the company would not have to pay a loss as long as the manufacturing condition existed.

Increased annuity

A type of annuity where the payments made by the insured increase at a set rate during the life of the policy.

Increased limits table

With respect to liability insurance rates, most rates or loss costs are developed based on a standard limit of insurance purchased by the insured (most often $25,000). The increased limits table provides information on the factors that allow an increase in the base rate when higher limits are requested. Increased limits must be actuarially sound with credible data and statistics to support those factors, as are the rates that are developed.

Increasing term insurance

A term insurance policy where the death benefit increases during the term of the policy. The increase may be straight line, on a stair-step basis, or increase according to an index such as the CPI (consumer price index) or other inflationary measure.

Incurred but not reported (IBNR)

Incurred expense

A cost of administering insurance which has happened, whether or not paid.

Incurred loss ratio

Incurred losses divided by earned premiums.

Incurred losses

1) Events which have happened and which will cause claims to be made to insurers. 2) The total amount shown in an insurer’s operating statement as its obligations for policy claims, whether paid or not, during a given period (usually one year). The composition of incurred losses in such a total is derived by the following formula: losses paid during the year, plus loss reserves existing at the end of the year, minus loss reserves existing at the beginning of the year. (See loss reserve.)

Indemnify

To pay for loss suffered or to reimburse.

Indemnitor

In surety bonds, a person or company entering into a written agreement with a surety to hold that surety harmless from any loss or expense it may incur on a bond issued on behalf of another.

Indemnity

Indemnity is when the person or party suffering a loss is paid or reimbursed for that loss, the purpose being to restore that party to the condition that was present prior to the loss. In a life insurance contract, the payment made to a beneficiary is called indemnity.

Indemnity agreement

A contract agreeing to restore an injured party to the condition that was present prior to the occurrence of injury or loss.

Indemnity bond

A bond to pay or reimburse an obligee should the principal fail to perform as agreed upon or fail to fulfill the terms of the contract or commitment as named in the bond.

Indemnity company

Usually a company which confines its writings to the classes defined as “casualty,” as opposed to fire or marine. The term is becoming meaningless in these days when fire companies are writing casualty lines and indemnity or casualty companies are writing fire lines.

Independent adjuster

One who adjusts losses on behalf of companies as an independent contractor instead of as an insurer’s employee (staff adjuster) or a representative of the policyholder (public adjuster).

Independent agency system

The contracting of insurance companies with agents who are independent contractors to effect property-Sliability insurance, issue policies, own the expiration records thereof and, in general, to represent the companies in their communities. Agents may represent more than one company. The system has reached its highest development in the United States; hence, it is often called the “American” agency system.

Independent agent

A property-casualty insurance producer who sells insurance as an independent contractor while representing one or more insurers of that agent’s choosing on a commission basis, and who owns the expiration records of customers served. The independent status is further illustrated by the selling functions performed, which are not directed by the insurer, as would be the case if the agent were an employee. Those functions include contacting prospective insureds, effecting insurance, issuing policies, collecting premiums (in many or most cases), settling some losses of small amounts, and generally representing the insurers in the agent’s community as a part of the American agency system. By contrast, the direct writing insurer directs the selling functions of its agents, known as exclusive agents, and owns the expiration records. (See American agency system, direct writer, exclusive agent, agency, independent agency system, and insurance agent.)

Independent director liability

This is coverage for an individual member of a public corporation’s board of the directors. The typical coverage acts as excess over any other director and officer insurance; in certain circumstances, also provides primary protection.

Independent Insurance Agents of America (IIAA)

Index clause

A clause in an excess of loss reinsurance agreement which shares the effect of future inflation between the insurer and its reinsurers by adjusting the retention and limits in accordance with the movement of a designated index. Other specific indexes include Consumer Price Index, Cost of Construction Index, etc.

Indexed life insurance

A type of whole life insurance policy whose benefit payout is determined by a set index.

Indirect damage

Loss resulting from, or as a consequence of an insured direct loss. For example, loss of business income to a firm from direct damage to the firm’s premises, loss of business income to a supplier of a firm whose premises are destroyed, or loss of income to a family from death of the family’s breadwinner. (See indirect loss.)

Indirect loss

A type of loss that does not result from direct damage of a covered cause of loss or peril but is, instead, a consequence of the direct damage loss. To illustrate, if a restaurant burns to the ground from a fire, that is the direct loss; however, the income lost because the restaurant could not operate is the indirect loss. (See consequential loss, and indirect damage.)

Individual bond

individual bond Refers to bonding a particular public official.

Individual contract

The opposite of a group policy or contract, the individual contract is a policy covering one specific person and that person’s immediate family members.

Individual rate

A type of insurance rate which is based on the unique characteristics of an insured or the insured’s property.

Individual Retirement Account (IRA)

A tax deferred savings plan that has been approved by the federal government for those individuals who are not otherwise covered by an employer’s retirement plan. In order to be approved and eligible for deferred tax treatment, strict eligibility criteria are mandated.

Fire

Combustion manifested in light, flame and heat for useful purposes (known as friendly fire), or for destructive purposes (called hostile fire). Insurance covers loss only from the latter.

Industrial health insurance

Health insurance usually written in small amounts, the premium for which is payable in frequent installments (usually weekly or monthly) and collected by an agent known as a debit agent. The payment frequency and collection facilities were designed decades ago to accommodate workers at industrial factories, who were paid weekly. Because of the expense and time involved, this coverage is rarely used. (See industrial insurance, and industrial life insurance.)

Industrial insurance

Insurance (usually life or health insurance) written in small amounts, the premium for which is payable in frequent installments (usually weekly or monthly) and collected by an agent known as a debit agent. The payment frequency and collection facilities were designed decades ago to accommodate workers at industrial factories, who were paid weekly. Because of the expense and time involved, this coverage is rarely used. (See industrial health insurance, and industrial life insurance.)

Industrial Insured

A commercial operation that has a full-time employee who is responsible for acquiring insurance and risk management services. Typically a company must have more than 25 employees and have insurance premiums that exceed $25,000.

Industrial life insurance

Life insurance usually written in small amounts, the premium for which is payable in frequent installments (usually weekly or monthly) and collected by an agent known as a debit agent. The payment frequency and collection facilities were designed decades ago to accommodate workers at industrial factories, who were paid weekly. Because of the expense and time involved, this coverage is rarely used. (See industrial health insurance, and industrial insurance.)

Industry loss warranty

This is a tool that is used as a method to protect against catastrophic events. Payment of the warranty is made based upon whether the insurance industry as a whole suffers a certain level of loss due to a natural catastrophe such as earthquake or windstorms. An established index is used for the payment trigger.

Inflation guard endorsement

Language which may be added to a homeowners policy for an additional premium to extend the coverage by increasing the limits of liability quarterly (by 1%, 2%, or some fixed amount) to offset inflation.

Inherent explosion

Explosion caused by the normal processes of a risk (as opposed to one caused by external causes), such as a dust explosion in a grain elevator.

Inherent vice

The characteristics of any physical property which are expected to cause deterioration or damage to that property without outside help, e.g., milk sours eventually, and wooden houses depreciate over time. Excluded by most insurance policies.

Initial premium

A tentative charge made at the start of certain policies which is subsequently adjusted, at expiration or after certain information has been developed. Also known as deposit premium.

Injury

An act which damages or destroys a person or property.

Injury-in-fact theory

An event is recognized as an insurable loss (or occurrence) based upon the loss circumstances as reviewed by a court, with that court having authority to apply whichever trigger theory it decides is appropriate. (See continuous trigger theory, exposure theory, and manifestation theory.)

Inland marine

1) The insurance of property (generally on an “all-risk” basis) that is in the course of transportation or is of such a nature that it may easily be transported. Also includes some risks at fixed locations considered “instruments of transportation or communication,” such as bridges, tunnels, neon signs, and street clocks, etc., which were accepted as inland marine by custom. 2) Originally meant the insurance of goods in transit “inland,” instead of at sea, by underwriters who specialized in ocean marine insurance.

Innkeepers legal liability

Insures hotel/motel operators against their legal responsibility to care for the property of their guests. This coverage is now typically written under a commercial crime coverage form.

Innocent capacity

The amount of insurance offered the public by inexperienced insurers or reinsurers.

Innocent insured (doctrine)

A concept (that still appears statutorily in some jurisdictions) that preserves one person’s right to recover under an insurance contract if the insurance coverage involved a loss that was deliberately caused by another insured. However, in order to recover, the affected insured must not have had any part in either deceiving the insurer or causing the loss. Also, an innocent insured’s status may (depending on the jurisdiction) be voided if an insurance policy contains a provision that specifically excludes coverage for non-complicit parties.

Innocent spouse

(See innocent insured (doctrine).)

Inside buildup

The cash value that builds in a life insurance policy that (for most policyholders) escapes taxation until withdrawn from the policy.

Inside limits

Sub-limits set within some types of policies, that limit specified benefits or types of losses to less than the policy limit.

Insolvency clause

Required by law to be included in reinsurance contracts, this clause holds the reinsurer liable for payments under a treaty, even though the reinsured company in that treaty has become insolvent.

Insolvency fund

Inspection

A visual or physical examination of a property to determine whether it is an acceptable risk for insurance. (See credit report.)

Inspection bureau

1) An organization which inspects risks and makes surveys for the use of companies in their underwriting. 2) In some states, a rating bureau.

Inspection reports

Physical inspection of property ordered by underwriters to determine if property qualifies for insurance coverage.

Inspection slip

The report of an inspector on the characteristics of the insured property.

Inspector

One who looks at risks and reports on their acceptability for coverage. In marine insurance, an inspector is a “surveyor.”

Installation insurance

Protection for the installer of equipment against loss by specified perils or on an “all-risk” basis to property in the course of installation.

Installment premium

The payment of certain premiums may be made by the policyholder in installments.

Installment refund option

A settlement option in life insurance that pays a life income to the beneficiary. If the beneficiary dies before the original benefit is fully paid then the remainder (the refund) is paid to the contingent payee.

Installment sales floater

Protects the seller of property in possession of the purchaser (for which payments by the purchaser have not been completed) against loss caused by insured perils to the seller’s remaining financial interest. Also known as conditional sales floater.

Institute cargo clauses

Refers to a standard set of marine cargo policy coverage conditions that are found in most such forms; they come in several packages (normally clauses A, B and C) with “A” offering the broadest coverage. Different clauses are applicable according to the type of cargo involved with a given situation.

Institute for Business and Home Safety

An organization composed of and funded by insurers and reinsurers. It provides information and research on methods to minimize the impact of property losses (including those caused by natural catastrophes). It promotes and suggests practices for improved construction and maintenance. Headquarters: Tampa, FL.

Institute for Global Insurance Education

A global association of independent, not-for-profit insurance institutions that promote the dissemination of education to insurance professionals, creates networking opportunities and assists in developing insurance programs at all levels. The association’s members may be individuals as well as corporate entities. Headquarters: Malvern, PA

Institutional investors

Sizable investors who invest funds that have been entrusted to them. One common example is insurance companies that invest allowable premiums and reserves to earn additional income while those funds are not currently needed to pay claims.

Institutional policy

A package policy forming a part of the special multiperil policy program applicable to institutional buildings (such as buildings occupied by educational, religious, sanitary, charitable, governmental, or nonprofit organizations). Basically, the policy covers fire, allied lines and liability, and can be extended for most additional required coverages such as boiler and machinery, burglary and robbery, fidelity, business interruption, etc.

Instrumentality

The means or methods by which functions or policies are carried out. The tools or implements used to accomplish a purpose.

Insurability statement

Life insurance underwriting may take time. If weeks or months have elapsed since the applicant completed the application, the insurer may require the applicant to sign an insurability statement before the policy is delivered that says that health statements and other statements made on the original application are still correct.

Insurable interest

A potential for financial loss from a certain event which a person must have before acquiring insurance against that event. The event may be illustrated by the following: the destruction of property owned (in fire insurance); the incurring of legal liability for negligence in causing loss to others (in liability insurance); the compliance with law (in workers compensation insurance); the loss or impairment of human life value (in life insurance, disability insurance, and annuities); or expenses fortuitously incurred (in hospitalization insurance). In life insurance, the applicant of the policy must suffer a financial loss, or the loss of love and affection, by the death of the insured. (See interest.)

Insurable risk

Any subject matter eligible for insurance. While the law does not specify minimum criteria (except occasionally by regulation that the size of any risk insured and the amount of premium writings by an insurer be related to its financial strength), and textbook writers disagree on essential criteria, the following are probably desirable: 1) Enough relatively similar exposure units should be insured to permit the operation of the Law of Large Numbers (unless reinsurance is used by the insurer) 2) Losses insured should be measurable and accidental to the insured (to prevent intentional losses) 3) Risks taken should not threaten the insurer with a catastrophe (unless reinsurance is used) because of their centralized location or other condition.

Insurance

The transfer of risk, or chance of loss from one party (the insured) to another party (the insurer), in which the insurer promises, usually specified in a written contract, to pay the insured or others on the insured’s behalf, an amount of money, services, or both, for economic losses sustained from an unexpected (accidental) event, during a period of time for which the insured makes a premium payment to the insurer. (See insurer.)

Insurance Accounting and Systems Association (IASA)

An international organization to promote the study, research and development of modern theory, practice and procedure as applied to insurance accounting and statistics. Headquarters: Durham, NC.

Insurance advisory organization

An independent organization that works with and on behalf of insurers that purchase or subscribe to its services.

Insurance agency

A business office whose function is the sales of insurance and insurance products. An agency may be owned or run by a general agent, manager, independent agent or company manager. The principal is responsible for the statements and actions of agents performing within the scope of authorization specified in the agency agreement. (See captive agent, general agent and independent agent.)

Insurance agent

One who has the authority to act for another. In insurance language, an agent is the person who sells insurance by contacting the policyholder. By contract and by law, the agent is endowed with many of the powers of the company itself. There are various different types of agents, based upon the contractual relationship with the insurer they represent. (See independent agent, exclusive agent and broker.)

Insurance agents and brokers errors and omissions insurance

Protects an agent or broker against claims for negligent acts, errors or omissions in the conduct of business.

Insurance archaeology

Insurance broker

A licensed, legal representative of the insured who negotiates with underwriters on behalf of the insured. The broker receives a commission from the insurer (underwriter).

Insurance call center

Insurance commissioner

A state official charged with enforcing the state’s laws governing insurance, in some states appointed by the governor, and elected in others. Also referred to in some states as superintendent of insurance or director of insurance.

Insurance company

An organization chartered by state law to operate as an insurer in some of the principal types of insurance: life, fire, marine, casualty, and surety. Reciprocals and Lloyd’s syndicates permitted under many state laws are not companies, nor are they corporations.

Insurance contract

The written contract or insurance policy between the insured and the insurer detailing the coverage provided, exclusions and limitations, conditions in case of loss, and other details pertinent to the terms of the agreement.

Insurance contract parts

Refers to the four general sections of declarations.

Insurance Crime Prevention Institute (ICPI)

Insurance Data Management Association

The Insurance Data Management Association is an organization dedicated to encouraging professionalism in the insurance-related, data management area. The association creates and maintains training material and courses and also tests data management competency through its own certification program. Headquarters: Jersey City, NJ.

Insurance department

That department of a state government which has charge of enforcing the laws governing insurance. Usually run by either an elected or appointed official called the superintendent or commissioner of insurance.

Insurance derivatives

A contract under which an insurer is entitled to a substantial cash payment that is contingent upon another event, typically being a certain level of loss experienced by the total insurance industry due to a specified event (such as an earthquake or a hurricane). The underlying activity, or trigger, must occur within a certain time period.

Insurance examiner

A representative or employee of a state insurance department delegated the task of verifying a company’s records and procedures to determine that the law has been observed.

Insurance exchanges

Exchanges established by law in New York, Illinois and Florida (and considered elsewhere) to provide facilities at a fixed location patterned after Lloyd’s of London. Through insurance exchanges, buyers can secure insurance from insurers generally in the form of underwriting syndicates, which are members of the exchange. (See New York Insurance Exchange, bourse and Lloyd’s of London.)

Insurance forensics

insurance forensics A process, similar to an audit, for researching internal and external sources to reconstruct and document an organization?s history of insurance coverage. This is particularly important to assist with liability arising from past years or even decades, such as damage related to environmental liability or asbestos.

Insurance fraud

Typically involves illegal attempts to secure insurance benefits by submitting false claims, selling illegal or phony coverage, or stealing insurance premiums.

Insurance Guaranty (Insolvency) Act

Legislation enacted in many states providing for assessments on insurance companies to reimburse policyholders and claimants of insolvent insurers. (See guaranty fund.)

Insurance Hall of Fame

An institution at Ohio State University recognizing individuals who have made outstanding contributions to insurance thought and practice anywhere at any time

Insurance Information Institute

A public relations organization supported by several hundred property and liability insurance companies. Provides extensive literature to the public and to high schools throughout the country in furthering its purpose of improving public understanding of property and liability insurance. Headquarters: New York, NY.

Insurance insolvency act

Legislation enacted in many states providing for assessments on insurance companies to reimburse policyholders and claimants of insolvent insurers. (See guaranty fund.)

Insurance Institute for Highway Safety

An independent, nonprofit scientific organization established and supported by the insurance companies. Its research identifies, evaluates and develops ways to reduce human and economic damage resulting from the use of motor vehicles. The institute also seeks to make the results of its studies known to the widest possible audience and provides substantial input to federal policymakers. Headquarters: Washington, DC.

Insurance Institute of America, Inc. (IIA)

Insurance management

The method used to handle a specific risk’s exposure to loss by almost exclusive use of insurance coverages and policies, as well as the control and management of the insurance policies purchased.

Insurance Marketing Communications Association (IMCA)

A trade association of those in charge of insurance company advertising, marketing and public relations functions. Formerly known as the Insurance Advertising Conference.

Insurance policy

Insurance purchasing group

A coverage alternative to using the traditional insurance market, it refers to a number of parties with similar coverage needs who incorporate into a group to buy liability insurance. Such arrangements are authorized by the Federal Liability Risk Retention Act of 1986.

Insurance rating system

The price per exposure unit which is determined by adjusting the prospective loss costs for expenses, profits and contingencies.

Insurance Regulatory Information System (IRIS)

Formerly known as Early Warning System or Early Warning Tests, financial ratio and performance criteria designed by the National Association of Insurance Commissioners to identify insurance companies which may need close surveillance by state insurance departments.

Insurance representatives

The collection of professionals that represents the insurance industry in the sales and field positions, such as agency, solicitors, brokers, producers, consultants, etc.

Insurance retention group (IRG)

Insurance scoring

insurance scoring Refers to assigning a numerical score to a number of attributes in an individual’s financial history in order to evaluate his or her desirability as a customer or loan prospect. Due to a discovery of a correlation between credit scores and loss probability, credit scores have been modified for use as an underwriting tool by insurers.

Insurance Society of New York, Inc.

A nonprofit organization founded in 1901 for educational purposes. Its earliest contribution was the formation of its insurance library, today the world’s largest collection of insurance literature. In 1917, it started insurance instruction, which in 1947 became The School of Insurance, which was converted in 1962 to the fully accredited degree-granting institution, The College of Insurance.

Insurance superintendent

A state official charged with enforcing the state’s laws governing insurance, in some states appointed by the governor, and elected in others. Also referred to in some states as commissioner of insurance or director of insurance.

Insurance to value

1) In property insurance, a clause requiring the insured to maintain insurance at least equal to stipulated percentage of value in order to collect partial losses in full. If the insurance is less than the minimum required, that proportion of the loss will be paid which the amount of insurance carried bears to the amount which should have been carried. Symbolically: Insurance Carried x Loss = Payment (subject to policy limit) Insurance Required 2) In major medical insurance, the clause that specifies the percentage of a loss which the company will pay and the percentage which the insured will bear (e.g., 80?20, 75?25).

Insurance Training Professional

A designation created by the Society of Insurance Trainers & Educators (SITE) to acknowledge excellence in professional trainers. Headquarters: San Francisco, CA

Insurance trust

One of any number of trusts into which life insurance is placed during the lifetime of the insured or into which the proceeds are payable upon death of the insured.

Insurance wraps

A general contractor is typically the party responsible for providing primary insurance coverage on the contract. This coverage must include protection for the work done by and the exposures resulting from the use of subcontractors. This includes coverages such as general liability and workers compensation but may also include business auto exposures. In order to obtain the necessary coverage, insurers may have to develop special programs and manuscript or tailoring endorsements to clarify the extent of the protection and who/what it encompasses. It is sometimes referred to simply as a “wrap.”

Insured

The person(s) or party(ies) protected by an insurance policy, synonymous with assured. Some property-liability policies distinguish between the named insured and other insureds. (See policyholder and named insured.)

Insured contracts

Contracts that are considered necessary to conducting business and are covered as part of premises-operations liability coverage.

Insured loss ratio

Term used by an insurer when evaluating what portion or percent of that insured’s losses are reinsured as compared to earned premium.

Insured peril

Those causes of loss such as fire, explosion, or accident that are covered by the insurance contract. In many standard property insurance policies, peril is now called cause of loss.

Insurer

The insurance company or other organization such as a syndicate, pool or association providing insurance coverage and services. (See insurance.)

Insuring agreement

The portion or section of an insurance policy that details what is covered by the contract for causes of loss or perils, subject to other provisions such as exclusions, limitations and conditions

Insuring clause

That portion of a policy which describes the risk which the insurer has agreed to assume.

Insuror

A term adopted and used by some agents to enhance their public image as persons who represent insurers in effecting contracts of insurance between insurers and insureds. As such, insuror may be considered a misnomer when confused with insurer, which is recognized in statutory law as the party to an insurance contract which undertakes to indemnify for losses incurred by, or to provide services to, the other party to the insurance contract (the insured). Thus, an insurer is a risk-bearing party in an insurance contract, while an insuror is not. Two state associations of insurance agents, Tennessee and Colorado, use insuror in their title.

Integrated disability management (IDM)

A cost management program that combines (integrates) management of a disability (either work-related or non-work-related) claim with that same loss administration. The method focuses upon quality, individual health care and flexibility in options to return an ill/injured worker back to work in an appropriate job.

Integrated financial services

integrated financial services Typically refers to the trend of consumers seeking a broader range of financial services such as banking, brokerage and insurance from a single provider. This approach is also referred to as integrated financial services.

Integrated program

Refers to the combination of several lines of insurance coverage into a single program that, typically includes a single, high, aggregate limit. If designed properly, it uses premium dollars and available coverage limits more effectively and reduces coverage gaps and overlaps.

Integrated program

Integration

Regarding an insurance program, the process of packaging different products while assuring that they do not provide duplicate coverages.

Intentional injury

Depending upon the type of insurance: 1) injuries that are caused deliberately, or 2) self-inflicted injuries, either of which is usually considered excluded by its respective policy type.

Intentional loss

Losses that were intentionally caused, most often occurring with intent to collect insurance benefits or defraud the insurer.

Inter vivos trust

inter vivos trust A trust that is arranged during the creator’s lifetime.

Intercompany arbitration

When two or more insurers are involved in the settlement of a claim and those insurers are unable to agree as to the amounts and shares owed by each, arbitration may be involved in an attempt to settle the dispute out of court. When this happens, the matter is submitted to disinterested parties for solution. One party is appointed by each insurer, and the appointed arbitrators then pick an “umpire.” Resolution occurs when two or more parties come to an agreement. The decision is binding on all parties involved.

Intercompany reinsurance

intercompany reinsurance A reinsurance arrangement between two or more companies that are affiliates of the same major insurance company group. It is a strategy for spreading a company’s total risk more evenly.

Interest

The subject of insurance such as the property insured or the loss against which the insurance company agrees to indemnify. (See insurable interest.)

Interest option

When a life insurance policy is called upon to pay the beneficiary the face amount after the death of the insured, some policies offer a settlement option to the beneficiary, whereby the beneficiary leaves the principal with the insurer to be invested or to accrue interest. That interest or investment income is paid periodically to the beneficiary until the beneficiary withdraws the balance.

Interest policy

A policy which insures someone who has an interest in the described property, but who need not be the holder of full title to it. The New York standard form of fire policy adopted in 1943 is an interest policy, whereas the older forms were not.

Interest sensitive whole life insurance

Whole life insurance that pays interest on cash value according to the variable investment results of the insurer. Traditional whole life pays a guaranteed cash value that does not participate in favorable or unfavorable insurer investment results.

Interim rates

Temporary insurance prices, specified by a state insurance department for an insurer which has no legally effective rates otherwise, as a result of the commissioner’s disapproval of its rates. The commissioner may require that a specified portion of premiums received during such interim period be placed in escrow until new rates become effective.

Interinsurance exchange

A group of persons who agree to share each other’s losses. An unincorporated mutual. Also known as “reciprocal exchange.”

Interline endorsement

In standard commercial insurance, an interline endorsement is one that applies across the lines of insurance to all coverage parts. Most often these types of endorsements have to do with general items, such as cancellation or nonrenewal provisions or the effective time of the policy.

Interlocking clause

A reinsurance treaty provision. The clause reassigns loss or damage from a single occurrence to two or more reinsurance contracts.

Interlocutory appeal

Refers to a district court level case that is presented to an appellate court during, rather than after, the case hearing. It is done in situations that will obviously be subject to review.

Intermediary

One who arranges reinsurance between companies. A reinsurance broker.

Intermediary clause

A contractual provision frequently used in reinsurance, in which payments (of premium) by the ceder company (the issuer of the original insurance policy) to the broker (the intermediary) discharge the ceder’s debts, whereas payments (for losses) by the reinsurer to the broker do not discharge the debts of the reinsurer until payments have actually been received by the ceder.

Internal replacement

Replacement is the canceling or lapsing of one life insurance policy for another. An internal replacement is when a policy is canceled and replaced by another policy with the same insurer.

International Association of Health Underwriters

A trade association composed of insurance companies writing health insurance. The purpose is to foster proper practice in the marketing of these products and to create good public relations.

International Cooperative and Mutual Insurance Federation

This group is a global association with membership consisting of cooperative and mutual insurers that provides conferences, networking opportunities, research and publications. Headquarters: Altrincham, United Kingdom.

International insurance coverages/exposures

Business coverage for companies that conduct business outside the USA. The scope of coverages available may include but are not limited to: premises and product liability, automobile liability, workers compensation and employers liability, property including transit, kidnap and ransom, confiscation and civil war, crime, business interruption, difference in limits and conditions, and endemic disease.

International Insurance Society

A globalwide membership of insurance entities that was founded in 1965. The group encourages networking, academic pursuits (particularly on international insurance issues) and education. It sponsors annual meetings, funds research projects and awards (including an international insurance hall of fame). Headquarters: New York, NY.

International liability policy

(See international insurance coverages/exposures.)

International Maritime Bureau

The International Maritime Bureau is a nonprofit division of the International Chamber of Commerce (ICC). The organization’s focus is on providing information to facilitate safe maritime trading, including operation of its Piracy Reporting Center (that publishes information on pirate activity worldwide). The IMB also investigates maritime-related crime and fraud activity. Headquarters: Paris, France.

Interrogatory

A question such as is found in the NAIC Annual Statement or as is addressed by one party to another party in a lawsuit.

Interstate commerce

The Constitution of the United States places the regulation of commerce between the several states (interstate commerce) under the supervision of the federal government. Until the decision of the Supreme Court in 1944 in the Southeastern Underwriters Association Case, insurance had been held not to be commerce and therefore not interstate commerce. That decision changed the entire outlook, so that today the business is subject to such regulation as the Congress chooses to exert, “to the extent that the states are not regulating insurance.” (See Southeastern Underwriters Association (SEUA), and S.E.U.A. Case.)

Interstate Commerce Endorsement To Motor Truck Cargo Policies

(ICC Endorsement) (ICC Endorsement) In inland marine insurance, this is the provision which broadens the policy coverage to conform to Interstate Commerce Commission requirements with respect to a carrier’s liability for customers’ goods.

Interstate Insurance Compact

An important modernization initiative that benefits state insurance regulators, consumers and the insurance industry. The Compact enhances the efficiency and effectiveness of the way insurance products are filed, reviewed and approved allowing consumers to have faster access to competitive insurance products in an ever-changing global marketplace.

Interstate Insurance Product Regulation Commission

This is the regulatory arm of the multistate Interstate Insurance Compact. It oversees insurance product filings, develops filing guidelines and standards and develops uniform product and rate reviews to facilitate insurance product introduction and approval on a multistate basis. Headquarters: Fairfax, VA.

Inventory

A list of one’s possessions, usually personal, as distinguished from “real” possessions. Also the stock in trade of a business.

Investment income

That part of a company’s income derived from its invested assets before realized capital gain or loss, as opposed to its underwriting (risk-taking) activities. (See capital gain.)

Involuntary associations

Those industry or industry-related organizations operating under an industry or governmental program to supply insurance needs for what is purported to be an unfilled or residue market.

Involuntary costs

Costs borne by insurers related to their mandated participation in a state?s insurance pools for covering exposures that are not handled by the voluntary market.

IRA-Individual Retirement Account

IRG-insurance retention group

IRIS-Insurance Regulatory Information System

IRMI

A publisher of reference material for the insurance industry. Founded as International Risk Management Institute, Inc. Headquarters: Dallas, TX

IRPM-individual risk premium modification rating plan

IRPM-Individual Risk Premium Modification Rating Plan A program whereby equitable rates or premiums can be developed for large premium package risks by taking into consideration factors likely to affect future losses and expenses. Expense modification is based on the fact that handling costs for large risks may vary from the average. Risk modification recognizes special characteristics, other than those considered in the determination of the basic rate, which would improve the risk. This flexible rating approach, in effect for casualty insurance for many years, was extended to the remaining property and liability lines in 1966.

Irrevocable beneficiary

A type of life insurance policy that does not allow a beneficiary to be changed without the beneficiary’s written consent. (See absolute beneficiary.)

ISO-Insurance Services Office

A corporation which provides a wide variety of services on a national basis. Among its operations are rating, statistical, actuarial, and policy form services for all classes of property and casualty businesses. The corporation also functions as an insurance rating organization and, where applicable, as an advisory organization or as a statistical agent. Headquarters: New York, NY. (See rate card.)

Issued business

Those policies that have been ordered or for which the request for coverage has been ordered by the insured, and the policy has been issued by the insurer, but has not yet been delivered to or accepted by the insured.

ITP

(See Insurance Training Professional.)

J

Jacket

The outer covering of an insurance policy, containing the declarations, insuring agreements, exclusions, conditions, and provisions to the policy, including any endorsements or riders.

Jettison

In ocean marine insurance, the voluntary throwing overboard of part of the cargo or gear of the vessel to lighten the load and save the vessel from conditions of stress at sea. Because the jettison is done for the entire venture, the owner of the jettisoned goods is entitled to a general average, meaning the loss is shared by all interests in the voyage, including the owners of the vessel and freight as well as the owners of the cargo not thrown over. (See general average, and sacrifice.)

Jewelers block insurance

Broad policies insuring jewelers against all loss to their stock in trade. Generally considered to be a type of inland marine insurance.

Jewelers package policy

A special package policy developed for jewelry risks containing a package of coverages including crime both on and off-premises, “all-risk” cause of loss on the building and business personal property, as well as stock. Most contain coverage for business income and liability.

Jewelry floater

An inland marine policy insuring jewelry wherever it may be.

Joint and several liability

This type of liability occurs when more than one party is involved in a contract and where both joint liability (that of all the parties to the contract) and several liability (that of each individual party to the contract) promise the action in the contract. If the terms of the contract are not fulfilled, the injured party has the ability to seek a legal remedy from all the parties involved (joint) or each individual party(several).

Joint and survivor annuity

A type of annuity that is most often written for a married couple. As long as both are alive, a period benefit payment is made. When one dies, the payment amount may change; however, payments still continue for the survivor.

Joint and survivorship option

A life insurance settlement option that pays benefits to two or more persons. Benefits payments cease when the last payee dies.

Joint control

When more than one party to a contract or agreement has equal control of the funds or interest in the designated venture. In the case of bond insurance, it is when the entity and the surety both have legal control of the funds or property used as collateral to a bond.

Joint credit life insurance

Used in credit life insurance to cover more than one person, i.e., husband and wife as cosigners. Will pay off the remainder of the loan (the benefit) to the lender upon the death of either or any cosigner to the loan.

Joint insured

One of the insureds in a type of life insurance policy covering more than one insured.

Joint life and survivor annuity

A combination type of life insurance policy that converts to an annuity and is most often issued to a married couple. Payments are made until both are deceased.

Joint life and survivor insurance

A type of life insurance coverage for more than one person. Benefits are not paid until the last of the covered insureds has died. Lower premiums exist on this policy than on individual life policies because of the potential for a much longer period of time that should normally exist before the policy is called upon to make benefits (all insureds must be deceased).

Joint life insurance

A type of life insurance policy covering more than one insured. The death benefit is paid when either one of the insureds dies. This is a more costly type of life insurance because payments are paid as soon as any one of the insureds dies, increasing the chances for an early payout of the benefits.

Joint life insurance

Covers two lives and pays on the death of the first.

Joint underwriting associations (plans) (JUA)

An association of insurance companies formed with statutory approval for the express purpose of providing certain insurance to the public. JUAs are usually formed because the voluntary market is unwilling to write coverage. Regulators usually allow JUAs to establish their own rates and policy forms. They may cease when the voluntary market becomes available for that line of business.

Joint venture

An entity formed by two or more legal entities for a specific purpose for a specified period of time. Unlike a partnership, this is a temporary arrangement and it does not have to include making a profit among its motives.

Jones Act

A federal law designed to offer remedy and legal protection to sailors, seamen, and other maritime employees who are not covered by state workers compensation and employers liability laws. State laws do not apply to employees on wharves, docks, or navigable waters whether they be interstate or international. It allows maritime employees the ability to sue their employers or shipowners should they be injured through the negligence of that employer or shipowner.

Jones Act coverages

These coverages provide a version of workers compensation protection for persons who are excluded from standard workers compensation policies. Specifically, it applies to vessel, captains and crews involved in most activities whether operating in navigable waterways, in territorial waters, while in dry dock or in temporary dock, and including vessel loading/unloading, construction and repairs. The protection may be provided by a separate policy or via an endorsement to a workers compensation or a marine liability policy.

JUA-joint underwriting associations (plans)

Judgment or (“A”) Rates

Judicial bond

judicial bond A bond that is used in legal (court) matters, promising that a person will meet the obligations that arise out of the particular proceeding.

Jumbo line

Any larger than usual line of business submitted to an insurer.

Jumbo risk

A risk or insurance policy with very high limits of insurance.

Juvenile insurance

Life insurance policies written for children under 16 years of age.

K

Kart owners policy

A special liability coverage for karts that are designed for and used in racing. Covers bodily injury and property damage legal liability arising from ownership, maintenance or use of the kart including racing, but only on private property.

Keeton-O’Connell Plan

A “no-fault” plan for compensating automobile accident victims for their loss of wages and medical expenses, etc., without the usual legal proof of negligence. Devised by Professors Robert E. Keeton and Jeffrey O’Connell. (See no-fault automobile insurance.)

Kenney Ratio

A guide or rule-of-thumb for insurers to use in preventing insolvency which suggests that property and liability insurers should not write insurance premiums equal to more than twice their capital and surplus. This guide was developed or proposed by Roger Kenney, hence the name.

Keogh Plan

A retirement plan for self-employed persons. Considered for tax purposes to be a qualified plan. The plan has either defined benefit or defined contribution options. A plan participant may contribute up to 20% of the net self-employment income in any one annual period, subject to a stated cap depending on which plan option has been selected.

Key employee insurance

Insurance an employer buys on a key person within the organization to protect that employer from the financial impact that could result should that employee become ill, disabled, or die. This insurance may be life, health, or disability. Normally, the employee covered has special skills, training, management, or significant attributes that would cause the organization loss of income should that employee become unavailable and a replacement need to be hired or trained.

Kidnap/ransom insurance

A specialty policy designed to cover the cost of ransom and related expenses, due to a person being kidnapped. Some policies may also provide varying limits of life and medical insurance coverage. Various territorial restrictions typically apply.

Knock for Knock Agreement

A long-term, intra-insurance company contract where each carrier agrees to handle their own insured’s loss should accidents occur between their respective customers. Such arrangements allow companies to save on legal and administrative costs.