SIG - A self-insured group. An SIG is a group of risks, usually sharing common characteristics or exposures, that join together in order to generate enough premium volume to justify self-insuring themselves. Members of an SIG often are jointly and severally liable for the losses of one another.
Safe driver plan - Merit rating of automobile insurance. In most states drivers are charged with "points" for (moving) traffic violations and auto accidents. These points translate to surcharges on the drivers’ insurance rates.
Salvage - When an insurer makes a payment for lost or damaged property, the insurer is entitled to the salvage of that property.
Schedule - List of items on a policy declaration, sometimes also showing descriptions and values.
Seasonal risk - A risk that is present only during certain parts of the year. For example: seasonal dwellings such as cottages used for vacations.
Self-insurance - An insurance-like strategy for handling one’s own exposures to loss supported by the financial wherewithal to meet expected losses. Not to be confused with a decision to forego insurance.
Self-Insured Retention (SIR) - That portion of pure risk an insured undertakes to handle on his or her own. A deductible is a form of self-insured retention.
Selling price clause - Applicable to the value of goods which have been damaged or destroyed by an insured peril. This clause insures the profit that would have been earned if the goods had been sold. It sets the insurable value of the property that has been sold, but not delivered, at the amount at which it was sold, less any charges not incurred.
Severability - A provision that insurance applies separately to each insured under the policy.
Shock loss - Name given to any large loss that impacts an otherwise profitable book of business.
Short rate cancellation, see Cancellation.
Short tail - Additional coverage that may be purchased under a claims-made policy that responds to losses that may have occurred during a policy period, but are not reported until after the end of the policy period. Usually available for no longer than a year.
Sidetrack agreement - The contract between a business and a railroad wherein a railroad builds a track onto the business’s property to facilitate shipping, and the business agrees to release the railroad from liability.
Sine Qua Non Rule - A legal rule stating that a person’s conduct cannot be held to be the cause of a loss if the loss would have occurred anyway.
Single interest policy - A policy that insures the interest of only one party in property where there are a number of parties having an insurable interest.
Sinkhole peril - Risk of loss by collapse of a "sinkhole." This is now covered as a basic cause of loss in commercial property policies.
Sistership exclusion - An exclusion in products insurance that eliminates coverage for the withdrawal or recall of products.
Sliding scale dividend plan - Often used with workers compensation insurance, dividend plans are established as a means of returning a portion of the premium to the policyholder if losses are better than expected and the insurance company board of directors declares a dividend. In a sliding scale plan, the amount of the potential dividend slides up or down according to the loss experience. Dividends cannot be guaranteed; they are paid upon declaration by the insurer’s board of directors.
Slip - At Lloyd’s of London, a document that identifies which syndicates are participating on a risk and for what percentage.
Smoke damage - An Extended coverage peril.
Society of Chartered Property & Casualty Underwriters - Professional society of those having attained the CPCU designation. (See CPCU.)
Soft costs and rents - Related to builders risk insurance, these are the necessary expenses that are incurred because a building project is delayed as the result of a covered property loss. Included are expenses such as increases in architectural fees, loss of rents because the project completion date is later than planned, increased interest expense, etc.
Soft market - A term given to a condition in which insurance is relatively inexpensive and easy to obtain.
Solicitor - An employee of an insurance agent or agency who is empowered to sell insurance on behalf of a licensed agent, generally using only those insurers that the agency represents. A solicitor usually does not have binding authority, and the business that is generated by a solicitor usually is owned by the agent, not the solicitor.
Solvency - Insurers must have sufficient assets (capital, surplus, reserves) in order to satisfy statutory financial requirements (investments, annual reports, examinations) and to meet liabilities.
Special agent - An insurer’s representative in a territory. He or she serves as a liaison between the insurer and the agent. The special agent is responsible for the volume and quality of the business written in that territory. Some states require a special license of special agents. Special form - In contrast to the named perils forms in property insurance, those forms that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to limit and define the protection intended. See Open perils.
Specific excess reinsurance - Another term for per occurrence/per loss excess reinsurance.
Specific insurance - An insurance policy that covers only property specifically described in the policy, as opposed to blanket insurance, which usually covers all property at specified locations.
Specimen policy form - Specimen policy forms often are requested when non-standard coverage forms are being used. The specimen form may be reviewed to determine the actual policy provisions before coverage is bound.
Speculative risk - Risk which entails a chance of gain as well as a chance of loss. Contrast with Pure risk.
Split limits - As in auto insurance, where rather than one liability amount applying on a per-accident basis, separate amounts apply to bodily injury and property damage liability.
Sprinkler leakage insurance - Insurance that covers damage due to the accidental discharge from an automatic sprinkler system.
Stacking of limits - The application of the limits of one or more insurance policies to a claim or loss.
Standard fire policy, see New York Standard Fire Policy.
Stated amount - Amends the valuation clause on a policy to include an amount that is "stated" as the value of the item(s) being insured. Usually, these policies pay the lesser of the ACV of the damaged property, the cost of repairing or replacing the property, or the stated amount.
Statutory Accounting Principles (SAP) - Statutorily mandated accounting principles and practices that must be followed when an insurance company submits its annual financial statement to the department of insurance. In contrast to Generally Accepted Accounting Principles (GAAP) which are followed by most other businesses.
Steam boiler explosion, see Boiler & machinery insurance.
Stop loss - A provision in an insurance policy that cuts off an insurer’s losses at a given point. In effect, a stop loss agreement guarantees the loss ratio of the insurer.
Strict liability - Liability ascribed to a manufacturer or seller of a defective or dangerous product regardless of any fault or negligence.
Subrogation - The right of one party who has paid for the loss of a second party to obtain recompense from the third party who is responsible for the loss. For example, an insurance company becomes "subrogated" to the rights of its insured to the extent of the insurer’s payment for collision damage caused by the negligence of the other driver.
Subsidence - A form of earth movement, excluded in most property policies.
Substandard risk - A risk falling outside normal underwriting standards. If written at all, it is usually with a substantial premium surcharge.
Sue and labor clause - A marine insurance clause comparable to removal in property insurance.
Superfund - The better-known name for the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) passed by Congress in 1980. Under this law, parties found responsible for polluting a site must clean up the contamination or reimburse the EPA for doing so. Liability is strict, retroactive, joint and several.
Superintendent of Insurance - In some states the Commissioner of Insurance is known as the Superintendent.
Supplemental extended reporting period - An optional reporting period that allows coverage for liability claims made after the policy period.
Surety, see Bond.
Surety Association of America (SAA) - A voluntary, non-profit, unincorporated association that is licensed as a rating or advisory organization for surety and fidelity insurance in all states, D.C., and Puerto Rico. The SAA handles statistical information, filings, publications, and surety and fidelity bonds.
Surface water - Commonly known as water on the surface of the ground usually created by rain or snow, which is of a casual or vagrant character, following no definite course and having no substantial or permanent existence. Some insurance policy may include surface water as a covered peril but exclude "flood" when defined as the overflowing of water from its natural boundaries, such as a lake or river.
Surplus - The amount by which an insurer’s assets exceed its liabilities.
Surplus lines, see Excess & surplus lines market.
Surplus share reinsurance - A type of pro-rata or proportional reinsurance agreement under which the insurer and reinsurer agree to share a predetermined portion of all insurance, premium, and losses. The primary insurer’s retention in a surplus share agreement is stated as a dollar amount of the amount insured.
Syndicate - An association of insurers that work together to insure an especially large or hazardous risk. Also see Pool.
Railroad protective liability- Liability coverage designed to protect a railroad from liability claims arising out of the operations of others on or adjacent to railroad property.
Rain insurance - A weather coverage that indemnifies a promoter or organizer against loss of income because of the cancellation of an outdoor event due to rainfall that exceeds a specified amount during a specified time period.
Rate filing - Documentation filed by an insurer with the state requesting a change in the existing rates.
Rating bureau - A private organization that classifies and promulgates manual rates (or loss costs).
Real property - Land, buildings, and other structures (such as a swimming pool or tool shed).
Rebate - In insurance, a portion of an agent’s commission returned to a customer as an inducement to place the insurance through the agent. This practice is illegal in all but two states as against public policy. Reciprocal exchange - A type of insurance managed by an attorney-in-fact in which members pay premiums, and share in losses equally. Membership is required for insurance.
Redlining - Unfair discrimination based not on the risk’s characteristics but on its location. The term is commonly associated with an insurer’s refusal to consider insuring any home or business within a specific area marked by a line drawn on a map.
Reinsurance - The business of insuring insurance companies. By "ceding" a portion of its business to a reinsurance company, an insurer spreads the risk of exposure to catastrophic loss.
Reinsurer, see Reinsurance.
Removal - "Removal" was a provision of the New York Standard Fire Policy in which the insurer agreed to cover the cost of removing covered property from the path of a fire. Presently, property policies express the agreement in terms of "preservation of property" from imminent danger of damage from any covered peril. Not to be confused with Debris removal.
Renewal - The extension of the term of coverage of an expired policy, commonly by replacement with another policy effective on the date of expiration of the previous policy.
Rent-a-captive - A specialized form of captive insurance company operation designed for businesses that do not want to own a captive but want to obtain some of the advantages offered by captives. A rent-a-captive is formed by a group of investors and operated as an income-producing business. Insureds who wish to participate "rent" space in the captive instead of setting up and capitalizing their own captive insurance company.
Rent insurance - A form of business interruption insurance for a landlord. It protects building owners against loss of income when the building cannot be rented because of damage from any of the insured perils. It provides income while an insured’s building is untenantable.
Rental value insurance - Refers to protection of either a landlord’s rental income or an owner occupant’s economic stake in use of the subject structure. Either interested party can obtain coverage by way of an Insurance Services Office business income form.
Renters insurance - Term for insurance for the non-owner occupant of a dwelling or apartment.
Replacement cost, see Actual cash value.
Replacement cost appraisal - An appraisal that determines the amount required to replace an existing structure and related personal property.
Replacement cost insurance - Covers property — both building and contents — on the basis of full replacement cost without deduction for depreciation on any loss sustained, subject to the terms of the co-insurance clause.
Reporting form - A device for insuring values subject to extensive fluctuation that keeps the premium in line with the actual exposure. A maximum limit is set at policy inception and the insured is charged a "deposit premium." Actual values are then reported, usually on a monthly basis, and earned premium is figured on the basis of those reports and laid off against the deposit premium.
Reservation of rights - An arrangement in which an insurer agrees to proceed with the defense of a case without commitment to provide coverage, in the event that the facts disclosed during the trial reveal that the occurrence is not covered.
Reserves or reserved losses - The value of losses that have been estimated and set up for future payment.
Resident agent - A licensed agent who resides in and is licensed in the state in which business is being written.
Residual markets - Insurance markets established outside the normal insurance marketing channels to cover unusually large or poor risks. Such markets include assigned risk plans, aircraft pools, nuclear pools, and certain government insurance programs.
Respondeat superior - A legal term referring to the fact that, under specific circumstances, an employer (or principal) is legally liable for the actions of his or her employees while in the course of their employment.
Retention - Usually used in reinsurance, this is the amount of liability retained by an insurer, and not ceded to a reinsurer.
Retroactive date - The date that defines the extent of coverage in time under claims-made liability policies. Claims resulting from occurrences prior to the policy’s stated retroactive date are excluded.
Retrocessionnaire - A reinsurer that contractually accepts a portion of the cedant’s reinsurance risk. The transfer is called a retrocession. Retrospective rating - A rating arrangement in which the final premium for insurance coverage is not determined until all claims are closed. The final premium is determined by the insured’s actual loss experience during the policy period.
Rider - Another term for an endorsement attached to a policy that modifies the coverage.
Riot - One of the extended coverage perils, related to, but broader than, civil commotion.
Risk - Risk is uncertainty concerning loss. Sometimes also used to refer to a piece of business or a submission to an insurer.
Risk and Insurance Management Society, Inc. (RIMS) - Trade association of risk managers and insurance buyers.
Risk management - The process of handling pure risk by way of reduction, elimination, or transfer of risk, with the latter commonly achieved through insurance.
Risk manager - The individual in an organization responsible for evaluation of the organization’s exposures, and controlling these exposures through such means as avoidance or transference, as to an insurance company.
Risk retention group - An insurance company chartered under the laws of a state or other U.S. jurisdiction, composed of members whose business activities are similar, and controlled by its members.
Rolling store - A vehicle out of which goods are sold. An example would be a mobile snack bar at a construction site. Insurance policies may contain wording that may restrict or define available coverage for this type of operation.
Object, see Boiler & machinery insurance.
Obligee - A term used in surety bonds to refer to the individual or firm that is to benefit from the bond’s protection. A performance bond, for example, provides the obligee property owner with recourse if the bonded contractor, the principal, fails to perform.
Obligor - A term used in surety bonds to refer to the individual or firm bound by an obligation. Also known as the "principal."
Occupancy - In general, a condition affecting the desirability of property policies.
Occupational Safety and Health Act (OSHA) - Passed in 1970, this law promulgated strict work-safety regulations, and set up the mechanism to enforce these rules through fines for violations, and closure of unsafe plants.
Occurrence - In general, an event that triggers coverage under any policy. Specifically, an event that triggers coverage under an occurrence-based liability policy. Such a policy covers injury or damage that occurs during the policy period even if claim is brought months or even years after the policy has expired - see Claims-made for the alternate arrangement. Also see Accident.
Ocean marine - Insurance coverage for vessels and property in ocean shipping. "River marine" is the term referring coverage for inland shipments on water. "Motor truck cargo" refers to coverage for property transported over highways.
Off premises cover - Commercial property policies commonly establish a small coverage limit that applies to property temporarily away from the insured’s place of business.
Omnibus clause - An agreement in most automobile liability policies and some others that extends the definition to include to others without the needing to name them. An example would be a policy that covers the named insured and "those residing with him."
Open perils - Property coverage that applies to risks of loss on a general basis, in contrast with policies that cover for specifically identified perils ? see Named perils. The old term for open perils was "all risks."
Open rating - A state rating system that allows the insurer to use rates without prior approval. Also referred to as "open competition."
Operating ratio - The sum of the combined ratio plus investment income.
Ordinance or law coverage - This insurance responds to property loss or damage necessitating repair, demolition, or rebuilding in accordance with current building codes.
Ordinary payroll - Payroll allotted to employees whose services could be curtailed in event of a long-term shutdown of a business without a harmful effect on reopening. This figure is important in calculating business income insurance exposures.
Other than collision insurance (automobile), see Comprehensive physical damage (automobile).
Other insurance - When two or more policies cover the same interests for the same exposures, each policy is said to represent "other insurance" to the other. Most insurance policies contain clauses that specify how or if claims will be paid if other insurance exists for the same exposures.
Outer Continental Shelf Lands Act - This act makes the Longshore and Harbor Workers Compensation Act apply to work involving the development of the natural resources of the outer continental shelf. A special endorsement, the Outer Continental Shelf Lands Act Coverage Endorsement, amends workers compensation policies to provide coverage for this exposure.
Owners and Contractors Protective (OCP) Liability coverage form- Provides coverage for the liability of an owner of land on which a building is being constructed for the acts of the contractor handling the construction. Owners, Landlords, and Tenants legal liability (OL&T), see Premises and operations liability.
Ownership of expirations - Refers to the ability of an independent agent to place a risk with any of the companies that he or she represents. Unless that customer goes to another agent, the current agent "owns" the policy and the right to place it as he/she sees fit.
Jacket - The cover of an insurance policy; it usually contains the name of the insurer, its address, etc.
Jettison - Act of throwing overboard part of a vessel’s cargo or hull in hopes of saving a ship from sinking.
Jewelers block insurance - A policy especially designed for jewelers, it offers a combination of coverages protecting against risks of physical loss to property at the jeweler’s premises, property in transit, or customers’ property in the insured’s care.
Jewelry floater, see Floater.
Joint and several liability - A legal doctrine whereby a creditor or claimant may demand payment or sue one or more of the parties separately, or all of them together.
Joint Underwriting Association (JUA) - These are insurance pools representing all insurers in a state. A few "servicing carriers" act on behalf of all the insurers, issuing policies, receiving fees, and handling claims. They are reimbursed for losses, and receive fees from the JUA to cover operating costs.
Joint venture - A venture in which two businesses join together to share risk or expertise on a specific project or group of projects.
Jones Act - The Federal act through which maritime workers are provided workers compensation coverage (which ordinarily responds to the mandates of particular states).
Judicial bonds - Two types of bonds available to guarantee faithful performance of court appointed duties. Fiduciary bonds guarantee the faithful performance of persons entrusted by the courts in the management, conservation, and disposition of property. Litigation bonds (or "court bonds") are required in court actions. Bail bonds and appeals bonds are litigation bonds; where the bond amount is forfeited if the bonded person disappears or the appeal is lost.
Jumbo risk - A policy of insurance written with exceptionally high limits.
Capital– Equity of shareholders of a stock insurance company. The company’s capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company’s policyowners in the event it develops financial problems; the policyowners’ benefits are thus protected by the insurance company’s capital. Shareholders’ interest is second to that of policyowners.
Capitalization or Leverage – Measures the exposure of a company’s surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
Captive Agent – Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.
Case Management – A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.
Casualty – liability or loss resulting from an accident.
Casualty Insurance – That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
Ceded Reinsurance Leverage– The ratio of the reinsurance premiums ceded, plus net ceded reinsurance balances from non-US affiliates for paid losses, unpaid losses, incurred but not reported (IBNR), unearned premiums and commissions, less funds held from reinsurers, plus ceded reinsurance balances payable, to policyholders’ surplus. This ratio measures the company’s dependence upon the security provided by its reinsurers and its potential exposure to adjustment on such reinsurance.
Change in Net Premiums Written (IRIS) – The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.
Change in Policyholder Surplus (IRIS) – The percentage change in policyholder surplus from the prior year-end derived from operating earnings, investment gains, net contributed capital and other miscellaneous sources. This ratio measures a company’s ability to increase policyholders’ security.
Chartered Property and Casualty Underwriter (CPCU) -Professional designation earned after the successful completion of 10 national examinations given by the American Institute for Property and liability Underwriters. Covers such areas of expertise as insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.
Claim– A demand made by the insured, or the insured’s beneficiary, for payment of the benefits as provided by the policy.
Class 3-6 Bonds (% of PHS) – This test measures exposure to noninvestment grade bonds as a percentage of surplus. Generally, noninvestment grade bonds carry higher default and illiquidity risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies.
Coinsurance – In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20% health insurance coinsurance clause, the policyholder pays for the deductible plus 20% of his covered losses. After paying 80% of losses up to a specified ceiling, the insurer starts paying 100% of losses.
Collision Insurance– Covers physical damage to the insured’s automobile (other than that covered under comprehensive insurance) resulting from contact with another inanimate object.
Combined Ratio After Policyholder dividends – The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company’s overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.
Commercial lines – Refers to insurance for businesses, professionals and commercial establishments.
Commission – Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer and the marketing methods.
Common Carrier– A business or agency that is available to the public for transportation of persons, goods or messages. Common carriers include trucking companies, bus lines and airlines.
Comprehensive Insurance – Auto insurance coverage providing protection in the event of physical damage (other than collision) or theft of the insured car. For example, fire damage or a cracked windshield would be covered under the comprehensive section.
Concurrent Periods– In hospital income protection, when a patient is confined to a hospital due to more than one injury and/or illness at the same time, benefits are paid as if the total disability resulted from only one cause.
Conditional Reserves – This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.
Coverage – The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Convertible – Term life insurance coverage that can be converted into permanent insurance regardless of an insured’s physical condition and without a medical examination. The individual cannot be denied coverage or charged an additional premium for any health problems.
Copayment – A predetermined, flat fee an individual pays for health-care services, in addition to what insurance covers. For example, some HMOs require a $10 copayment for each office visit, regardless of the type or level of services provided during the visit. Copayments are not usually specified by percentages.
Cost-of-living Adjustment (COLA)– Automatic adjustment applied to Social Security retirement payments when the consumer price index increases at a rate of at least 3%, the first quarter of one year to the first quarter of the next year.
Coverage Area – The geographic region covered by travel insurance.
Creditable Coverage – Term means that benefits provided by other drug plans are at least as good as those provided by the new Medicare Part D program. This may be important to people eligible for Medicare Part D but who do not sign up at their first opportunity because if the other plans provide creditable coverage, plan members can later convert to Medicare Part D without paying higher premiums than those in effect during their open enrollment period.
Current liquidity (IRIS) – The sum of cash, unaffiliated invested assets and encumbrances on other properties to net liabilities plus ceded reinsurance balances payable, expressed as a percent. This ratio measures the proportion of liabilities covered by unencumbered cash and unaffiliated investments. If this ratio is less than 100, the company’s solvency is dependent on the collectibility or marketability of premium balances and investments in affiliates. This ratio assumes the collectibility of all amounts recoverable from reinsurers on paid and unpaid losses and unearned premiums.
Below is a glossary of insurance terms to help you navigate some of the insurance jargon. The information presented may not apply or may not included in your specific insurance policy or state. Please contact us or your insurance carrier to verify coverage provided on your specific insurance policy or policies you are contemplating purchasing.
Named insured - The party or parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company.
Named non-owner policy - Issued to someone who does not own an automobile, but who drives borrowed or rented autos.
Named perils - A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for "the named peril" of fire.
National Association of Insurance Commissioners (NAIC) - An association of insurance commissioners and superintendents formed to share information and develop common laws and procedures for insurance regulatory purposes.
National Association of Insurance Women (NAIW) - An association of women (and men) in the insurance industry who have achieved the designation of Certified Professional Insurance Woman (CPIW) or CPIM.
National Association of Professional Surplus Lines Offices (NAPSLO) - Trade association of and providing services to surplus and excess lines agents and brokers.
National Council on Compensation Insurance (NCCI) - National association that collects, tabulates, and provides data used in formulating rates for workers compensation insurance.
National Flood Insurance Program (NFIP) - A federal program through which persons with property located in predefined flood plains can obtain flood coverage. See Flood insurance.
Nationwide Definition of Marine Insurance - A document published by the National Association of Insurance Commissioners that was rooted in an older (1933) definition of "...Insuring Powers of Marine and Transportation Underwriters". In general, the "definition" specifies property that may be insured under marine contracts such as property in inland transport and property regularly or routinely in transit, e.g., contractors equipment.
Negligence - Action or failure to act that is outside the realm of what would be considered appropriate by ordinary, reasonably prudent persons.
Net loss - The amount of a loss, after deductions for salvage, other insurance, and any subrogation that an insurer is responsible for.
Net premium - Premium less expense, such as commission.
New York Standard Fire Policy - Once the benchmark of property policies, it was adopted for use in all but a handful of states. The familiar provisions of its 165-Numbered-Lines, e.g., cancellation, mortgagee, appraisal clauses, etc., survive in Insurance Service Office property policies as well as in independently produced forms.
No Benefit To Bailee - A clause in inland marine forms that prevents a person in the possession of property of others from benefiting from any insurance the owner has on the property.
No-Fault Auto Insurance - A few states have laws that partially exempt drivers from legal liability for auto accidents. In these "no fault" states car owners buy insurance to protect themselves and their passengers from the economic and medical effects of auto accidents in addition to liability insurance at whatever limit the statute decrees. Professors Robert Keeton and Jeffrey O’Connell gave the "no fault" notion impetus with the 1967 publication of their study "After Cars Crash."
NOC - Underwriter’s shorthand derived from general liability and workers compensation rating tables that stands for "not otherwise classified" meaning no more specific classification is available — as in "Clerical Office Employees NOC."
Non-admitted Insurers, see Excess or surplus lines market.
Non-owned Auto - This term signifies an auto that is neither owned, hired, nor borrowed by the insured under a commercial auto policy. Employees’ cars used in company business are commonly classified this way. The employer’s auto liability cover for use of non-owned autos is covered by entry of symbol 1 ("any auto") or symbol 9 ("non-owned autos") on the declarations page.
Non-resident agent - An agent who does not reside in the state in which he or she is licensed.
Nose coverage - This is the opposite of Tail coverage, although it fulfills the same need. Nose coverage most commonly provides prior acts coverage for insureds who are moving from a claims-made coverage form to an occurrence coverage form. It is provided by the replacement policy.
Notice of loss - Notice the insured provides to the insurer that a loss has occurred.
Nuclear energy insurance pools - Any of the insurance pools designed to provide property and/or liability coverage for organizations that handle substantial quantities of nuclear material.
Nuisance Value - The amount for which an insurance company will settle a claim - not because it is a valid claim but, because the company considers it worth that amount to dispose of it.
MCS-90 - This is the "Endorsement for Motor Carrier Policies of Insurance for Public Liability under Sections 29 and 30 of the Motor Carrier Act of 1980." The endorsement assures that the trucker is using insurance to comply with the financial responsibility requirements of the act.
Maintenance bond - Guarantees that faulty work or defective materials charged to the bond principals will be corrected or replaced. A maintenance bond may be included among the terms of a performance bond.
Malicious mischief, see Vandalism.
Malpractice, see Professional liability.
Managing General Agent (MGA) - An agent standing between an insurer and other agents. The MGA sells to retail agents, who then sell to the consumer. MGAs often are said to have the "pen" because they are given the authority to accept, underwrite, and price submissions received from retail agents.
Manufacturers and Contractors liability (M&C) - The premises and operations liability exposures of manufacturers and contractors covering third parties for bodily injury or property damage negligently inflicted in the course of daily activities.
Manufacturers Output Policy (MOP) - Policy originally designed to cover property of a manufacturer being processed at another company; it covers personal property away from the premises on an open perils basis.
Manufacturers selling price clause - Clause stating that finished goods are valued for insurance purposes at their selling price rather than their cost of manufacture.
Manuscript policy - An insurance policy covering property or liability exposures (or both) that is uniquely assembled from standard or specially created forms to suit the needs of an insured.
Marine insurance - Insurance primarily concerned with transportation exposures and property that is commonly moved around from place to place. In America, the field is divided between Inland marine and Ocean marine.
Maritime coverage - Crew members of vessels are subject to Admiralty Law and may sue their employers for work-related injuries because state workers compensation laws do not apply to them. Therefore, special coverage must be purchased for this exposure.
Market value - The price at which insured property could have been sold just prior to its loss or damage. Along with "cost new minus use deprecation," market value is but another gauge used to determine the loss settlement to which an insured is entitled. The insured may choose the gauge that produces the most favorable outcome.
Market value appraisal - An appraisal to determine the market value of a building and related personal property.
McCarran-Ferguson Act - Passed by Congress in 1945, this act states that regulation and taxation of insurance by the states is in the public interest, and that congressional silence should not be construed as a barrier to state regulation.
Medical malpractice - Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.
Medical payments insurance - A coverage found in auto and liability policies that pays medical expenses to injured persons without regard to liability.
Merit rating - A form of auto rating in which an insured’s past experience as well as anticipated experience is taken into account when arriving at a rate.
Minimum premium - An insurer’s lowest charge for an insurance policy.
Misrepresentation - Generally, misstatement of facts made on an application for insurance. May also be misstatement of coverage made by an agent to an insured.
Mobile equipment - Included for coverage under the commercial general liability form, this term relates to land vehicles used in ways that take them out of an explicit "automobile liability" exposure (e.g., vehicles used only on the insured premises, to carry certain permanently attached equipment, that are not required to be registered, or are designed for solely for off-road use).
Model bill - A bill drawn up for insurance regulatory purposes by the National Association of Insurance Commissioners, with the recommendation that it be implemented by the states.
Monoline policy - An insurance policy covering one subject of insurance, as opposed to a combination or multiline policy.
Monopolistic state fund - Five states have their own system for providing reparations to injured employees eligible under the state’s workers compensation act. Private insurance companies may not compete. The states are North Dakota, Ohio, Washington, West Virginia, and Wyoming.
Moral hazard - As "physical hazard" relates to susceptibility to fire or wind, the term "moral hazard" relates to susceptibility to loss through moral lapse of the owner (e.g.,"Burn the house down and collect from the insurance company before losing it in a foreclosure to the finance company.").
Morale hazard - The term "morale hazard" addresses the issue of an apathetic insured (e.g., "It’s insured, let it burn.")
Mortgage holders clause - A standard property policy provision that creates elements of a separate contract between a mortgage company and an insurance company. Any loss to building or structures will be paid to the mortgage company and insured jointly and any act of the insured voiding coverage will not affect the mortgage holder without it first being given an opportunity to comply with the insurer’s needs.
Motor Carrier Act of 1980 - A federal law that deregulated the United States trucking industry and transferred the enforcement of financial responsibility requirements for truckers to the Bureau of Motor Carrier Safety, U.S. Department of Transportation. Insurance is one method of complying with the financial responsibility requirements.
Motor truck cargo policy - Two forms of inland marine coverage are associated with this title, one for carriers and one for owners. As a carrier, the insured is protected for legal liability relating to property of others in the course of transport. As an owner, the insured is protected for in-transit damage to its own property.
Motor vehicle record (MVR) - An official record of a driver’s accidents and traffic violations kept by the licensing state(s). Often used to determine eligibility and/or premiums for auto insurance.
Multi-line era - During the first half of the twentieth century, insurers were licensed to write property insurance or liability insurance but not both. Two insurers were needed to write automobile liability and physical damage insurance, for example, in a contrivance called a "combination policy." Not long after World War II, states began licensing insurers to write both forms of insurance introducing what was then called the "multi-line era."
Mutual insurance company - A cooperative insurance company organized and owned by its insureds.
Mysterious disappearance - A named peril in some forms. Either theft or unexplained disappearance of covered property from a known location may activate coverage.
Keeton-O’Connell, see No fault auto insurance.
Key employee insurance - Life insurance written on the life of an organization’s officer or other key employee, the loss of whom would cause the organization financial hardship.
Kidnap-Ransom insurance - A specialty coverage offered in the surplus and excess lines markets that responds to ransom demands for recovery of kidnap victims.
General Account – All premiums are paid into an insurer’s general account. Thus, buyers are subject to credit-risk exposure to the insurance company, which is low but not zero.
General liability Insurance -Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured’s premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
Grace Period – The length of time (usually 31 days) after a premium is due and unpaid during which the policy, including all riders, remains in force. If a premium is paid during the grace period, the premium is considered to have been paid on time. In Universal life policies, it typically provides for coverage to remain in force for 60 days following the date cash value becomes insufficient to support the payment of monthly insurance costs.
Gross Leverage – The sum of net leverage and ceded reinsurance leverage. This ratio measures a company’s gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.
Guaranteed Insurability Option – See “future purchase option.”
Guaranteed Issue Right – The right to purchase insurance without physical examination; the present and past physical condition of the applicant are not considered.
Guaranteed Renewable – A policy provision in many products which guarantees the policyowner the right to renew coverage at every policy anniversary date. The company does not have the right to cancel coverage except for nonpayment of premiums by the policyowner; however, the company can raise rates if they choose.
Guaranty Association – An organization of life insurance companies within a state responsible for covering the financial obligations of a member company that becomes insolvent
Earned Premium– The amount of the premium that as been paid for in advance that has been “earned” by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Elimination Period– The time which must pass after filing a claim before policyholder can collect insurance benefits. Also known as “waiting period.”
Employers liability Insurance – Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers’ compensation law.
Encumbrance – A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Exclusions– Items or conditions that are not covered by the general insurance contract.
Expense Ratio – The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company’s operational efficiency in underwriting its book of business.
Exposure – Measure of vulnerability to loss, usually expressed in dollars or units.
Extended Replacement Cost – This option extends replacement cost loss settlement to personal property and to outdoor antennas, carpeting, domestic appliances, cloth awnings, and outdoor equipment, subject to limitations on certain kinds of personal property; includes inflation protection coverage
Balance Sheet– An accounting term referring to a listing of a company’s assets, liabilities and surplus as of a specific date.
Benefit Period – In health insurance, the number of days for which benefits are paid to the named insured and his or her dependents. For example, the number of days that benefits are calculated for a calendar year consist of the days beginning on Jan. 1 and ending on Dec. 31 of each year.
Best’s Capital Adequacy Relativity (BCAR) – This percentage measures a company’s relative capital strength compared to its industry peer composite. A company’s BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company’s capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best’s proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.
Broker – Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
Broker-Agent– Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant’s coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.
Business Net Retention – This item represents the percentage of a company’s gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings.
Package policy - Any combination of insuring agreements that combines property and casualty coverages. Homeowners, business owners, and garage policies are examples.
Paid losses - The losses that have been paid for a claim.
Pair and set clause - Clause that stipulates that partial loss to a pair or set of items will be valued in terms of the lost item, not on the basis of reduced value of the pair or set.
Partial loss - A property loss that is less than a total loss. See Constructive total loss.
Partnership - A business model in which two or more individuals join together to conduct business and share profit and losses. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.
Pay-at-the-pump - A device for making sure all motorists are insured; the theory being that premiums for basic liability coverage could be collected through "taxes" at the gasoline pump in a relatively painless manner, thus eliminating the uninsured motorist.
Payment bond - Sometimes also called a "labor and materials bond," this bond guarantees that bills owed by the contractor will be paid as they come due. The agreement may be incorporated into the performance bond.
PD - A shorthand expression for "property damage."
Peak season endorsement - Instead of buying insurance amounts reflecting values at the height of inventory, some enterprises are able to forecast times when values will be at their peak and use this endorsement to increase the amount of insurance during that specific interval.
"Pen," The, see Managing General Agent (MGA).
Per occurrence/per loss excess reinsurance treaty - An agreement under which losses above a certain dollar amount are ceded to the reinsurer, who is responsible for all losses from any one exposure above this amount up to the reinsurance limit. The retention is expressed as an amount incurred per occurrence. An occurrence may be one hurricane, one flood, or one accident that results in injuries to multiple people.
Per risk excess reinsurance treaty - Similar to a per occurrence/per loss excess treaty except in the matter of the retention. The retention applies separately to each subject of insurance.
Performance bond - A bond that guarantees the property owner (the "obligee") that the contractor with the winning bid on a job will perform as promised and on time.
Peril - A potential cause of loss.
Perils of the sea - Somewhat akin to open perils on land, the term refers to any potential cause of loss derived from shipment on a seagoing vessel.
Period of restoration - The period of time following a loss that is necessary to restore a business or organization to a pre-loss condition.
Personal articles floater - Before the advent of packaged forms and broad coverages, households commonly had fire insurance on dwelling and personal property with the possible addition of extended coverage. The personal articles floater is an inland marine form that was used by the affluent for scheduling open perils coverage for various articles and classes of valuable personal property. A homeowners endorsement accomplishes the same thing today and the personal articles floater is no longer widely written.
Personal auto policy - The form currently promulgated by Insurance Services Office (ISO) for coverage of personal auto liability and physical damage exposures.
Personal injury - Distinguished from "bodily injury," this term relates to injury inflicted by way of false arrest, invasion of privacy, malicious prosecution, and so on. It is written as Coverage B of the commercial general liability forms and as homeowners Coverage E.
Personal Injury Protection (PIP) - The section of an auto policy in a no-fault state that responds to physical injury, loss of income, etc., of the insured regardless of fault.
Personal liability insurance - Insurance for individuals or members of a household offering protection against claims by third parties (outsiders) alleging bodily injury or property damage due to negligence. See also Premises medical payments.
Personal lines - Insurance covering the liability and property damage exposures of private individuals and their households. Contrast with Commercial lines.
Personal property - Term used in insurance to distinguish chattels from real property.
Physical Hazard - A hazard that arises from the material, structural, or operational features of the risk itself apart from the persons owning or managing it.
Physicians and surgeons professional liability insurance, see Professional liability.
Plate glass coverage - Provides "special" protection, except for the perils of war, nuclear reaction, and fire. (Fire is covered under the building policy.) This coverage is for full replacement cost and covers the expense of repairing frames, installing temporary plates, or boarding up openings.
Policy year - Unique to the insurance business, this is a means of cost accumulation in which the aggregate transactions of all policies becoming effective in a given year determine the financial performance of those policies. Policyholder, see Insured.
Policyholders’ surplus - The amount of money available to an insurer to meet its obligations to its policyholders, after subtracting liabilities.
Pollution liability insurance - Coverage for bodily injury or property damage caused by a "pollution incident." Insurance Services Office has two forms, one limited to on-site clean up of pollution spills.
Pool - An organization in which insurers cover certain types of risks as a group and share premiums, expenses and losses. Pools are often used to underwrite larger risks.
Portfolio - All of an insurer’s in-force policies and outstanding losses, respecting described segments of its business.
Power-of-attorney - Commonly used in bonding, this document conveys authority for the individual(s) named on it to execute bonds and other legal documents.
Premises - Generally, a piece of land with a building or buildings upon it.
Premises and operations liability - Once known as owners, landlords, and tenants legal liability, or as manufacturers and contractors liability, depending on the business’s activity, the term refers to the liability exposure of business entities to third parties (customers, guests, and passers by) who may become injured or have property damaged through the negligent acts of the business persons, their agents, or employees. Coverage of this exposure is by way of the commercial general liability policy. Contrast with Products and completed operations liability.
Premises and operations medical payments - Bodily injury rather than liability is the trigger for this coverage. Sometimes referred to as "customer good will insurance," it is a relatively inexpensive addition to the commercial general liability policy and an automatic feature of personal liability protection. Since it responds to injury of customers or guests without regard to fault, it is sometimes effective in heading off a potentially much more serious liability claim against the owner or tenant of the business premises or private residence.
Premium - Term for the amount of money the insured pays the insurer to purchase insurance.
Pressure vessel - In boiler and machinery insurance, a type of container designed to hold liquids or gasses under pressure. Types are categorized as fired (such as a boiler) and unfired (such as an oxygen or hydrogen tank).
Price-Anderson Act of 1957 - Federal law that requires evidence of financial responsibility for all privately owned nuclear reactors, spent fuel reprocessing plants, and for fuel fabrication plants licensed to process five or more kilograms of plutonium.
Primary insurance - The first policy or coverage to apply. Contrast with Excess insurance.
Principal - Used in suretyship, it refers to the individual whose performance is guaranteed.
Prior Approval - Indicates that an insurer must have rate or form changes formally approved by the state insurance department before it can use them Private Passenger Automobile - A four wheeled motor vehicle, subject to state registration laws, designed to carry passengers (such as a car, station wagon, SUV, or van) on public roads.
Pro rata cancellation, see Cancellation.
Producer - A term identifying the insurance agent, field rep, or other employee who sells insurance.
Product recall insurance - Coverage for the costs of recalling a product known, or suspected to be, defective.
Products and completed operations liability - The liability exposure of the manufacturer whose malfunctioning products may cause injury or property damage or of the contractor whose failed structures or projects may do the same. Coverage of the exposure is a feature of the commercial general liability policy. The insurance does not in any way constitute a guarantee of either the insured’s product or work. Contrast with Premesis and operations liability.
Professional Insurance Agents (PIA) - Trade association of insurance agents.
Professional liability - A form of errors and omissions insurance, (sometimes called "malpractice" coverage for errors alleged against those in the healing and legal professions). Arbitrarily it seems, "errors and omissions" is the term applied most often to insurance covering liability for mistakes in matters affecting property, i.e., coverage for "Insurance Agents E&O," "Architects E&O" while "professional liability" is used in reference to coverages such as "Druggists Professional Liability," "Physicians and Surgeons Professional Liability," and "Lawyers Professional Liability."
Promulgate - To develop, file, publish, and put into effect insurance rates or forms. Proof of loss - Following a loss, a formal statement given by an insured to the insurer that includes details of the loss such as the original cost of damaged or destroyed property.
Pro-rata or proportional reinsurance - A certain portion of every risk is ceded under a proportional agreement. The insurer and reinsurer agree to share a portion of all insurance, premium, and losses in the same amount. The insurer is paid a commission for ceding the risk portion and premium to the reinsurer.
Prospect - A potential buyer of an insurance policy or program.
Protection and Indemnity (P&I) insurance - The nautical equivalent of bodily injury and property damage liability.
Proximate cause - That event which, in an unbroken sequence, results in direct physical loss under an insurance policy. For example, wind is the proximate cause of loss when a windstorm blows out a window that in turn topples a lit candle that sets fire to a structure and burns it down.
Public adjuster - An individual or member of a firm who contracts with private parties to aid with the preparation of loss statements and presentation to insurers. Contrast with Independent adjuster.
Public liability insurance - General term for any liability coverage for claims brought against the insured by a third party or member of the public.
Public official bond - A "performance bond" for holders of public office.
Punitive damages - An award for damages above and beyond the requirements for compensating third parties for injury or damage. As the word implies the award is meant to punish the offender. Most states and territories permit punitive damages awards to be covered by liability insurance.
Pure risk - The only consideration is the possibility of loss or no loss, but not making a profit. Contrast with Speculative risk.
Impaired property - A liability exclusion relating to the insured’s faulty products or work that results in an "impairment" to the property to which it is attached assuming the insured can salvage the situation by replacing the property or redoing the work.
Improvements and betterments - Anything that adds to the value of property. Commonly used to describe a tenant’s use interest in fixtures added to the landlord’s building. May also refer to permanent changes made by a condominium unit-owner to his/her unit, such as the addition of new kitchen cabinets.
Increased cost of construction - A damaged building may have to be upgraded to be repaired under building codes in force at the time of reconstruction. Building owners in such situations need guidance in buying insurance to cover this added exposure.
Incurred losses - The value of claim payments plus reserves.
Indemnity - A fundamental concept governing insurance: compensation for loss or injury sustained.
Independent adjuster - An individual or member of a firm who contracts with insurers to investigate claims and suggest appropriate settlements. Contrast with Public adjuster.
Independent agent - A "retailer" of insurance who, by contractual arrangement with a number of insurance companies, sells and services property and liability insurance. The independent agent "owns" the policy information and expiration dates of his client’s coverage and thus controls renewals and their placement.
Independent Insurance Agents of America (IIAA) - An association of insurance agents who are independent contractors, and represent one or more insurers. Sometimes referred to as the "Big I."
Indirect damage - Sometimes referred to as indirect loss, this is loss resulting from a peril, but not directly caused by that peril. An example is fire damaging a freezer (direct damage), with resultant food spoilage (indirect damage).
Inflation guard endorsement - An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation.
Inherent vice - A flaw in an item of property that will, in time, reveal itself and show the property as damaged. Property insurance does not normally cover such damage.
Inland marine insurance - Property insurance signaling broad coverage of properties exposed to the transportation peril and those subject to being used or kept at a location other than the insured’s customary premises. Eligible property is identified in the Nationwide Definition of Marine Insurance.
Innkeepers legal liability - A bailee coverage purchased by innkeepers to cover the property of their guests.
Insolvency fund - See Guarantee funds.
Inspection Report - A report prepared for an insurer by an outside organization. It provides information about an applicant’s or insured’s physical, financial, and moral attributes.
Insurable interest - The potential for financial loss associated with damage or destruction of property.
Insurable risk - The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market.
Insurance - A mechanism whereby risk of financial loss is transferred from an individual, company, organization, or other entity to an insurance company.
Insurance contract - A legal document defining circumstances under which the insurer will pay, and the amount to be paid. Also see Insurance policy.
Insurance exchange - See Reciprocal exchange.
Insurance Institute for Highway Safety - A not-for-profit research organization, well known for its auto "crash tests."
Insurance policy - The document containing the contract between the insured and the insurer which defines the rights and duties of the contracting parties.
Insurance Services Office (ISO) - An organization providing statistical information, actuarial analyses, policy language, and related services for the insurance industry.
Insurance to value - The concept of purchasing sufficient insurance coverage so as to closely approximate the value of the property being insured.
Insured - The party or parties whose interests are covered in a non-life insurance contract. The less common term Assured is sometimes used synonymously.
Insuring agreement - In an insurance contract, the insurer’s promise to pay.
Integrated risk financing - A type of risk financing designed to provide integrated protection against catastrophic losses. It may incorporate both traditional and non-traditional types of exposures, or it may include only traditional property and casualty risks.
Interline endorsements - Commercial endorsements that apply, or could apply, to more than one coverage as part of a package policy.
File-and-Use Rating Laws – State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.
Financing Entity– Provides money for purchases.
Floater – A separate policy available to cover the value of goods beyond the coverage of a standard renters insurance policy including movable property such as jewelry or sports equipment.
Future Purchase Option – life and health insurance provisions that guarantee the insured the right to buy additional coverage without proving insurability. Also known as “guaranteed insurability option.”
Death Benefit – The limit of insurance or the amount of benefit that will be paid in the event of the death of a covered person.
Deductible – Amount of loss that the insured pays before the insurance kicks in.
Developed to Net Premiums Earned – The ratio of developed premiums through the year to net premiums earned. If premium growth was relatively steady, and the mix of business by line didn’t materially change, this ratio measures whether or not a company’s loss reserves are keeping pace with premium growth.
Development to Policyholder Surplus (IRIS)– The ratio measures reserve deficiency or redundancy in relation to policyholder surplus. This ratio reflects the degree to which year-end surplus was either overstated (+) or understated (-) in each of the past several years, if original reserves had been restated to reflect subsequent development through year end.
Direct Premiums Written – The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.
Direct Writer – An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
Disease Management – A system of coordinated health-care interventions and communications for patients with certain illnesses.
Dividend - The return of part of the policy’s premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation
Yacht - A larger vessel used for pleasure purposes, as distinguished from a motorboat, sailboat or commercial vessel.
Yacht Insurance - A marine insurance designed to provide property damage or hull coverage for yachts, cabin cruisers, and sailing vessels. Some will also cover small inboard motors and other personal vessels.
Year 2000 Problem - A potential electronic and computer hardware/ software problem that is expected to affect users at the turn of the century. It is a year-date coding problem that results from using only two-digit year dates instead of four. Once the new millennium occurs, computers and other equipment using computerized technology may have a problem understanding what year is 1900 or 2000. The resulting problems may range from systems or programs that do not work at all, to ones that are inaccurate. Important data may be lost and, overall, a great many potential problems may occur unless individuals and businesses have carefully evaluated and upgraded their software and hardware. The actual impact is not yet known. Also called the Millennium Bug or the Y2k Problem.
York Antwerp Rules - Revised in 1974, a set of rules adopted by the representatives of all the leading maritime nations to govern the method of applying the general average
XCU - A term used in commercial general liability insurance to designate that three hazards exist for the classification under review. Those three hazards are explosion, collapse and underground. The current CGL includes those coverages automatically in the basic form, but they may be deleted by endorsement.
Vacant property - Once defined as devoid of occupants or contents, a stricter definition is being applied as more and more communities find older buildings of three and four stories that are only one quarter occupied. Property policies impose limitations on coverage of "vacant" buildings so the (changing) definition of vacant property is quite important.
Valuable papers coverage - Provides "all risk" coverage on "valuable papers," such as: written, printed, or otherwise inscribed documents and records, including books, maps, films, drawings, abstracts, deeds, mortgages, and manuscripts. It covers the cost of research to reconstruct damaged records, as well as the cost of new paper and transcription.
Valuation - To estimate the value of a piece of property usually by considering its replacement cost or its actual cash value. Factored into the estimate is any depreciation or wear and tear.
Valued policy, see Agreed amount clause.
Valued policy law - Law that exists in some states which applies primarily to buildings. The laws differ but, in general, they state that in case of a total loss the amount of insurance is the agreed amount of loss.
Vandalism and malicious mischief - Once treated as a separate peril to be added to a property policy or not, current property forms routinely include the protection.
Verbal threshold - Term in no-fault auto insurance, applicable in some states, which states that victims are allowed to sue in tort only if their injuries meet certain verbal descriptions of the types of injuries that render one eligible to recover for pain and suffering.
Vested commissions - Commissions on renewal business which are paid to the agent whether or not he or she still works for the insurance company with which the business is placed.
Vicarious liability - The condition arising where one person is responsible for the actions of another, as a parent is often held responsible for the vandalism damage a minor child does to a school.
TPA - Third party administrator. A TPA is a contractor that adjusts and administers insurance claims.
Tail coverage - Coverage for claims made after a claims-made liability policy has terminated; the extended reporting or discovery period. See Nose coverage.
Temporary worker - An employee hired on a short term, often seasonal, basis.
Tenants improvements and betterments, see Improvements and betterments.
Third party - An outsider; a business or personal invitee or a party with absolutely no connection to an insured who may become a claimant under a form of public liability coverage because of injury or property damage alleged to have been caused by the negligence of the insured.
Threshold level - The point at which an injured person may bring tort action under a modified No-Fault Auto Plan. Many no-fault plans only allow tort action for pain and suffering after medical bills exceed some figure, like $1,000; or if disfigurement or death occurs.
Tight market, see Hard market.
Time element coverage - Insurance in which the element of time has heavy bearing on the extent of loss. Business income insurance covers loss of income for the unknown duration of the insured’s business interruption.
Title insurance - Insurance that indemnifies the owner of real estate in the event that someone challenges his or her ownership of property, due to the discovery faults in the title.
Tort - A wrong for which a civil (as opposed to criminal) action can be brought. Many tort claims arise from negligence.
Trailer interchange agreement - An arrangement among truckers whereby trailers may be moved along by the tractors of one or more parties to the agreement.
Transfer of risk - A basic underlying principle of insurance, whereby the risk of financial loss is transferred from one party to another.
Treaty reinsurance - An agreement in which the ceding company agrees in advance to cede certain classes of business or types of insurance to a reinsurance company. The reinsurer agrees to accept all risks or losses that fall within the terms of the agreement.
Twisting - The practice of inducing by misrepresentation, or inaccurate or incomplete comparison, a policyholder in one company to lapse, forfeit or surrender his insurance for the purpose of taking out a policy in another company.
Lapse - Termination of a policy because of failure to pay the premium.
Larceny - The unlawful taking of personal property of another.
Latent defect - A hidden flaw that will, in time, cause property damage that is uninsurable. Such damage is uninsurable because the element of chance is no longer present.
Law of large numbers - An underlying principle of insurance; the larger the number of participants in a given arrangement, the more accurate the rate is to the exposure.
Leased worker - A worker leased from another organization on a long-term basis.
Leasehold interest insurance - The insurable interest is that of a tenant who has some years remaining under a favorable lease that is subject to termination upon significant damage to the leased property.
Legal liability - Liability imposed by law; this includes liability based on negligence, strict liability, or contractual liability.
Libel - Written defamation of another’s reputation.
Liberalization clause - A feature of property policies that promises that any future change in the company’s form that would broaden coverage with no change in premium will automatically apply under the policy currently in force.
License and permit bonds - Suretyship guaranteeing that the principal will abide by the rules and obligations imposed by licensing laws or ordinances. For example, an electrician may have to post such a bond guaranteeing compliance with building codes before being licensed by a municipality.
Limited partnership - A form of partnership that consists of one or more general partners, who actively engage in the business, and one of more special partners, who are not liable for the debts of the partnership beyond their initial financial contribution. Commercial insurance policies usually differentiate in the "Who Is Insured" section between corporations, partnerships, and other business models. Therefore, the type of model being insured is important.
Liquor liability insurance - Liability coverage for owners and operators of establishments selling or serving alcoholic beverages. Litigation bonds, see Judicial bonds.
Livery use - An exclusion in automobile liability policies applying to the use of autos to carry persons for hire as in a taxi service. A share-the-ride car pool is not "livery use."
Livestock insurance - Life insurance on livestock covering death by named perils.
Lloyd’s of London - An association of individuals, called "names," or groups of individuals who write insurance for their own accounts. Lloyd’s had its beginning in 17th century London in Edward Lloyd’s coffee house.
Loading and unloading exclusion - A feature of commercial general liability (CGL) policies intended to separate that coverage from the automobile exposure. The CGL coverage ends at the point where an item is picked up for loading onto an auto and resumes at the point where the item is deposited upon unloading.
Long tail - Refers to liability under policies written on an occurrence basis. Claims stemming from injury or damage occurring years earlier can be presented for coverage long after the policy has expired. Contrast with Claims-made.
Longshore and Harbor Worker’s Act - A Federal law that specifies compensation amounts for injured longshore and harbor workers. Formerly referred to as the Longshoremen’s and Harbor Workers Act.
Loss - An unintentional decline or disappearance in value arising from an event.
Loss adjustment expenses - Payments by an insurer for the investigation and settling of claims. They include the cost of defending a lawsuit in court.
Loss assessment coverage - Insurance responding to property or liability loss of a property owners association that are not covered by the association’s master policy.
Loss control - Actions to reduce the frequency or severity of losses. Installing locks, burglar or fire alarms and sprinkler systems are loss control techniques.
Loss costs - Loss data that has been modified by insurance advisory organizations by necessary loss development, trending, and credibility processes in order to arrive at the statistical cost of losses to be used in establishing a premium rate.
Loss development - An actuarial method to detect and correct for consistent errors in estimating the amount of future loss payments or the procedure for adjusting incurred losses to reflect their future development and ultimate value. Loss development factors are developed actuarially and applied to current losses in order to predict what the ultimate cost of losses will be when the claims are closed.
Loss expectancy - The underwriter’s calculation of probable maximum loss.
Loss experience - What the loss history has been on a particular line or book of business.
Loss exposure - A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.
Loss frequency - How often a loss occurs over a given space of time.
Loss limit - Commonly used in financial institution bonds, a loss limit is the aggregate amount that will be paid out under the coverage during the policy term. Loss limits also may be used when insuring large property risks where the exposures are spread out geographically. In this type of situation, it is unlikely that all property would be damaged by a single occurrence. Therefore, the amount of insurance may be set at a "loss limit" per each covered occurrence.
Loss of use insurance - See Additional living expense insurance.
Loss payable clause - A property policy provision that, at the request of the named insured, stipulates that claims tied to losses of certain property will be paid to both the named insured and the party named in the subject clause.
Loss prevention - Refers to engineering or inspection activities carried out to prevent losses in the workplace.
Loss ratio - The ratio of incurred losses including loss adjustment expenses to earned premiums.
Loss payout pattern - Losses often are paid over a period of years, especially in casualty lines of insurance. The payout pattern illustrates the way that claims are paid out from the time they are filed until they are closed.
Loss trending - A method to modify developed losses for changes that will occur in the future. Trend factors are used by rate makers to adjust past losses to more accurately reflect the loss experience expected to develop while the rates are being used.
Loss triangle - Used to show how losses develop, a loss triangle is a chart that lists losses by line and by year. It shows the value of each set of annual losses at the end of subsequent 12-month periods.
Lost policy release - A means whereby an insured may cancel a policy by signing a statement to the effect that, since his or her policy has been lost, he cannot return it to the insurer to effect cancellation, but still wishes to cancel the policy.
Hangarkeepers legal liability - A bailee coverage for those charged with the care of aircraft owned by their customers.
Hard market - A condition of the insurance marketplace in which insurance is difficult to obtain, and relatively expensive.
Hazard - Generally, a condition that increases the possibility of loss.
Hazardous waste - Term generally used to refer to pollutants or contaminants which result from industrial processing and must be disposed.
Highly Protected Risk (HPR) - A building meeting certain standards of fire protection, which is therefore eligible for a reduced rate.
Hired auto - A non-owned auto that may be borrowed as well as rented or leased by the insured. Personal auto policy insureds are covered automatically for hired autos, but business auto policy insureds may not be.
Hold harmless agreement - A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury or property damage experienced by others on the premises.
Hole-in-one insurance - Coverage designed for amateur golf tournaments in which there is a substantial cash prize for anyone making a hole-in-one.
Holistic risk management - See Enterprise-wide risk management.
Homeowners insurance - An early and hugely successful example of "packaged" property and liability insurance. A mid-twentieth century insurance development was introduction of the so-called "multi-line era" in which insurers became empowered to write both property and liability forms of insurance, making way for the first packaging of these coverages within a single policy.
Host liquor liability - Part of the CGL, this covers the incidental serving of alcohol by an insured who is not in the business of serving alcohol.
Hostile fire, see Fire.
HPR - See Highly protected risk.
Housekeeping - A generalized term that refers to the overall care, cleanliness, and maintenance of an insured’s property.
Hull insurance - Ocean marine insurance covering physical damage to the ship or vessel insured. Usually, written on an "all-risks" basis.
Acceleration Clause - The part of a contract that says when a loan may be declared due and payable.
Accidental Death Benefit – In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.
Active Participant – Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.
Activities of Daily living – Bathing, preparing and eating meals, moving from room to room, getting into and out of beds or chairs, dressing, using a toilet.
Actual Cash Value – Cost of replacing damaged or destroyed property with comparable new property, minus depreciation and obsolescence. For example, a 10-year-old sofa will not be replaced at current full value because of a decade of depreciation.
Actuary– A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as “mathematician.”)
Adjustable Rate – An interest rate that changes, based on changes in a published market-rate index.
Adjuster – A representative of the insurer who seeks to determine the extent of the insurer’s liability for loss when a claim is submitted.
Admitted Assets – Assets permitted by state law to be included in an insurance company’s annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.
Agent-individual who sells and services insurance policies in either of two classifications:
Independent agent represents at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent’s commission is a percentage of each premium paid and includes a fee for servicing the insured’s policy.
Direct or career agent represents only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.
Aggregate limit - Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
Annual Administrative Fee – Charge for expenses associated with administering a group employee benefit plan.
Annual Crediting Cap – The maximum rate that the equity-indexed annuity can be credited in a year. If a contract has an upper limit, or cap, of 7 percent and the index linked to the annuity gained 7.2 percent, only 7 percent would be credited to the annuity.
Annuitization – Process by which you convert part or all of the money in a qualified retirement plan or nonqualified annuity contract into a stream of regular income payments, either for your lifetime or the lifetimes of you and your joint annuitant. Once you choose to annuitize, the payment schedule and the amount is generally fixed and can’t be altered.
Annuitization Options – Choices in the way to annuitize. For example, life with a 10-year period certain means payouts will last a lifetime, but should the annuitant die during the first 10 years, the payments will continue to beneficiaries through the 10th year. Selection of such an option reduces the amount of the periodic payment.
Annuity – An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.
Approved for Reinsurance – Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in these states.
Approved or Not Disapproved for Surplus lines – Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state.
Assets – Assets refer to “all the available properties of every kind or possession of an insurance company that might be used to pay its debts.” There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to nonincome producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don’t permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them “nonadmissable.”
Attained Age – Insured’s age at a particular time. For example, many term life insurance policies allow an insured to convert to permanent insurance without a physical examination at the insured’s then attained age. Upon conversion, the premium usually rises substantially to reflect the insured’s age and diminished life expectancy.
Authorized Under Federal Products liability Risk Retention Act (Risk Retention Groups)– Indicates companies operating under the Federal Products liability Risk Retention Act of 1981 and the liability Risk Retention Act of 1986.
Automobile liability Insurance – Coverage if an insured is legally liable for bodily injury or property damage caused by an automobile.
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Zero coupon bond - A certificate evidencing private or public indebtedness that provides no periodic interest payments to the bondholder (such as by annual coupons) during the life of the bond but that, instead, provides for a maturity value that is largely relative to the cost of the bond so as to reflect the absence of annual interest payments.
Zone rating - In commercial automobile insurance, those risks that have a radius of operation of over 300 miles, and fall into the long-haul category, are rated on the zone they travel in using the city of origin and the city of destination to determine the zone category.
Zone System - system developed by the NAIC (National Association of Insurance Commissioners) to be used to exam the solvency of insurers. The examination is conducted every three years by teams of examiners. These teams are formed by geographical zones. Results of NAIC exams are usually accepted by states where insurers are licensed, so that each state does not have to conduct its own exams.
Waiver of subrogation - An insurer has the right of subrogation; however, it may waive that right through this method.
Wear and tear exclusion - A common heading for an "all risks" exclusion relating to a group of events that do not represent risk at all. Property will become worn out and torn; it will rust, settle, become rotted, infested, marred, scratched, etc. It is easy to distinguish however between the marring that occurs over time (excluded) and marring that occurs when a concrete block is dropped onto a fine wooden table.
Whole dollar premium - The practice of many insurers to round premiums to the nearest dollar, rather than carrying them out to the nearest cent. An amount of 51 cents or more is usually rounded up to the next dollar, and any cents amount less than that is dropped.
Workers compensation insurance - Coverage that conforms to the workers compensation laws of the states in which it written. See also Employers liability insurance.
Wrap up - A liability coverage specialty focused on contracting risks, attempting to manage in a single contract the broad interplay of exposures and interests among owners, general contractors, and subcontractors.
Umbrella liability - A liability contract with high limits covering over top of primary liability coverages and, subject to a self-insured retention (deductible), covering exposures otherwise uninsured.
Underground Storage Tank (UST) - Tanks sunk in the ground that are used to store or dispose of gasoline or other fuels, hazardous chemicals, or other pollutants or contaminants.
Underinsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has auto liability insurance with lesser limits than the insured’s. This coverage lies atop "uninsured motorists coverage" or atop the at-fault driver’s low limit automobile liability insurance and provides the insured and passengers with protection equal (usually) to the insured’s own automobile liability cover.
Underlying insurance policy - The policy providing initial coverage for a claim until its limit of liability is reached and an umbrella or excess policy’s coverage is triggered.
Underlying limits - The limits of liability of the policy(ies) underlying an umbrella or excess policy.
Underwriter - One who researches and then accepts, rejects, or limits prospective risks for an insurance company.
Underwriters Laboratories, Inc. (UL) - Originally begun as a cooperative of western fire insurers to test materials, the UL is now an independent organization testing virtually every fabricated device and material. Items are permitted to bear the UL seal of approval only after they have passed stringent testing for safety.
Unearned premium - That portion of an insurance premium that would have to be returned to the insured if the policy were cancelled.
Unilateral contract - A contract such as an insurance policy in which only one party to the contract, the insurer, makes any enforceable promise. The insured does not make a promise but pays a premium, which constitutes his part of the consideration.
Uninsurable risk - An uninsurable risk is one that is literally uninsurable because loss is certain rather than possible.
Uninsured motorists coverage - Coverage for the insured and passengers whenever the at-fault driver in an accident has no auto liability insurance. Coverage is usually to the extent of limits required by state auto financial responsibility laws.
United States Longshore and Harbor Workers Compensation Act (USL&H) - A compulsory law administered by the Department of Labor that covers injuries to employees on vessels or drydocks.
Unsatisfied judgment fund (UJF) - In some states a person who is injured in an automobile accident and who cannot collect from the person responsible, may collect from a special fund (UJF).
Q Schedule - A New York specific regulation that schedules (and limits) the types of expenses that can be charged against new business by an insurer. The insurer must file the schedule to verify compliance. The overall effect of the Q Schedule in New York is to reduce commissions.
Qualified impairment insurance - A health insurance rider that eliminates the policy exclusion for impairment, making that impairment acceptable or "qualified" with respect to coverage.
Qualified plan - Qualified plans are those employee benefit plans that meet Internal Revenue Service requirements as stated in IRS Code Section 401a. When a plan is approved, contributions made by the employer are tax deductible expenses.
Qualified retirement plan - A retirement plan that has been formed to comply with the IRS federal tax regulations, whether the plan is a pension plan, a profit-sharing plan or a savings plan. Funds to the plans will accumulate but taxes are deferred until actual retirement and the distribution of benefits. Employee contributions may be made to qualified plans on a pre-tax earnings basis. Contributions to the plans by employers are treated as current business expenses for tax deduction purposes.
Qualified terminable interest property trust - A type of trust for married couples in which an annual income payout is made to the surviving spouse from trust assets. In effect, this reduces estate taxes assessed against the surviving spouse while providing annual income for the survivor.
Quantity discount - Premium credits given in certain life insurance policies that have high benefit payout amounts.
Quasi-insurance institutions - Federal, state, or local government institutions which implement and run compulsory government programs that give the appearance of acting in a way similar to the insurance mechanism. Unemployment compensation is an example.
Quick assets - Highly liquid assets that can be converted to cash very quickly. Cash, checks, certain stocks, bonds, and Treasury Bills are all examples. Real and personal property are not.
Quid pro quo - Latin term meaning "this for that," or "one thing for another." As it applies to insurance, it is when the consideration in an insurance contract is an exchange of values between both parties to the contract for it to become a valid contract.
Quota share - When more than one policy, insurer, or reinsurer is obligated to respond to a property loss for a risk according to a percentage or its proportionate share of the total limits applicable. Premiums are usually shared in the same proportion as the limits.
Quota share reinsurance - A form of pro rata reinsurance (proportional) in which the reinsurer assumes an agreed percentage of each insurance policy being insured and shares all premiums and losses accordingly with the reinsured.