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A B C D E F G H I J K L M N O P Q R
S T U V W X Y Z


GLOSSARY OF TERMS

A
	abandonment	A relinquishing of property by the owner to the insurer in order to claim a total loss when, in fact, the loss may be less than total.
	accident	An unforeseeable, fortuitous and unintended event. Is usually definite as to time and place.
	act of God	An accident or event that is the result of natural causes, without human intervention or agency, and one that could not have been prevented by reasonable foresight or care; ex: lightning, earthquake
	actual cash value	The cost of reproduction/replacement less an allowance for depreciation.
	actuary	An individual, often holding a professional degree, who computes statistics relating to insurance such as the calculation of premium rates and the evaluation of reserves.
	additional insured	A provision which allows extension of an insurance policy, with or without an additional premium, to cover the interest of persons or parties other than the defined insured in the latter's activities or property.
	adjacent	One building is very close to, but not touching, the other building.
	aggregate limit	Maximum dollar amount of coverage in force under a health insurance policy, a property damage policy or a liability policy. This maximum can be on an occurrence basis or for the life of the policy.
	agreed amount clause	A provision in property insurance policies which allows suspension of the co-insurance clause if the insured carries an amount of insurance specified by the company (usually a dollar amount equal to 90% or more of an agreed estimated value of the property).
	apportionment	In the event of loss, the determination of the amount to be contributed by each policy when there is more than one policy in force covering the property which has been lost or damaged.
	arson	The willful and malicious burning of property, sometimes with the intent of defrauding insurance companies.






B
	bailee	One who has temporary possession of property belonging to another. Bailees have different degrees of liability for such property.
	binder	A legal agreement issued either by an agent or company to provide temporary insurance until a policy can be written. It should be in writing, contain a definite time limit and clearly designate the company in which the risk is bound. In addition, it should specify the amount, the insured perils and the type of insurance.









C
	carrier	An insurance company which "carries" the insurance coverage.
	casualty insurance	Insurance which is primarily concerned with legal liability of the insured for injury to persons or for damage to property of others. It also encompasses such diverse forms of insurance as plate glass, robbery, burglary, power plant and aviation.
	catastrophe	An event which causes a loss of an extraordinarily large amount.
	catastrophe number	When a catastrophe occurs which produces losses over a specified total, the loss amount is recorded separately and is treated differently in the company's statistical records.
	certificate of insurance	Evidence of insurance issued by a company to an interested party other than the named insured. A certificate may be used as evidence of reinsurance containing specific details of property covered by master or open policies. Also, a copy of a policy.
	co-insurance	A provision in an insurance policy, usually optional, under which the policyholder agrees, for a reduced rate, to maintain insurance equal to a specified percentage of the value of the property covered. If he fails to maintain that minimum amount of coverage, he must stand a proportionate share in any loss that occurs.
	common law	That part of the law which is based upon custom and usage as recognized, affirmed and enforced by the courts. Its opposite is statutory law, which is passed by a legislative body and imposed by statute.
	comparative negligence	This doctrine provides that contributory negligence shall not bar recovery in an action to recover damages for negligence resulting in death or injury to person or property. However, the degree of the plaintiff's negligence is considered and will reduce the amount of his recovery accordingly.
	compulsory insurance	A type of insurance which is made compulsory for every insured by state or federal statute, such as Workers Compensation Insurance in most states, and Automobile Liability Insurance in many states.
	conditions	Provisions of an insurance policy which state either the rights and duties of the insured or the insurer. For example: duties in the event of a loss; cancellation provisions
	contributary negligence	Lack of ordinary care on the part of an individual, which helps cause an accident or injury
	countersignature	The signature of a licensed agent or representative on a policy which serves to validate the contract.





D
	declaration	A policyholder's statement to an insurer (or its agent) which the insurer relies on in undertaking the insurance.
	Declarations Page	A separate sheet of paper containing typed information about the individual risk and coverage afforded. It is attached to a policy jacket to form a complete policy.
	direct billed	When the insured is billed for the insurance premium by the insuring company instead of by the agent.








E
	earned premium	The total of all premium earned during a given period for the insurance coverages provided during that time. The formula for calculating earned premium is: 1. Total premium written during the coverage period, plus 2. Unearned premium reserve at the beginning of that time, minus 3. Unearned premium at the end of the time period.
	effective date	The date on which the protection on an insurance policy goes into effect.
	endorsement	A form added to a policy recording a change to that policy.
	exclusion	A provision of an insurance policy referring to hazards, circumstances, or property that are not covered by the policy.




F
	"FAIR" plans	An involuntary pool mechanism set up to provide essential property insurance for eligible risks not acceptable on the voluntary market. Stands for "Fair Access to Insurance Requirements".
	fiduciary	A person who occupies a position of special trust and confidence.
	flat cancellation	Cancellation of a policy when or before it becomes effective with all the premium refunded to the policyholder.
	floater policy	A policy which protects property of a mobile nature wherever it may be located as defined in the policy.







G
	general cover	A policy covering property at various locations. The premium is determined by averaging reports of value which the insured is required to make to the company at stated intervals.







H
	hazard	A condition present which may create or increase the probability of a loss.
	hold harmless agreement	A contract under which legal liability of one party for damages is assumed by the other party to the contract.








I
	improvements and betterments	Additions or changes made by a lessee at his/her own expense which enhance the value of a building he/she occupies. These become part of the real property, may not legally be removed and require special insurance considerations.
	incurred losses	The total value of all individual losses which occur during a given time period. If experience is recorded on a calendar year or transaction year basis, incurred losses will also include the difference between reserve and payment from prior periods. The formula for arriving at incurred losses is 1) paid losses during the period, plus 2) total outstanding losses as of the end of that time, minus 3) total outstanding losses at the beginning of the specified time.
	incurred but not reported losses (IBNR)	Those losses which have occurred but have not yet been reported to the company and recorded as incurred losses. A reserve is established to provide for IBNR, and is normally calculated as a percentage of either written or earned premium. IBNR losses are more common in the casualty lines of business.
	indemnify	To compensate for actual loss sustained.
	inflation guard	An optional coverage in property insurance policies that provides for percentage increases in the insurance covering the building. It allows automatic increases so the insured maintains an adequate insurance-to-value and avoids a co-insurance penalty for underinsurance.
	inherent vice	A loss arising from the nature of the goods in question.
	installment premium	One of several payments made by an insured until the full premium is paid.
	insurable interest	Any interest or relation to property or activities where the occurrence of an event, for which insurance is provided, would cause financial loss to the insured.
	insurance	A contractual relationship which exists when one party (the insurer), for a consideration (the premium), agrees to reimburse another party (the insured) for loss to a specified object (the risk) caused by designated contingencies (hazards or perils).
	insurance company	An organization chartered under state or provincial laws to act as an insurer.
	insurance policy	The written contract of insurance.
	insured	The person or persons covered by an insurance policy.
	insurer	The insurance company.
	Insuring Agreement	That part of a policy or bond which states the insurer's agreement to protect the insured against loss or damage. This is the basis of the insurance contract.
	invitee	In law, a person who is expressly invited onto premises for some purpose involving economic or potential economic benefit to the occupier of the premises. Any invitee, using reasonable care for his own safety, is entitled to expect that the occupier will use reasonable care to prevent injury to him/her or damage to his/her property from any unusual danger which the occupier knows, or ought to know, exists.


J
	joint underwriting association (JUA)	A group of insurance companies who join together to write insurance coverages.
	judgment rating	The best judgment of the rater is used to set the cost of insurance.
	jurisdiction	Areas of authority; can mean the geographic area in which a court has power, or the types of cases it has the power to hear.





K



L
	lessor	The person granting a lease, also known as the landlord.
	liability	1) The condition of being bound in law and justice to do something which may be enforced in the courts. 2) An obligation, usually financial. 3) The probable cost of meeting an obligation.
	licensee	One who is allowed to go onto another's premises for his own interest. The liability of the property owner involves providing ordinary care.
	loss	The result of a claim for indemnity or damages under the terms of a policy.
	loss control service	Ongoing consultative visits by the Loss Control staff to policyholders who recognize the opportunities to benefit from the continual improvement of their controls.
	loss control survey	At the underwriter's request a visit made to the site of an insured or prospective insured to recognize the specific hazards/exposures present, evaluate the adequacy of the controls and recommend improvements where necessary.
	loss expectancy	The underwriter's estimate of loss that will result from the peril for which insurance has been provided. An underwriter must consider 1) the probable maximum single loss and 2) the probable total of all losses from the peril for the entire policy period.
	loss payable	The clause in a policy which provides for payment to a party such as mortgagee or lienholder (in addition to the insured) for any losses to the insured property. Payment is based on the extent of the party's interest in the property at the time of loss.
	loss ratio	A ratio arrived at by dividing the amount of losses by the amount of the premium. Various loss ratios are computed.




M
	manual rates	Refers to the cost of insurance protection as quoted in the rating manual. It may also refer to those rates developed by the application of a recognized rating plan.
	manuscript policy	An individually prepared or "tailor made" insurance policy as opposed to a standard printed insurance policy. Normally, it is a specially prepared contract.
	market value clause	A provision that may be used in a property damage insurance form covering certain risks. It obligates the insurance company to recognize the established market value of destroyed or damaged stock at its actual cash value at the time of the loss. Adjustment must be made accordingly.
	merit rating	Experience rating or schedule rating.
	minimum premium	The lowest amount of premium required to issue certain policies. Anything less than a minimum premium would not cover the company's expense of handling the policy.
	monoline policy	Contains a single coverage part plus the common policy conditions and declarations.
	moral hazard	A hazard resulting from an insured's character or attitude, which may increase loss probability due to his/her dishonesty or indifference concerning the protected property. Two distinctions are morale hazard and moral hazard.
	mortgagee clause	A provision attached to a fire or other direct damage insurance policy covering mortgaged property which states that 1) the loss shall be payable to the mortgagee according to the amount of his/her interest; 2) his/her right of recovery shall not be defeated by any act or neglect of the insured; and 3) the mortgagee has other designated rights and privileges.
	mutual insurance company	A company with no capital stock. Its policyholders own it and choose its trustees.







N
	named insured	A person, firm or corporation (or any of its members) specifically designated by name as the insured(s) in a policy as opposed to others who, although unnamed, are protected under some circumstances.
	named perils	Named-peril policies specify the perils for which insurance is provided (for example: fire, lightning).
	non-admitted carriers	Insurance companies not licensed to do business in a given state.
	non-concurrency	The situation where a number of insurance policies intended to cover the same property, for the the same interests and against the same hazards are not identical.
	non-waiver	An agreement made after a loss or accident between an insuring company and an insured. The agreement provides that the investigatory activities of an insurer in connection with a claim shall not waive or invalidate any of the provisions of the insurance contract, or any of the rights of either of the parties.









O
	obligee	One in whose favor an obligation runs. Most often used in reference to surety bonds.
	obligor	Commonly called the "principal", the obligor is bound by an obligation. Under a bond, both the principal and the surety are obligors.
	occurrence	1) Continued or repeated exposure to conditions which result in injury. 2) A clause frequently found under a liability policy which states that all damages arising from the same general conditions are considered as arising from one occurrence.
	other insurance clause	A clause found in practically every insurance policy stating how a loss will be settled if there is other insurance which also covers the loss.
	outstanding losses	Losses which have been reported to the company and assigned an estimated value (reserve), but have not yet been paid.


P
	package policy	Two or more separate policies in one contract. Must include basic property and liability insurance, but may also include other casualty and property coverages.
	paid losses	Losses which have been adjusted so that the claimant has received payment.
	participating insurance	Insurance which contributes proportionately with other insurance on the same risk.
	payment plans	Various convenient plans for paying premium by installments. Not available on all policies or offered by all companies.
	peril	The cause of a loss covered in a policy (for example: fire, lightning, wind)
	physical hazard	The material, structural or operational features of the risk, apart from the persons owning or managing it.
	pool	Group of insurance companies that have joined together to share certain risks on an agreed-upon basis.
	preferred risk	A class of risk considered particularly desirable.
	premium	The consideration to be paid for an insurance policy or bond. The insurance rate times the number of units of exposure equals the premium.
	principal	In suretyship the party whose honesty, actions or ability to perform are to be guaranteed.
	probable maximum loss	(PML or MPL) It is the underwriter's estimate of the largest loss expected to occur and is important in considering reinsurance needs. Usually expressed as a percentage of the property value or the dollar value.
	producer	The individual who has solicited insurance business from the buyer and is placing it with the company. May be an agent or a broker.
	proof of loss	A policy requirement that the insured submit a written statement of his/her claim setting forth the facts surrounding the loss and his/her right to recover the amount specified. Its purpose is to afford the insurer an adequate opportunity for prompt investigation and determination of its rights and liabilities under the policy contract.
	pro rata cancellation	A system of canceling a policy before it expires and returning to the policyholder an amount of premium proportional to the unexpired days of the policy. cancellation is by the insurance company.
	protected	In fire insurance, "protected" describes a risk located in an area under the protection of a fire department; in burglary insurance it describes a risk equipped with a burglar alarm.
	protection	1) Used interchangeably with the word "coverage" to denote the insurance provided under the terms of a policy. 2) Used to indicate the existence of firefighting facilities in an area known as "protected".
	proximate cause	1) The cause which directly produces the loss. 2) The dominating cause of loss or damage. 3) An unbroken chain of cause and effect between the damage to property or persons.
	pure premium	Arrived at by dividing losses by exposure. No loading has been added for taxes and expenses.


Q



R
	rate	The cost of insurance for a unit of exposure. The rate multiplied by the number of units of exposure produces the premium.
	rebating	When a policy is sold at less than the legal rate, or the insured is allowed a premium refund (or given valuable goods) which defeats payment of full legal premium. It is illegal and unethical.
	recovery	Following a loss, the money received by an insurance company from a reinsurer, subrogation or salvage.
	reinsurance	Coverage purchased by a reinsured (the insurance company) from a reinsurer to protect the former from losses beyond the dollar amount it feels it can safely carry.
	reinsurer	An insurance company which writes reinsurance. A reinsurer may be 1) an insurance company which writes only reinsurance, 2) an insurance company which writes both insurance and reinsurance, or 3) a syndicate or group of companies which share or pool reinsurance offerings.
	renewal	Continuation of an insurance contract beyond the original date of expiration, by endorsement, certificate or new contract.
	renewal certificate	Indicates that a policy has been renewed or extended for another term.
	replacement cost insurance	Insurance providing for replacement of the damaged property without deduction for depreciation. The usual replacement cost form requires that the property actually be replaced before the insured can collect a claim under it.
	representation	An oral or written statement made by an insured to the insurer, containing certain facts or conditions to induce the insurer to assume the risk. A representation is not a warranty. A representation must be both untrue and material to the insurer's consideration to void the insurance policy.
	reservation of rights	When there appears to be a breach of policy conditions by the insured, the insurer may want to investigate the claim with out admitting liability or waiving any of its rights under the policy. The insurer reserves its rights by a unilateral notification to the insured that although it is proceeding to investigate the claim, there can be no inference that the insurer is waiving any of its rights.
	retention	The amount of liability retained by the company on a given risk; the gross line less reinsurance.
	return premium	The portion of the premium returned to a policyholder as a result of cancellation, rate adjustment or a calculation determining that an advance premium was in excess of the actual premium.
	risk	1) Any chance of loss. 2) The insured or the property to which an insurance policy relates.
	robbery	The unlawful taking, either by force or fear of force, of the personal property of another.



S
	salvage	1) The value of property after it has been partially damaged by fire or other perils. 2) (verb) To save endangered property and to enhance the value of damaged property.
	schedule rating	Method of pricing property and liability insurance that uses charges and credits to modify a class rate based on the special characteristics of the risk.
	self-insurance	A system where a firm sets aside an amount of its monies to provide for any losses that would ordinarily by covered under an insurance program.
	servicing carrier	An insurance company contracted by the state to service the state's assigned risk policies.
	short rate cancellation	A procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period. The insured has paid more for each day of coverage than if the policy had remained in force for the full term. Cancellation is by the insured.
	stock insurance company	A company owned and controlled by stockholders and conducted for profit.
	strict liability	Liability without having to prove fault. It is based on the best allocation of risk and costs for defective products.
	subrogation	The legal process by which an insurance company seeks recovery of the amount paid to the policyholder from a third party who has caused a loss.
	substandard	Conditions making a risk less desirable than normal for its class.
	surplus	The excess of assets over liabilities, plus capital. For insurance companies this is determined by law.




T
	theft	The act of stealing.
	third party insurance	Generally this protects the insured against his/her liability arising out of bodily injury to others or damage to their property.
	total loss	Complete destruction of property. Also used to describe the destruction of property to such a degree that the repairs would exceed the value of the property.
	treaty	A term historically applied to reinsurance contracts between insurance companies.
	trespasser	One who goes on another's premises without right or permission, even though it may be by mistake. The owner must refrain from causing the trespasser willful or wanton injury.










U
	underwriter	1) A person who selects risks for insurance companies and determines in what amounts and on what terms the insurance company will accept the risk. 2) An insurer.
	underwriting	Process of examining, accepting or rejecting insurance risks, and classifying those selected. The purpose of underwriting is to spread the risk among a number of insureds in a manner that is equitable for the insured and profitable for the insurer.
	unearned premium reserve	The sum of the premium representing the unexpired portions of the policies which the insurer has on its books as of a certain date. It is usually calculated by a formula of averages of issue dates and length of term. The reserve is equal to the amount of return premium due policyholders if the insurer should terminate the insurance.




V
	valued policy	Provides that a stipulated amount will be paid in the event of a total loss of the property.

W
	waiver	The voluntary surrender of a right or privilege which is known to exist.
	warranty	A statement made by the insured about a fact or condition concerning the subject of the insurance which he/she warrants or guarantees to be true, or will or will not exist. The warranty must be strictly complied with. If the warranty statement is untrue or incorrect, the policy may be voided from the date of the breach of warranty.
	wind (beach) plans	An involuntary pool mechanism set up to provide essential property insurance in coastal water areas for eligible risks not acceptable on the voluntary market.
	write	In the insurance industry, it means "to insure", "to underwrite".



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Z