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Insurance Glossary - Select the letter
| A Back To Top |
| ACCELERATED DEATH BENEFITS |
A life insurance policy option that provides policy proceeds
to insured individuals over their lifetimes, in the event
of a terminal illness. This is in lieu of a traditional policy
that pays beneficiaries after the insured’s death. Such benefits
kick in if the insured becomes terminally ill, needs extreme
medical intervention, or must reside in a nursing home. The
payments made while the insured is living are deducted from
any death benefits paid to beneficiaries.
|
| ACCIDENT AND HEALTH INSURANCE |
Coverage for accidental injury, accidental death, and related
health expenses. Benefits will pay for preventative services,
medical expenses, and catastrophic care, with limits.
|
| ACCOUNT RECEIVABLES |
See Receivables
|
| ACTUAL CASH VALUE |
A form of insurance that pays damages equal to the replacement
value of damaged property minus depreciation. (See Replacement
cost)
|
| ACTUARY |
An insurance professional skilled in the analysis, evaluation,
and management of statistical information. Evaluates insurance
firms’ reserves, determines rates and rating methods, and
determines other business and financial risks.
|
| ADDITIONAL LIVING EXPENSES |
Extra charges covered by homeowners policies over and above
the policyholder's customary living expenses. They kick in
when the insured requires temporary shelter due to damage
by a covered peril that makes the home temporarily uninhabitable.
|
| ADJUSTER |
An individual employed by a property/casualty insurer to
evaluate losses and settle policyholder claims. These adjusters
differ from public adjusters, who negotiate with insurers
on behalf of policyholders, and receive a portion of a claims
settlement. Independent adjusters are independent contractors
who adjust claims for different insurance companies.
|
| ADMITTED ASSETS |
Assets recognized and accepted by state insurance laws in
determining the solvency of insurers and reinsurers. To make
it easier to assess an insurance company’s financial position,
state statutory accounting rules do not permit certain assets
to be included on the balance sheet. Only assets that can
be easily sold in the event of liquidation or borrowed against,
and receivables for which payment can be reasonably anticipated,
are included in admitted assets. (See Assets)
|
| ADMITTED COMPANY |
An insurance company licensed and authorized to do business
in a particular state.
|
| ADVERSE SELECTION |
The tendency of those exposed to a higher risk to seek more
insurance coverage than those at a lower risk. Insurers react
either by charging higher premiums or not insuring at all,
as in the case of floods. (Flood insurance is provided by
the federal government but sold mostly through the private
market.) In the case of natural disasters, such as earthquakes,
adverse selection concentrates risk instead of spreading it.
Insurance works best when risk is shared among large numbers
of policyholders.
|
| AFFINITY SALES |
Selling insurance through groups such as professional and
business associations.
|
| AFTERMARKET PARTS |
See Crash parts; Generic
auto parts
|
| AGENCY COMPANIES |
Companies that market and sell products via independent
agents.
|
| AGENT |
Insurance is sold by two types of agents: independent agents,
who are self-employed, represent several insurance companies
and are paid on commission, and exclusive or captive agents,
who represent only one insurance company and are either salaried
or work on commission. Insurance companies that use exclusive
or captive agents are called direct writers.
|
| ALIEN INSURANCE COMPANY |
An insurance company incorporated under the laws of a foreign
country, as opposed to a foreign insurance company that does
business in states outside its own.
|
| ALLIED LINES |
Property insurance that is usually bought in conjunction
with fire insurance; it includes wind, water damage, and vandalism
coverage.
|
| ALTERNATIVE DISPUTE RESOLUTION / ADR |
Alternative to going to court to settle disputes. Methods
include arbitration, where disputing parties agree to be bound
to the decision of an independent third party, and mediation,
where a third party tries to arrange a settlement between
the two sides.
|
| ALTERNATIVE MARKETS |
Mechanisms used to fund self-insurance. This includes captives,
which are insurers owned by one or more non-insurers to provide
owners with coverage. Risk-retention groups, formed by members
of similar professions or businesses to obtain liability insurance,
are also a form of self-insurance.
|
| ANNUAL STATEMENT |
Summary of an insurer’s or reinsurer’s financial operations
for a particular year, including a balance sheet. It is filed
with the state insurance department of each jurisdiction in
which the company is licensed to conduct business.
|
| ANNUITY |
| A life insurance company contract that pays periodic income
benefits for a specific period of time or over the course
of the annuitant’s lifetime. These payments can be made annually,
quarterly or monthly.
From a life insurer’s viewpoint, an annuity presents the
opposite mortality risk from a life insurance policy. Life
insurance pays a benefit when the policyholder dies. An
annuity pays benefits as long as the annuitant lives. With
both products, the insurer’s profit or loss depends on whether
it made correct assumptions about the policyholder’s life
expectancy and the company’s future investment returns.
Annuity investments are tax-deferred; taxes are not due
until income payments begin. Annuities are often used as
a form of retirement savings and some allow tax-free loans.
They can be bought on a periodic schedule or through a one-time
payment. There are fixed-income annuities, which invest
in a general insurer’s account and offer a fixed benefit
payment, and variable annuities, where individuals can choose
their own investments from a menu of funds offered by the
insurance company including bond and stock funds. The account
value of a variable annuity reflects the performance of
the investments offered by the company and selected by the
annuitant whereas fixed annuity payments are guaranteed,
regardless of the performance of the insurance company’s
investments.
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| ANTITRUST LAWS |
Laws that prohibit companies from working as a group to
set prices, restrict supplies or stop competition in the marketplace.
The insurance industry is subject to state antitrust laws
but has a limited exemption from federal antitrust laws. This
exemption, set out in the McCarran-Ferguson Act, permits insurers
to jointly develop common insurance forms and share loss data
to help them price policies.
|
| APPORTIONMENT |
The dividing of a loss proportionately among two or more
insurers that cover the same loss.
|
| APPRAISAL |
A survey to determine a property’s insurable value, or the
amount of a loss.
|
| ARBITRATION |
Procedure in which an insurance company and the insured
or a vendor agree to settle a claim dispute by accepting a
decision made by a third party.
|
| ARSON |
The deliberate setting of a fire.
|
| ASSET-BACKED SECURITIES |
Bonds that represent pools of loans of similar types, duration
and interest rates. Almost any loan with regular repayments
of principal and interest can be securitized, from auto loans
and equipment leases to credit card receivables and mortgages.
|
| ASSETS |
Property owned, in this case by an insurance company, including
stocks, bonds, and real estate. Insurance accounting is concerned
with solvency and the ability to pay claims. State insurance
laws therefore require a conservative valuation of assets,
prohibiting insurance companies from listing assets on their
balance sheets whose values are uncertain, such as furniture,
fixtures, debit balances, and accounts receivable that are
more than 90 days past due. (See Admitted
assets)
|
| ASSIGNED RISK PLANS |
Facilities through which drivers can obtain auto insurance
if they are unable to buy it in the regular or voluntary market.
These are the most well-known type of residual auto insurance
market, which exist in every state. In an assigned risk plan,
all insurers selling auto insurance in the state are assigned
these drivers to insure, based on the amount of insurance
they sell in the regular market. (See Residual
market)
|
| AUTO INSURANCE POLICY |
| There are basically six different types of coverages.
Some may be required by law. Others are optional. They are:
- Bodily injury liability, for injuries the policyholder
causes to someone else.
- Medical payments or Personal Injury Protection (PIP)
for treatment of injuries to the driver and passengers
of the policyholder’s car.
- Property damage liability, for damage the policyholder
causes to someone else’s property.
- Collision, for damage to the policyholder’s car from
a collision.
- Comprehensive, for damage to the policyholder’s car
not involving a collision with another car (including
damage from fire, explosions, earthquakes, floods, and
riots), and theft.
- Uninsured motorists coverage, for costs resulting from
an accident involving a hit-and-run driver or a driver
who does not have insurance.
|
| AUTO INSURANCE PREMIUM |
| The price an insurance company charges for coverage, based
on the frequency and cost of potential accidents, theft and
other losses. Prices vary from company to company, as with
any product or service.
Premiums also vary depending on the amount and type of
coverage purchased; the make and model of the car; and the
insured’s driving record, years of driving and the number
of miles the car is driven per year. Other factors taken
into account include the driver’s age and gender, where
the car is most likely to be driven and the times of day
– rush hour in an urban neighborhood or leisure-time driving
in rural areas, for example. Some insurance companies may
also use credit history-related information. (See Insurance
score)
|
| AVIATION INSURANCE |
Commercial airlines hold property insurance on airplanes
and liability insurance for negligent acts that result in
injury or property damage to passengers or others. Damage
is covered on the ground and in the air. The policy limits
the geographical area and individual pilots covered.
|
|
| B Back To Top |
| BALANCE SHEET |
Provides a snapshot of a company’s financial condition at
one point in time. It shows assets, including investments
and reinsurance, and liabilities, such as loss reserves to
pay claims in the future, as of a certain date. It also states
a company’s equity, known as policyholder surplus. Changes
in that surplus are one indicator of an insurer’s financial
standing.
|
| BANK HOLDING COMPANY |
A company that owns or controls one or more banks. The Federal
Reserve has responsibility for regulating and supervising
bank holding company activities, such as approving acquisitions
and mergers and inspecting the operations of such companies.
This authority applies even though a bank owned by a holding
company may be under the primary supervision of the Comptroller
of the Currency or the FDIC.
|
| BASIS POINT |
0.01 percent of the yield of a mortgage, bond or note. The
smallest measure used.
|
| BEACH AND WINDSTORM PLANS |
State-sponsored insurance pools that sell property coverage
for the peril of windstorm to people unable to buy it in the
voluntary market because of their high exposure to risk. Seven
states (AL, FL, LA, MS, NC, SC, TX) offer these plans to cover
residential and commercial properties against hurricanes and
other windstorms. Georgia and New York provide this kind of
coverage for windstorm and hail in certain coastal communities
through other property pools. Insurance companies that sell
property insurance in the state are required to participate
in these plans. Insurers share in profits and losses. (See
Fair access to insurance requirements
plans / FAIR plans; Residual
market)
|
| BINDER |
Temporary authorization of coverage issued prior to the
actual insurance policy.
|
| BLANKET COVERAGE |
Insurance coverage for more than one item of property at
a single location, or two or more items of property in different
locations.
|
| BODILY INJURY LIABILITY COVERAGE |
Portion of an auto insurance policy that covers injuries
the policyholder causes to someone else.
|
| BOILER AND MACHINERY INSURANCE |
Often called Equipment Breakdown, or Systems Breakdown insurance.
Commercial insurance that covers damage caused by the malfunction
or breakdown of boilers, and a vast array of other equipment
including air conditioners, heating, electrical, telephone,
and computer systems.
|
| BOND |
A security that obligates the issuer to pay interest at
specified intervals and to repay the principal amount of the
loan at maturity. In insurance, a form of suretyship. Bonds
of various types guarantee a payment or a reimbursement for
financial losses resulting from dishonesty, failure to perform
and other acts.
|
| BOND RATING |
An evaluation of a bond’s financial strength, conducted
by such major ratings agencies as Standard & Poor’s and
Moody’s Investors Service.
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| BOOK OF BUSINESS |
Total amount of insurance on an insurer's books at a particular
point in time.
|
| BROKER |
An intermediary between a customer and an insurance company.
Brokers typically search the market for coverage appropriate
to their clients. They work on commission and usually sell
commercial, not personal, insurance. In life insurance, agents
must be licensed as securities brokers/dealers to sell variable
annuities, which are similar to stock market-based investments.
|
| BURGLARY AND THEFT INSURANCE |
Insurance for the loss of property due to burglary, robbery
or larceny. It is provided in a standard homeowners policy
and in a business multiple peril policy.
|
| BUSINESS INTERRUPTION INSURANCE |
Commercial coverage that reimburses a business owner for
lost profits and continuing fixed expenses during the time
that a business must stay closed while the premises are being
restored because of physical damage from a covered peril,
such as a fire. Business interruption insurance also may cover
financial losses that may occur if civil authorities limit
access to an area after a disaster and their actions prevent
customers from reaching the business premises. Depending on
the policy, civil authorities coverage may start after a waiting
period and last for two or more weeks.
|
| BUSINESSOWNERS POLICY / BOP |
A policy that combines property, liability and business
interruption coverages for small- to medium-sized businesses.
Coverage is generally cheaper than if purchased through separate
insurance policies.
|
|
| C Back To Top |
| CAPACITY |
| The supply of insurance available to meet demand. Capacity
depends on the industry’s financial ability to accept risk.
For an individual insurer, the maximum amount of risk it can
underwrite based on its financial condition. The adequacy
of an insurer’s capital relative to its exposure to loss is
an important measure of solvency.
A property/casualty insurer must maintain a certain level
of capital and policyholder surplus to underwrite risks.
This capital is known as capacity. When the industry is
hit by high losses, such as after the World Trade Center
terrorist attack, capacity is diminished. It can be restored
by increases in net income, favorable investment returns,
reinsuring more risk and or raising additional capital.
When there is excess capacity, usually because of a high
return on investments, premiums tend to decline as insurers
compete for market share. As premiums decline, underwriting
losses are likely to grow, reducing capacity and causing
insurers to raise rates and tighten conditions and limits
in an effort to increase profitability. Policyholder surplus
is sometimes used as a measure of capacity.
|
| CAPITAL |
Shareholder’s equity (for publicly-traded insurance companies)
and retained earnings (for mutual insurance companies). There
is no general measure of capital adequacy for property/casualty
insurers. Capital adequacy is linked to the riskiness of an
insurer’s business. A company underwriting medical device
manufacturers needs a larger cushion of capital than a company
writing Main Street business, for example. (See Risk-based
capital; Surplus; Solvency)
|
| CAPITAL MARKETS |
The markets in which equities and debt are traded. (See
Securitization of insurance risk)
|
| CAPTIVE AGENT |
A person who represents only one insurance company and is
restricted by agreement from submitting business to any other
company, unless it is first rejected by the agent’s captive
company. (See Exclusive agent)
|
| CAPTIVES |
Insurers that are created and wholly-owned by one or more
non-insurers, to provide owners with coverage. A form of self-insurance.
|
| CAR YEAR |
Equal to 365 days of insured coverage for a single vehicle.
It is the standard measurement for automobile insurance.
|
| 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.
|
| CATASTROPHE |
Term used for statistical recording purposes to refer to
a single incident or a series of closely related incidents
causing severe insured property losses totaling more than
a given amount, currently $25 million.
|
| CATASTROPHE BONDS |
Risk-based securities that pay high interest rates and provide
insurance companies with a form of reinsurance to pay losses
from a catastrophe such as those caused by a major hurricane.
They allow insurance risk to be sold to institutional investors
in the form of bonds, thus spreading the risk. (See Securitization
of insurance risk)
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| CATASTROPHE DEDUCTIBLE |
A percentage or dollar amount that a homeowner must pay
before the insurance policy kicks in when a major natural
disaster occurs. These large deductibles limit an insurer’s
potential losses in such cases, allowing it to insure more
property. A property insurer may not be able to buy reinsurance
to protect its own bottom line unless it keeps its potential
maximum losses under a certain level.
|
| CATASTROPHE FACTOR |
Probability of catastrophic loss, based on the total number
of catastrophes in a state over a 40-year period.
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| CATASTROPHE MODEL |
Using computers, a method to mesh long-term disaster information
with current demographic, building and other data to determine
the potential cost of natural disasters and other catastrophic
losses for a given geographic area.
|
| CATASTROPHE REINSURANCE |
| Reinsurance (insurance for insurers) for catastrophic losses.
The insurance industry is able to absorb the multibillion
dollar losses caused by natural and man-made disasters such
as hurricanes, earthquakes and terrorist attacks because losses
are spread among thousands of companies including catastrophe
reinsurers who operate on a global basis. Insurers’ ability
and willingness to sell insurance fluctuates with the availability
and cost of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and the
World Trade Center terrorist attack, the availability of
catastrophe reinsurance becomes extremely limited. Claims
deplete reinsurers’ capital and, as a result, companies
are more selective in the type and amount of risks they
assume. In addition, with available supply limited, prices
for reinsurance rise. This contributes to an overall increase
in prices for property insurance.
|
| CELL PHONE INSURANCE |
Separate insurance provided to cover cell phones for damage
or theft. Policies are often sold with the cell phones themselves.
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| CHARTERED FINANCIAL CONSULTANT / ChFC |
A professional designation given by The American College
to financial services professionals who complete courses in
financial planning.
|
| CHARTERED LIFE UNDERWRITER / CLU |
A professional designation by The American College for those
who pass business examinations on insurance, investments,
and taxation, and have life insurance planning experience.
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| CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU |
A professional designation given by the American Institute
for Property and Liability Underwriters. National examinations
and three years of work experience are required.
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| CLAIMS-MADE POLICY |
A form of insurance that pays claims presented to the insurer
during the term of the policy or within a specific term after
its expiration. It limits liability insurers’ exposure to
unknown future liabilities. (See Occurrence
policy)
|
| COBRA |
Short for Consolidated Omnibus Budget Reconciliation Act.
A federal law under which group health plans sponsored by
employers with 20 or more employees must offer continuation
of coverage to employees who leave their jobs and their dependents.
The employee must pay the entire premium. Coverage can be
extended up to 18 months. Surviving dependents can receive
longer coverage.
|
| 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 percent health insurance coinsurance
clause, the policyholder pays for the deductible plus 20 percent
of his covered losses. After paying 80 percent of losses up
to a specified ceiling, the insurer starts paying 100 percent
of losses.
|
| COLLATERAL |
Property that is offered to secure a loan or other credit
and that becomes subject to seizure on default. (Also called
security.)
|
| COLLATERAL SOURCE RULE |
Bars the introduction of information that indicates a person
has been compensated or reimbursed by a source other than
the defendant in civil actions related to negligence or other
liability.
|
| COLLISION COVERAGE |
Portion of an auto insurance policy that covers the damage
to the policyholder’s car from a collision.
|
| COMBINED RATIO |
Percentage of each premium dollar a property/casualty insurer
spends on claims and expenses. A decrease in the combined
ratio means financial results are improving; an increase means
they are deteriorating. When the ratio is over 100, the insurer
has an underwriting loss.
|
| COMMERCIAL GENERAL LIABILITY INSURANCE / CGL |
A broad commercial policy that covers all liability exposures
of a business that are not specifically excluded. Coverage
includes product liability, completed operations, premises
and operations, and independent contractors.
|
| COMMERCIAL LINES |
Products designed for and bought by businesses. Among the
major coverages are boiler and machinery, business interruption,
commercial auto, comprehensive general liability, directors
and officers liability, fire and allied lines, inland marine,
medical malpractice liability, product liability, professional
liability, surety and fidelity, and workers compensation.
Most of these commercial coverages can be purchased separately
except business interruption which must be added to a fire
insurance (property) policy. (See Commercial
multiple peril policy)
|
| COMMERCIAL MULTIPLE PERIL POLICY |
Package policy that includes property, boiler and machinery,
crime, and general liability coverages.
|
| COMMERCIAL PAPER |
Short-term, unsecured, and usually discounted promissory
note issued by commercial firms and financial companies often
to finance current business. Commercial paper, which is rated
by debt rating agencies, is sold through dealers or directly
placed with an investor.
|
| 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.
|
| COMMUNITY RATING LAWS |
Enacted in several states on health insurance policies.
Insurers are required to accept all applicants for coverage
and charge all applicants the same premium for the same coverage
regardless of age or health. Premiums are based on the rate
determined by the geographic region’s health and demographic
profile.
|
| COMPETITIVE REPLACEMENT PARTS |
See Crash parts; Generic
auto parts
|
| COMPETITIVE STATE FUND |
A facility established by a state to sell workers compensation
in competition with private insurers.
|
| COMPLAINT RATIO |
A measure used by some state insurance departments to track
consumer complaints against insurance companies. Generally,
it is written as the number of complaints upheld against an
insurance company, as a percentage of premiums written. In
some states, complaints from medical providers over the promptness
of payments may also be included.
|
| COMPLETED OPERATIONS COVERAGE |
Pays for bodily injury or property damage caused by a completed
project or job. Protects a business that sells a service against
liability claims.
|
| COMPREHENSIVE COVERAGE |
Portion of an auto insurance policy that covers damage to
the policyholder’s car not involving a collision with another
car (including damage from fire, explosions, earthquakes,
floods, and riots), and theft.
|
| COMPULSORY AUTO INSURANCE |
The minimum amount of auto liability insurance that meets
a state law. Financial responsibility laws in every state
require all automobile drivers to show proof, after an accident,
of their ability to pay damages up to the state minimum. In
compulsory liability states this proof, which is usually in
the form of an insurance policy, is required before you can
legally drive a car.
|
| CONTINGENT LIABILITY |
Liability of individuals, corporations, or partnerships
for accidents caused by people other than employees for whose
acts or omissions the corporations or partnerships are responsible.
|
| COVERAGE |
Synonym for insurance.
|
| CRASH PARTS |
Sheet metal parts that are most often damaged in a car crash.
(See Generic auto parts)
|
| CREDIT |
The promise to pay in the future in order to buy or borrow
in the present. The right to defer payment of debt.
|
| CREDIT DERIVATIVES |
A contract that enables a user, such as a bank, to better
manage its credit risk. A way of transferring credit risk
to another party.
|
| CREDIT ENHANCEMENT |
A technique to lower the interest payments on a bond by
raising the issue’s credit rating, often through insurance
in the form of a financial guarantee or with standby letters
of credit issued by a bank.
|
| CREDIT INSURANCE |
Commercial coverage against losses resulting from the failure
of business debtors to pay their obligation to the insured,
usually due to insolvency. The coverage is geared to manufacturers,
wholesalers, and service providers who may be dependent on
a few accounts and therefore could lose significant income
in the event of an insolvency.
|
| CREDIT LIFE INSURANCE |
Life insurance coverage on a borrower designed to repay
the balance of a loan in the event the borrower dies before
the loan is repaid. It may also include disablement and can
be offered as an option in connection with credit cards and
auto loans.
|
| CREDIT RATING |
See Bond rating
|
| CREDIT SCORE |
The number produced by an analysis of an individual’s credit
history. The use of credit information affects all consumers
in many ways, from getting a job, finding a place to live,
securing a loan, getting a telephone, and buying insurance.
Credit history is routinely reviewed by insurers before issuing
a commercial policy because businesses in poor financial condition
tend to cut back on safety which can lead to more accidents
and more claims. Auto and home insurers may use information
in a credit history to produce an insurance score. Insurance
scores may be used in underwriting and rating insurance policies.
(See Insurance score.)
|
| CROP-HAIL INSURANCE |
Protection against damage to growing crops from hail, fire,
or lightning provided by the private market. By contrast,
multiple peril crop insurance covers a wider range of yield-reducing
conditions, such as drought and insect infestation, and is
subsidized by the federal government.
|
|
| D Back To Top |
| DECLARATION |
Part of a property or liability insurance policy that states
the name and address of policyholder, property insured, its
location and description, the policy period, premiums, and
supplemental information. Referred to as the “dec page.”
|
| DEDUCTIBLE |
The amount of loss paid by the policyholder. Either a specified
dollar amount, a percentage of the claim amount, or a specified
amount of time that must elapse before benefits are paid.
The bigger the deductible, the lower the premium charged for
the same coverage.
|
| DEFINED BENEFIT PLAN |
A retirement plan under which pension benefits are fixed
in advance by a formula based generally on years of service
to the company multiplied by a specific percentage of wages,
usually average earnings over that period or highest average
earnings over the final years with the company.
|
| DEFINED CONTRIBUTION PLAN |
An employee benefit plan under which the employer sets up
benefit accounts and contributions are made to it by the employer
and by the employee. The employer usually matches the employee's
contribution up to a stated limit.
|
| DEMAND DEPOSIT |
Customer assets that are held in a checking account. Funds
can be readily withdrawn by check, “on demand.”
|
| DEMUTUALIZATION |
The conversion of insurance companies from mutual companies
owned by their policyholders into publicly-traded stock companies.
|
| DEPOSITORY INSTITUTION |
Financial institution that obtains its funds mainly through
deposits from the public. Includes commercial banks, savings
and loan associations, savings banks, and credit unions.
|
| DEREGULATION |
In insurance, reducing regulatory control over insurance
rates and forms. Commercial insurance for businesses of a
certain size has been deregulated in many states.
|
| DERIVATIVES |
Contracts that derive their value from an underlying financial
asset, such as publicly-traded securities and foreign currencies.
Often used as a hedge against changes in value.
|
| DIMINUTION OF VALUE |
The idea that a vehicle loses value after it has been damaged
in an accident and repaired.
|
| DIRECT PREMIUMS |
Property/casualty premiums collected by the insurer from
policyholders, before reinsurance premiums are deducted. Insurers
share some direct premiums and the risk involved with their
reinsurers.
|
| DIRECT SALES/ DIRECT RESPONSE |
Method of selling insurance directly to the insured through
an insurance company’s own employees, through the mail, or
via the Internet. This is in lieu of using captive or exclusive
agents.
|
| DIRECT WRITERS |
Insurance companies that sell directly to the public using
exclusive agents or their own employees, through the mail,
or via Internet. Large insurers, whether predominately direct
writers or agency companies, are increasingly using many different
channels to sell insurance. In reinsurance, denotes reinsurers
that deal directly with the insurance companies they reinsure
without using a broker.
|
| DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O |
Covers directors and officers of a company for negligent
acts or omissions, and for misleading statements that result
in suits against the company, often by shareholders. Directors
and officers insurance policies usually contain two coverages:
personal coverage for individual directors and officers who
are not indemnified by the corporation for their legal expenses
or judgments against them – some corporations are not required
by their corporate or state charters to provide indemnification;
and corporate reimbursement coverage for indemnifying directors
and officers. Entity coverage for claims made specifically
against the company may also be available.
|
| DIVIDENDS |
Money returned to policyholders from an insurance company’s
earnings. Considered a partial premium refund rather than
a taxable distribution, reflecting the difference between
the premium charged and actual losses. Many life insurance
policies and some property/casualty policies pay dividends
to their owners. Life insurance policies that pay dividends
are called participating policies.
|
| DOMESTIC INSURANCE COMPANY |
Term used by a state to refer to any company incorporated
there.
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| E Back To Top |
| EARLY WARNING SYSTEM |
A system of measuring insurers’ financial stability set
up by insurance industry regulators. An example is the Insurance
Regulatory Information System (IRIS), which uses financial
ratios to identify insurers in need of regulatory attention.
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| EARNED PREMIUM |
The portion of premium that applies to the expired part
of the policy period. Insurance premiums are payable in advance
but the insurance company does not fully earn them until the
policy period expires.
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| EARTHQUAKE INSURANCE |
Covers a building and its contents, but includes a large
percentage deductible on each. A special policy or endorsement
exists because earthquakes are not covered by standard homeowners
or most business policies.
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| ECONOMIC LOSS |
Total financial loss resulting from the death or disability
of a wage earner, or from the destruction of property. Includes
the loss of earnings, medical expenses, funeral expenses,
the cost of restoring or replacing property, and legal expenses.
It does not include noneconomic losses, such as pain caused
by an injury.
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| ELECTRONIC COMMERCE / E-COMMERCE |
The sale of products such as insurance over the Internet.
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| ELIMINATION PERIOD |
A kind of deductible or waiting period usually found in
disability policies. It is counted in days from the beginning
of the illness or injury.
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| EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA |
Federal legislation that protects employees by establishing
minimum standards for private pension and welfare plans.
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| EMPLOYMENT PRACTICES LIABILITY COVERAGE |
Liability insurance for employers that covers wrongful termination,
discrimination, or sexual harassment toward the insured’s
employees or former employees.
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| ENDORSEMENT |
A written form attached to an insurance policy that alters
the policy’s coverage, terms, or conditions. Sometimes called
a rider.
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| ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE |
A form of insurance designed to cover losses and liabilities
arising from damage to property caused by pollution.
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| EQUITY |
In investments, the ownership interest of shareholders.
In a corporation, stocks as opposed to bonds.
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| ERRORS AND OMISSIONS COVERAGE / E&O |
A professional liability policy covering the policyholder
for negligent acts and omissions that may harm his or her
clients.
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| ESCROW ACCOUNT |
Funds that a lender collects to pay monthly premiums in
mortgage and homeowners insurance, and sometimes to pay property
taxes.
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| EXCESS AND SURPLUS LINES |
Property/casualty coverage that isn’t available from insurers
licensed by the state (called admitted insurers) and must
be purchased from a non-admitted carrier.
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| EXCLUSION |
A provision in an insurance policy that eliminates coverage
for certain risks, people, property classes, or locations.
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| EXCLUSIVE AGENT |
A captive agent, or a person who represents only one insurance
company and is restricted by agreement from submitting business
to any other company unless it is first rejected by the agent’s
company. (See Captive agent)
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| EXPENSE RATIO |
Percentage of each premium dollar that goes to insurers’
expenses including overhead, marketing, and commissions.
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| EXPERIENCE |
Record of losses.
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| EXPOSURE |
Possibility of loss.
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| EXTENDED COVERAGE |
An endorsement added to an insurance policy, or clause within
a policy, that provides additional coverage for risks other
than those in a basic policy.
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| EXTENDED REPLACEMENT COST COVERAGE |
Pays a certain amount above the policy limit to replace
a damaged home, generally 120 percent or 125 percent. Similar
to a guaranteed replacement cost policy, which has no percentage
limits. Most homeowner policy limits track inflation in building
costs. Guaranteed and extended replacement cost policies are
designed to protect the policyholder after a major disaster
when the high demand for building contractors and materials
can push up the normal cost of reconstruction. (See Guaranteed
replacement cost coverage)
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| FACULTATIVE REINSURANCE |
A reinsurance policy that provides an insurer with coverage
for specific individual risks that are unusual or so large
that they aren’t covered in the insurance company's reinsurance
treaties. This can include policies for jumbo jets or oil
rigs. Reinsurers have no obligation to take on facultative
reinsurance, but can assess each risk individually. By contrast,
under treaty reinsurance, the reinsurer agrees to assume a
certain percentage of entire classes of business, such as
various kinds of auto, up to preset limits.
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| FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS |
Insurance pools that sell property insurance to people who
can’t buy it in the voluntary market because of high risk
over which they may have no control. FAIR Plans, which exist
in 28 states and the District of Columbia, insure fire, vandalism,
riot, and windstorm losses, and some sell homeowners insurance
which includes liability. Plans vary by state, but all require
property insurers licensed in a state to participate in the
pool and share in the profits and losses. (See Residual
market)
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| FARMOWNERS-RANCHOWNERS INSURANCE |
Package policy that protects the policyholder against named
perils and liabilities and usually covers homes and their
contents, along with barns, stables, and other structures.
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| FEDERAL FUNDS |
Reserve balances that depository institutions lend each
other, usually on an overnight basis. In addition, Federal
funds include certain other kinds of borrowings by depository
institutions from each other and from federal agencies.
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| FEDERAL INSURANCE ADMINISTRATION / FIA |
Federal agency in charge of administering the National Flood
Insurance Program. It does not regulate the insurance industry.
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| FEDERAL RESERVE BOARD |
Seven-member board that supervises the banking system by
issuing regulations controlling bank holding companies and
federal laws over the banking industry. It also controls and
oversees the U.S. monetary system and credit supply.
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| FIDELITY BOND |
A form of protection that covers policyholders for losses
that they incur as a result of fraudulent acts by specified
individuals. It usually insures a business for losses caused
by the dishonest acts of its employees.
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| FIDUCIARY BOND |
A type of surety bond, sometimes called a probate bond,
which is required of certain fiduciaries, such as executors
and trustees, that guarantees the performance of their responsibilities.
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| FIDUCIARY LIABILITY |
Legal responsibility of a fiduciary to safeguard assets
of beneficiaries. A fiduciary, for example a pension fund
manager, is required to manage investments held in trust in
the best interest of beneficiaries. Fiduciary liability insurance
covers breaches of fiduciary duty such as misstatements or
misleading statements, errors and omissions.
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| FILE-AND-USE STATES |
States where insurers must file rate changes with their
regulators, but don’t have to wait for approval to put them
into effect.
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| FINANCIAL GUARANTEE INSURANCE |
Covers losses from specific financial transactions and guarantees
that investors in debt instruments, such as municipal bonds,
receive timely payment of principal and interest if there
is a default. Raises the credit rating of debt to which the
guarantee is attached. Investment bankers who sell asset-backed
securities, securities backed by loan portfolios, use this
insurance to enhance marketability. (See Municipal
bond insurance)
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| FINANCIAL RESPONSIBILITY LAW |
A state law requiring that all automobile drivers show proof
that they can pay damages up to a minimum amount if involved
in an auto accident. Varies from state to state but can be
met by carrying a minimum amount of auto liability insurance.
(See Compulsory auto insurance)
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| FINITE RISK REINSURANCE |
Contract under which the ultimate liability of the reinsurer
is capped and on which anticipated investment income is expressly
acknowledged as an underwriting component. Also known as Financial
Reinsurance because this type of coverage is often bought
to improve the balance sheet effects of statutory accounting
principles.
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| FIRE INSURANCE |
Coverage protecting property against losses caused by a
fire or lightning that is usually included in homeowners or
commercial multiple peril policies.
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| FIRST-PARTY COVERAGE |
Coverage for the policyholder’s own property or person.
In no-fault auto insurance it pays for the cost of injuries.
In no-fault states with the broadest coverage, the personal
injury protection (PIP) part of the policy pays for medical
care, lost income, funeral expenses and, where the injured
person is not able to provide services such as child care,
for substitute services. (See No-fault;
Third-party coverage)
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| FIXED ANNUITY |
An annuity that pays the annuitant a guaranteed, fixed return
every month for a fixed premium. The guarantee is based on
the expected return of the underlying investments of the insurance
company. (See Annuity)
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| FLOATER |
Attached to a homeowners policy, a floater insures movable
property, covering losses wherever they may occur. Among the
items often insured with a floater are expensive jewelry,
musical instruments, and furs. It provides broader coverage
than a regular homeowners policy for these items.
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| FLOOD INSURANCE |
Coverage for flood damage is available from the federal
government under the National Flood Insurance Program but
is sold by licensed insurance agents. Flood coverage is excluded
under homeowners policies and many commercial property policies.
However, flood damage is covered under the comprehensive portion
of an auto insurance policy. (See Adverse
selection)
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| FORCED PLACE INSURANCE |
Insurance purchased by a bank or creditor on an uninsured
debtor’s behalf so if the property is damaged, funding is
available to repair it.
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| FOREIGN INSURANCE COMPANY |
Name given to an insurance company based in one state by
the other states in which it does business.
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| FRAUD |
Intentional lying or concealment by policyholders to obtain
payment of an insurance claim that would otherwise not be
paid, or lying or misrepresentation by the insurance company
managers, employees, agents, and brokers for financial gain.
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| FREQUENCY |
Number of times a loss occurs. One of the criteria used
in calculating premium rates.
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| FRONTING |
A procedure in which a primary insurer acts as the insurer
of record by issuing a policy, but then passes the entire
risk to a reinsurer in exchange for a commission. Often, the
fronting insurer is licensed to do business in a state or
country where the risk is located, but the reinsurer is not.
The reinsurer in this scenario is often a captive or an independent
insurance company that cannot sell insurance directly in a
particular country.
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| FUTURES |
Agreement to buy a security for a set price at a certain
date. Futures contracts usually involve commodities, indexes
or financial futures.
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| G Back To Top |
| GAP INSURANCE |
An automobile insurance option, available in some states,
that covers the difference between a car’s actual cash value
when it is stolen or wrecked and the amount the consumer owes
the leasing or finance company. Mainly used for leased cars.
(See Actual cash value)
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| GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP |
Generally accepted accounting principles (GAAP) accounting
is used in financial statements that publicly-held companies
prepare for the Securities and Exchange Commission. (See Statutory
accounting principles / SAP)
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| GENERIC AUTO PARTS |
Auto crash parts produced by firms that are not associated
with car manufacturers. Insurers consider these parts, when
certified, at least as good as those that come from the original
equipment manufacturer (OEM). They are often cheaper than
the identical part produced by the OEM. (See Crash
parts; Aftermarket parts;
Competitive replacement parts;
Original equipment manufacturer
parts / OEM)
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| GLASS INSURANCE |
Coverage for glass breakage caused by all risks; fire and
war are sometimes excluded. Insurance can be bought for windows,
structural glass, leaded glass, and mirrors. Available with
or without a deductible.
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| GRADUATED DRIVER LICENSES |
Licenses for younger drivers that allow them to improve
their skills. Regulations vary by state, but often restrict
night time driving. Young drivers receive a learner’s permit,
followed by a provisional license, before they can receive
a standard drivers license.
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| GRAMM-LEACH-BLILEY ACT |
Financial services legislation, passed by Congress in 1999,
that removed Depression-era prohibitions against the combination
of commercial banking and investment-banking activities. It
allows insurance companies, banks, and securities firms to
engage in each others’ activities and own one another.
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| GROUP INSURANCE |
A single policy covering a group of individuals, usually
employees of the same company or members of the same association
and their dependents. Coverage occurs under a master policy
issued to the employer or association.
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| GUARANTEED INCOME CONTRACT / GIC |
Often an option in an employer-sponsored retirement savings
plan. Contract between an insurance company and the plan that
guarantees a stated rate of return on invested capital over
the life of the contract.
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| GUARANTEED REPLACEMENT COST COVERAGE |
Homeowners policy that pays the full cost of replacing or
repairing a damaged or destroyed home, even if it is above
the policy limit. (See Extended
replacement cost coverage)
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| GUARANTY FUND |
The mechanism by which solvent insurers ensure that some
of the policyholder and third party claims against insurance
companies that fail are paid. Such funds are required in all
50 states, the District of Columbia and Puerto Rico, but the
type and amount of claim covered by the fund varies from state
to state. Some states pay policyholders’ unearned premiums
– the portion of the premium for which no coverage was provided
because the company was insolvent. Some have deductibles.
Most states have no limits on workers compensation payments.
Guaranty funds are supported by assessments on insurers doing
business in the state.
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| GUN LIABILITY |
A new legal concept that holds gun manufacturers liable
for the cost of injuries caused by guns. Several cities have
filed lawsuits based on this concept.
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| HACKER INSURANCE |
A coverage that protects businesses engaged in electronic
commerce from losses caused by hackers.
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| HARD MARKET |
A seller’s market in which insurance is expensive and in
short supply. (SeeProperty/casualty
insurance cycle)
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| HOMEOWNERS INSURANCE POLICY |
| The typical homeowners insurance policy covers the house,
the garage and other structures on the property, as well as
personal possessions inside the house such as furniture, appliances
and clothing, against a wide variety of perils including windstorms,
fire and theft. The extent of the perils covered depends on
the type of policy. An all-risk policy offers the broadest
coverage. This covers all perils except those specifically
excluded in the policy.
Homeowners insurance also covers additional living expenses.
Known as Loss of Use, this provision in the policy reimburses
the policyholder for the extra cost of living elsewhere
while the house is being restored after a disaster. The
liability portion of the policy covers the homeowner for
accidental injuries caused to third parties and/or their
property, such as a guest slipping and falling down improperly
maintained stairs. Coverage for flood and earthquake damage
is excluded and must be purchased separately. (See Flood
insurance; Earthquake insurance)
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| HOUSE YEAR |
Equal to 365 days of insured coverage for a single dwelling.
It is the standard measurement for homeowners insurance.
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| HURRICANE DEDUCTIBLE |
A percentage or dollar amount added to a homeowner’s insurance
policy to limit an insurer’s exposure to loss from a hurricane.
Higher deductibles are instituted in higher risk areas, such
as coastal regions. Specific details, such as the intensity
of the storm for the deductible to be triggered and the extent
of the high risk area, vary from insurer to insurer and state
to state.
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| I Back To Top |
| IDENTITY THEFT INSURANCE |
Coverage for expenses incurred as the result of an identity
theft. Can include costs for notarizing fraud affidavits and
certified mail, lost income from time taken off from work
to meet with law-enforcement personnel or credit agencies,
fees for reapplying for loans and attorney's fees to defend
against lawsuits and remove criminal or civil judgements.
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| INCURRED BUT NOT REPORTED LOSSES / IBNR |
Losses that are not filed with the insurer or reinsurer
until years after the policy is sold. Some liability claims
may be filed long after the event that caused the injury to
occur. Asbestos-related diseases, for example, do not show
up until decades after the exposure. IBNR also refers to estimates
made about claims already reported but where the full extent
of the injury is not yet known, such as a workers compensation
claim where the degree to which work-related injuries prevents
a worker from earning what he or she earned before the injury
unfolds over time. Insurance companies regularly adjust reserves
for such losses as new information becomes available.
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| INCURRED LOSSES |
Losses occurring within a fixed period, whether or not adjusted
or paid during the same period.
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| INDEMNIFY |
Provide financial compensation for losses.
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| INDEPENDENT AGENT |
Agent who is self-employed, is paid on commission, and represents
several insurance companies. (See Captive
agent)
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| INDIVIDUAL RETIREMENT ACCOUNT/IRA |
A tax-deductible savings plan for those who are self-employed,
or those whose earnings are below a certain level or whose
employers do not offer retirement plans. Others may make limited
contributions on a tax-deferred basis. The Roth IRA, a special
kind of retirement account created in 1997, may offer greater
tax benefits to certain individuals.
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| INFLATION GUARD CLAUSE |
A provision added to a homeowners insurance policy that
automatically adjusts the coverage limit on the dwelling each
time the policy is renewed to reflect current construction
costs.
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| INLAND MARINE INSURANCE |
This broad type of coverage was developed for shipments
that do not involve ocean transport. Covers articles in transit
by all forms of land and air transportation as well as bridges,
tunnels and other means of transportation and communication.
Floaters that cover expensive personal items such as fine
art and jewelry are included in this category. (See Floater)
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| INSOLVENCY |
Insurer’s inability to pay debts. Insurance insolvency standards
and the regulatory actions taken vary from state to state.
When regulators deem an insurance company is in danger of
becoming insolvent, they can take one of three actions: place
a company in conservatorship or rehabilitation if the company
can be saved or liquidation if salvage is deemed impossible.
The difference between the first two options is one of degree
– regulators guide companies in conservatorship but direct
those in rehabilitation. Typically the first sign of problems
is inability to pass the financial tests regulators administer
as a routine procedure. (See Liquidation;
Risk-based capital)
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| INSTITUTIONAL INVESTOR |
An organization such as a bank or insurance company that
buys and sells large quantities of securities.
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| INSURABLE RISK |
Risks for which it is relatively easy to get insurance and
that meet certain criteria. These include being definable,
accidental in nature, and part of a group of similar risks
large enough to make losses predictable. The insurance company
also must be able to come up with a reasonable price for the
insurance.
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| INSURANCE |
A system to make large financial losses more affordable
by pooling the risks of many individuals and business entities
and transferring them to an insurance company or other large
group in return for a premium.
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| INSURANCE POOL |
A group of insurance companies that pool assets, enabling
them to provide an amount of insurance substantially more
than can be provided by individual companies to ensure large
risks such as nuclear power stations. Pools may be formed
voluntarily or mandated by the state to cover risks that can’t
obtain coverage in the voluntary market such as coastal properties
subject to hurricanes. (See Beach
and windstorm plans; Fair access
to insurance requirements plans / FAIR plans; Joint
underwriting association / JUA)
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| INSURANCE REGULATORY INFORMATION SYSTEM / IRIS |
Uses financial ratios to measure insurers’ financial strength.
Developed by the National Association of Insurance Commissioners.
Each individual state insurance department chooses how to
use IRIS.
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| INSURANCE SCORE |
| Insurance scores are confidential rankings based on credit
information. This includes whether the consumer has made timely
payments on loans, the number of open credit card accounts
and whether a bankruptcy filing has been made. An insurance
score is a measure of how well consumers manage their financial
affairs, not of their financial assets. It does not include
information about income or race.
Studies have shown that people who manage their money well
tend also to manage their most important asset, their home,
well. And people who manage their money responsibly also
tend to handle driving a car responsibly. Some insurance
companies use insurance scores as an insurance underwriting
and rating tool.
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| INSURANCE-TO-VALUE |
Insurance written in an amount approximating the value of
the insured property.
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| INTEGRATED BENEFITS |
Coverage where the distinction between job-related and non-occupational
illnesses or injuries is eliminated and workers compensation
and general health coverage are combined. Legal obstacles
exist, however, because the two coverages are administered
separately. Previously called twenty-four hour coverage.
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| INTERMEDIATION |
The process of bringing savers, investors and borrowers
together so that savers and investors can obtain a return
on their money and borrowers can use the money to finance
their purchases or projects through loans.
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| INTERNET INSURER |
An insurer that sells exclusively via the Internet.
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| INTERNET LIABILITY INSURANCE |
Coverage designed to protect businesses from liabilities
that arise from the conducting of business over the Internet,
including copyright infringement, defamation, and violation
of privacy.
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| INVESTMENT INCOME |
Income generated by the investment of assets. Insurers have
two sources of income, underwriting (premiums less claims
and expenses) and investment income. The latter can offset
underwriting operations, which are frequently unprofitable.
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| J Back To Top |
| JOINT UNDERWRITING ASSOCIATION / JUA |
Insurers which join together to provide coverage for a particular
type of risk or size of exposure, when there are difficulties
in obtaining coverage in the regular market, and which share
in the profits and losses associated with the program. JUAs
may be set up to provide auto and homeowners insurance and
various commercial coverages, such as medical malpractice.
(See Assigned risk plans; Residual
market)
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| JUNK BONDS |
Corporate bonds with credit ratings of BB or less. They
pay a higher yield than investment grade bonds because issuers
have a higher perceived risk of default. Such bonds involve
market risk that could force investors, including insurers,
to sell the bonds when their value is low. Most states place
limits on insurers’ investments in these bonds. In general,
because property/casualty insurers can be called upon to provide
huge sums of money immediately after a disaster, their investments
must be liquid. Less than 2 percent are in real estate and
a similarly small percentage are in junk bonds.
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| K Back To Top |
| KEY PERSON INSURANCE |
Insurance on the life or health of a key individual whose
services are essential to the continuing success of a business
and whose death or disability could cause the firm a substantial
financial loss.
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| KIDNAP/RANSOM INSURANCE |
Coverage up to specific limits for the cost of ransom or
extortion payments and related expenses. Often bought by international
corporations to cover employees. Most policies have large
deductibles and may exclude certain geographic areas. Some
policies require that the policyholder not reveal the coverage’s
existence.
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| L Back To Top |
| LADDERING |
A technique that consists of staggering the maturity dates
and the mix of different types of bonds.
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| LAW OF LARGE NUMBERS |
The theory of probability on which the business of insurance
is based. Simply put, this mathematical premise says that
the larger the group of units insured, such as sport-utility
vehicles, the more accurate the predictions of loss will be.
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| LIABILITY INSURANCE |
Insurance for what the policyholder is legally obligated
to pay because of bodily injury or property damage caused
to another person.
|
| LIFE INSURANCE |
See Ordinary life insurance;
Term insurance; Variable
life insurance; Whole life insurance
|
| LIMITS |
Maximum amount of insurance that can be paid for a covered
loss.
|
| LINE |
Type or kind of insurance, such as personal lines.
|
| LIQUIDATION |
Enables the state insurance department as liquidator or
its appointed deputy to wind up the insurance company’s affairs
by selling its assets and settling claims upon those assets.
After receiving the liquidation order, the liquidator notifies
insurance departments in other states and state guaranty funds
of the liquidation proceedings. Such insurance company liquidations
are not subject to the Federal Bankruptcy Code but to each
state’s liquidation statutes.
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| LIQUIDITY |
The ability and speed with which a security can be converted
into cash.
|
| LLOYD'S OF LONDON |
A marketplace where underwriting syndicates, or mini-insurers,
gather to sell insurance policies and reinsurance. Each syndicate
is managed by an underwriter who decides whether or not to
accept the risk. The Lloyd’s market is a major player in the
international reinsurance market as well as a primary market
for marine insurance and large risks. Originally, Lloyd’s
was a London coffee house in the 1600s patronized by shipowners
who insured each other’s hulls and cargoes. As Lloyd’s developed,
wealthy individuals, called “Names,” placed their personal
assets behind insurance risks as a business venture. Increasingly
since the 1990s, most of the capital comes from corporations.
|
| LLOYDS |
Corporation formed to market services of a group of underwriters.
Does not issue insurance policies or provide insurance protection.
Insurance is written by individual underwriters, with each
assuming a part of every risk. Has no connection to Lloyd’s
of London, and is found primarily in Texas.
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| LONG-TERM CARE INSURANCE |
Coverage that, under specified conditions, provides skilled
nursing, intermediate care, or custodial care for a patient
(generally over age 65) in a nursing facility or his or her
residence following an injury.
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| LOSS |
A reduction in the quality or value of a property, or a
legal liability.
|
| LOSS ADJUSTMENT EXPENSES |
The sum insurers pay for investigating and settling insurance
claims, including the cost of defending a lawsuit in court.
|
| LOSS COSTS |
The portion of an insurance rate used to cover claims and
the costs of adjusting claims. Insurance companies typically
determine their rates by estimating their future loss costs
and adding a provision for expenses, profit, and contingencies.
|
| LOSS OF USE |
A provision in homeowners and renters insurance policies
that reimburses policyholders for any extra living expenses
due to having to live elsewhere while their home is being
restored following a disaster.
|
| LOSS RATIO |
Percentage of each premium dollar an insurer spends on claims.
|
| LOSS RESERVES |
The company’s best estimate of what it will pay for claims,
which is periodically readjusted. They represent a liability
on the insurer’s balance sheet.
|
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| M Back To Top |
| MALPRACTICE INSURANCE |
Professional liability coverage for physicians, lawyers,
and other specialists against suits alleging negligence or
errors and omissions that have harmed clients.
|
| MANAGED CARE |
Arrangement between an employer or insurer and selected
providers to provide comprehensive health care at a discount
to members of the insured group and coordinate the financing
and delivery of health care. Managed care uses medical protocols
and procedures agreed on by the medical profession to be cost
effective, also known as medical practice guidelines.
|
| MANUAL |
A book published by an insurance or bonding company or a
rating association or bureau that gives rates, classifications,
and underwriting rules.
|
| MARINE INSURANCE |
Coverage for goods in transit, and for the commercial vehicles
that transport them, on water and over land. The term may
apply to inland marine but more generally applies to ocean
marine insurance. Covers damage or destruction of a ship’s
hull and cargo and perils include collision, sinking, capsizing,
being stranded, fire, piracy, and jettisoning cargo to save
other property. Wear and tear, dampness, mold, and war are
not included. (See Inland marine and Ocean marine)
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| MCCARRAN-FERGUSON ACT |
Federal law signed in 1945 in which Congress declared that
states would continue to regulate the insurance business.
Grants insurers a limited exemption from federal antitrust
legislation.
|
| MEDIATION |
Nonbinding procedure in which a third party attempts to
resolve a conflict between two other parties.
|
| MEDICAID |
A federal/state public assistance program created in 1965
and administered by the states for people whose income and
resources are insufficient to pay for health care.
|
| MEDICAL MALPRACTICE INSURANCE |
See Malpractice insurance
|
| MEDICAL PAYMENTS INSURANCE |
A coverage in which the insurer agrees to reimburse the
insured and others up to a certain limit for medical or funeral
expenses as a result of bodily injury or death by accident.
Payments are without regard to fault.
|
| MEDICAL UTILIZATION REVIEW |
The practice used by insurance companies to review claims
for medical treatment.
|
| MEDICARE |
Federal program for people 65 or older that pays part of
the costs associated with hospitalization, surgery, doctors’
bills, home health care, and skilled-nursing care.
|
| MEDIGAP/MEDSUP |
Policies that supplement federal insurance benefits particularly
for those covered under Medicare.
|
| MINE SUBSIDENCE COVERAGE |
An endorsement to a homeowners insurance policy, available
in some states, for losses to a home caused by the land under
a house sinking into a mine shaft. Excluded from standard
homeowners policies, as are other forms of earth movement.
|
| MONEY SUPPLY |
Total supply of money in the economy, composed of currency
in circulation and deposits in savings and checking accounts.
By changing the interest rates the Federal Reserve seeks to
adjust the money supply to maintain a strong economy.
|
| MORTGAGE GUARANTEE INSURANCE |
Coverage for the mortgagee (usually a financial institution)
in the event that a mortgage holder defaults on a loan. Also
called private mortgage insurance (PMI).
|
| MORTGAGE INSURANCE |
A form of decreasing term insurance that covers the life
of a person taking out a mortgage. Death benefits provide
for payment of the outstanding balance of the loan. Coverage
is in decreasing term insurance, so the amount of coverage
decreases as the debt decreases. A variant, mortgage unemployment
insurance pays the mortgage of a policyholder who becomes
involuntarily unemployed. (See Term
insurance)
|
| MORTGAGE-BACKED SECURITIES |
Investment grade securities backed by a pool of mortgages.
The issuer uses the cash flow from mortgages to meet interest
payments on the bonds.
|
| MULTIPLE PERIL POLICY |
A package policy, such as a homeowners or business insurance
policy, that provides coverage against several different perils.
It also refers to the combination of property and liability
coverage in one policy. In the early days of insurance, coverages
for property damage and liability were purchased separately.
|
| MUNICIPAL BOND INSURANCE |
Coverage that guarantees bondholders timely payment of interest
and principal even if the issuer of the bonds defaults. Offered
by insurance companies with high credit ratings, the coverage
raises the credit rating of a municipality offering the bond
to that of the insurance company. It allows a municipality
to raise money at lower interest rates. A form of financial
guarantee insurance. (See Financial
guarantee insurance)
|
| MUNICIPAL LIABILITY INSURANCE |
Liability insurance for municipalities.
|
| MUTUAL HOLDING COMPANY |
An organizational structure that provides mutual companies
with the organizational and capital raising advantages of
stock insurers, while retaining the policyholder ownership
of the mutual.
|
| MUTUAL INSURANCE COMPANY |
A company owned by its policyholders that returns part of
its profits to the policyholders as dividends. The insurer
uses the rest as a surplus cushion in case of large and unexpected
losses.
|
|
| N Back To Top |
| NAMED PERIL |
Peril specifically mentioned as covered in an insurance
policy.
|
| NATIONAL FLOOD INSURANCE PROGRAM |
Federal government-sponsored program under which flood insurance
is sold to homeowners and businesses. (See Adverse
selection; Flood insurance)
|
| NET PREMIUMS WRITTEN |
See Premiums written
|
| NO-FAULT |
Auto insurance coverage that pays for each driver’s own
injuries, regardless of who caused the accident. No-fault
varies from state to state. It also refers to an auto liability
insurance system that restricts lawsuits to serious cases.
Such policies are designed to promote faster reimbursement
and to reduce litigation.
|
| NO-FAULT MEDICAL |
A type of accident coverage in homeowners policies.
|
| NO-PAY, NO-PLAY |
The idea that people who don’t buy coverage should not receive
benefits. Prohibits uninsured drivers from collecting damages
from insured drivers. In most states with this law, uninsured
drivers may not sue for noneconomic damages such as pain and
suffering. In other states, uninsured drivers are required
to pay the equivalent of a large deductible ($10,000) before
they can sue for property damages and another large deductible
before they can sue for bodily harm.
|
| NON-ADMITTED ASSETS |
Assets that are not included on the balance sheet of an
insurance company, including furniture, fixtures, past-due
accounts receivable, and agents’ debt balances. (See Assets)
|
| NON-ADMITTED INSURER |
Insurers licensed in some states, but not others. States
where an insurer is not licensed call that insurer non-admitted.
They sell coverage that is unavailable from licensed insurers
within the state.
|
| NOTICE OF LOSS |
A written notice required by insurance companies immediately
after an accident or other loss. Part of the standard provisions
defining a policyholder's responsibilities after a loss.
|
| NUCLEAR INSURANCE |
Covers operators of nuclear reactors and other facilities
for liability and property damage in the case of a nuclear
accident and involves both private insurers and the federal
government.
|
| NURSING HOME INSURANCE |
A form of long-term care policy that covers a policyholder’s
stay in a nursing facility.
|
|
| O Back To Top |
| OCCUPATIONAL DISEASE |
Abnormal condition or illness caused by factors associated
with the workplace. Like occupational injuries, this is covered
by workers compensation policies. (See Workers
compensation)
|
| OCCURRENCE POLICY |
Insurance that pays claims arising out of incidents that
occur during the policy term, even if they are filed many
years later. (See Claims-made policy)
|
| OCEAN MARINE INSURANCE |
Coverage of all types of vessels and watercraft, for property
damage to the vessel and cargo, including such risks as piracy
and the jettisoning of cargo to save the property of others.
Coverage for marine-related liabilities. War is excluded from
basic policies, but can be bought back.
|
| OPEN COMPETITION STATES |
States where insurance companies can set new rates without
prior approval, although the state’s commissioner can disallow
them if they are not reasonable and adequate or are discriminatory.
|
| OPERATING EXPENSES |
The cost of maintaining a business’s property, includes
insurance, property taxes, utilities and rent, but excludes
income tax, depreciation and other financing expenses.
|
| OPTIONS |
Contracts that allow, but do not oblige, the buying or selling
of property or assets at a certain date at a set price.
|
| ORDINANCE OR LAW COVERAGE |
Endorsement to a property policy, including homeowners,
that pays for the extra expense of rebuilding to comply with
ordinances or laws, often building codes, that did not exist
when the building was originally built. For example, a building
severely damaged in a hurricane may have to be elevated above
the flood line when it is rebuilt. This endorsement would
cover part of the additional cost.
|
| ORDINARY LIFE INSURANCE |
A life insurance policy that remains in force for the policyholder’s
lifetime. It contrasts with term insurance, which only lasts
for a specified number of years but is renewable. (See Term
insurance)
|
| ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM |
Sheet metal auto parts made by the manufacturer of the vehicle.
(See Generic auto parts)
|
| OVER-THE-COUNTER (OTC) |
Security that is not listed or traded on an exchange such
as the New York Stock Exchange. Business in over-the-counter
securities is conducted through dealers using electronic networks.
|
|
| P Back To Top |
| PACKAGE POLICY |
A single insurance policy that combines several coverages
previously sold separately. Examples include homeowners insurance
and commercial multiple peril insurance.
|
| PAY-AT-THE-PUMP |
A system proposed in the 1990s in which auto insurance premiums
would be paid to state governments through a per-gallon surcharge
on gasoline.
|
| PENSION BENEFIT GUARANTY CORPORATION |
An independent federal government agency that administers
the Pension Plan Termination Insurance program to ensure that
vested benefits of employees whose pension plans are being
terminated are paid when they come due. Only defined benefit
plans are covered. Benefits are paid up to certain limits.
|
| PENSIONS |
Programs to provide employees with retirement income after
they meet minimum age and service requirements. Life insurers
hold some of these funds. Since the 1970s responsibility for
funding retirement has increasingly shifted from employers
(defined benefit plans that promise workers a specific retirement
income) to employees (defined contribution plans financed
by employees that may or may not be matched by employer contributions).
(See Defined benefit plan; Defined
contribution plan)
|
| PERIL |
A specific risk or cause of loss covered by an insurance
policy, such as a fire, windstorm, flood, or theft. A named-peril
policy covers the policyholder only for the risks named in
the policy in contrast to an all-risk policy, which covers
all causes of loss except those specifically excluded.
|
| PERSONAL ARTICLES FLOATER |
A policy or an addition to a policy used to cover personal
valuables, like jewelry or furs.
|
| PERSONAL INJURY PROTECTION COVERAGE / PIP |
Portion of an auto insurance policy that covers the treatment
of injuries to the driver and passengers of the policyholder’s
car.
|
| PERSONAL LINES |
Property/casualty insurance products that are designed for
and bought by individuals, including homeowners and automobile
policies. (See Commercial lines)
|
| POINT-OF-SERVICE PLAN |
Health insurance policy that allows the employee to choose
between in-network and out-of-network care each time medical
treatment is needed.
|
| POLICY |
A written contract for insurance between an insurance company
and policyholder stating details of coverage.
|
| POLICYHOLDERS' SURPLUS |
The amount of money remaining after an insurer’s liabilities
are subtracted from its assets. It acts as a financial cushion
above and beyond reserves, protecting policyholders against
an unexpected or catastrophic situation.
|
| POLITICAL RISK INSURANCE |
Coverage for businesses operating abroad against loss due
to political upheaval such as war, revolution, or confiscation
of property.
|
| POLLUTION INSURANCE |
Policies that cover property loss and liability arising
from pollution-related damages, for sites that have been inspected
and found uncontaminated. It is usually written on a claims-made
basis so policies pay only claims presented during the term
of the policy or within a specified time frame after the policy
expires. (See Claims-made policy)
|
| POOL |
See Insurance pool
|
| PREFERRED PROVIDER ORGANIZATION |
Network of medical providers which charge on a fee-for-service
basis, but are paid on a negotiated, discounted fee schedule.
|
| PREMISES |
The particular location of the property or a portion of
it as designated in an insurance policy.
|
| PREMIUM |
The price of an insurance policy, typically charged annually
or semiannually. (See Direct premiums;
Earned premium; Unearned
premium)
|
| PREMIUM TAX |
A state tax on premiums paid by its residents and businesses
and collected by insurers.
|
| PREMIUMS IN FORCE |
The sum of the face amounts, plus dividend additions, of
life insurance policies outstanding at a given time.
|
| PREMIUMS WRITTEN |
The total premiums on all policies written by an insurer
during a specified period of time, regardless of what portions
have been earned. Net premiums written are premiums written
after reinsurance transactions.
|
| PRIMARY COMPANY |
In a reinsurance transaction, the insurance company that
is reinsured.
|
| PRIMARY MARKET |
Market for new issue securities where the proceeds go directly
to the issuer.
|
| PRIME RATE |
Interest rate that banks charge to their most creditworthy
customers. Banks set this rate according to their cost of
funds and market forces.
|
| PRIOR APPROVAL STATES |
States where insurance companies must file proposed rate
changes with state regulators, and gain approval before they
can go into effect.
|
| PRIVATE MORTGAGE INSURANCE |
See Mortgage guarantee insurance
|
| PRIVATE PLACEMENT |
Securities that are not registered with the Securities and
Exchange Commission and are sold directly to investors.
|
| PRODUCT LIABILITY |
A section of tort law that determines who may sue and who
may be sued for damages when a defective product injures someone.
No uniform federal laws guide manufacturer’s liability, but
under strict liability, the injured party can hold the manufacturer
responsible for damages without the need to prove negligence
or fault.
|
| PRODUCT LIABILITY INSURANCE |
Protects manufacturers’ and distributors’ exposure to lawsuits
by people who have sustained bodily injury or property damage
through the use of the product.
|
| PROFESSIONAL LIABILITY INSURANCE |
Covers professionals for negligence and errors or omissions
that injure their clients.
|
| PROPERTY/CASUALTY INSURANCE |
Covers damage to or loss of policyholders’ property and
legal liability for damages caused to other people or their
property. Property/casualty insurance, which includes auto,
homeowners and commercial insurance, is one segment of the
insurance industry. The other sector is life/health. Outside
the United States, property/casualty insurance is referred
to as nonlife or general insurance.
|
| PROPERTY/CASUALTY INSURANCE CYCLE |
Industry business cycle with recurrent periods of hard and
soft market conditions. In the 1950s and 1960s, cycles were
regular with three year periods each of hard and soft market
conditions in almost all lines of property/casualty insurance.
Since then they have been less regular and less frequent.
|
| PROPOSITION 103 |
A November 1988 California ballot initiative that called
for a statewide auto insurance rate rollback and for rates
to be based more on driving records and less on geographical
location. The initiative changed many aspects of the state’s
insurance system and was the subject of lawsuits for more
than a decade.
|
| PURCHASING GROUP |
An entity that offers insurance to groups of similar businesses
with similar exposures to risk.
|
|
| Q Back To Top |
| |
| R Back To Top |
| RATE |
The cost of a unit of insurance, usually per $1,000. Rates
are based on historical loss experience for similar risks
and may be regulated by state insurance offices.
|
| RATE REGULATION |
The process by which states monitor insurance companies’
rate changes, done either through prior approval or open competition
models. (See Open competition states;
Prior approval states)
|
| RATING AGENCIES |
Six major credit agencies determine insurers’
financial strength and viability to meet claims obligations.
They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.;
Moody’s Investors Services; Standard & Poor’s Corp.; and
Weiss Ratings, Inc. Factors considered include company earnings,
capital adequacy, operating leverage, liquidity, investment
performance, reinsurance programs, and management ability,
integrity and experience. A high financial rating is not the
same as a high consumer satisfaction rating.
|
| RATING BUREAU |
The insurance business is based on the spread of risk. The
more widely risk is spread, the more accurately loss can be
estimated. An insurance company can more accurately estimate
the probability of loss on 100,000 homes than on ten. Years
ago, insurers were required to use standardized forms and
rates developed by rating agencies. Today, large insurers
use their own statistical loss data to develop rates. But
small insurers, or insurers focusing on special lines of business,
with insufficiently broad loss data to make them actuarially
reliable depend on pooled industry data collected by such
organizations as the Insurance Services Office (ISO) which
provides information to help develop rates such as estimates
of future losses and loss adjustment expenses like legal defense
costs.
|
| REAL ESTATE INVESTMENTS |
Investments generally owned by life insurers that include
commercial mortgage loans and real property.
|
| RECEIVABLES |
Amounts owed to a business for goods or services provided.
|
| REDLINING |
Literally means to draw a red line on a map around areas
to receive special treatment. Refusal to issue insurance based
solely on where applicants live is illegal in all states.
Denial of insurance must be risk-based.
|
| REINSURANCE |
Insurance bought by insurers. A reinsurer assumes part of
the risk and part of the premium originally taken by the insurer,
known as the primary company. Reinsurance effectively increases
an insurer's capital and therefore its capacity to sell more
coverage. The business is global and some of the largest reinsurers
are based abroad. Reinsurers have their own reinsurers, called
retrocessionaires. Reinsurers don’t pay policyholder claims.
Instead, they reimburse insurers for claims paid. (See Treaty
reinsurance; Facultative reinsurance)
|
| RENTERS INSURANCE |
A form of insurance that covers a policyholder’s belongings
against perils such as fire, theft, windstorm, hail, explosion,
vandalism, riots, and others. It also provides personal liability
coverage for damage the policyholder or dependents cause to
third parties. It also provides additional living expenses,
known as loss-of-use coverage, if a policyholder must move
while his or her dwelling is repaired. It also can include
coverage for property improvements. Possessions can be covered
for their replacement cost or the actual cash value that includes
depreciation.
|
| REPLACEMENT COST |
Insurance that pays the dollar amount needed to replace
damaged personal property or dwelling property without deducting
for depreciation but limited by the maximum dollar amount
shown on the declarations page of the policy.
|
| REPURCHASE AGREEMENT /'REPO' |
Agreement between a buyer and seller where the seller agrees
to repurchase the securities at an agreed upon time and price.
Repurchase agreements involving U.S. government securities
are utilized by the Federal Reserve to control the money supply.
|
| RESERVES |
A company’s best estimate of what it will pay for claims.
|
| RESIDUAL MARKET |
Facilities, such as assigned risk plans and FAIR Plans,
that exist to provide coverage for those who cannot get it
in the regular market. Insurers doing business in a given
state generally must participate in these pools. For this
reason the residual market is also known as the shared market.
|
| RETENTION |
The amount of risk retained by an insurance company that
is not reinsured.
|
| RETROCESSION |
The reinsurance bought by reinsurers to protect their financial
stability.
|
| RETROSPECTIVE RATING |
A method of permitting the final premium for a risk to be
adjusted, subject to an agreed-upon maximum and minimum limit
based on actual loss experience. It is available to large
commercial insurance buyers.
|
| RETURN ON EQUITY |
Net income divided by total equity. Measures profitability
by showing how efficiently invested capital is being used.
|
| RIDER |
An attachment to an insurance policy that alters the policy’s
coverage or terms.
|
| RISK |
The chance of loss or the person or entity that is insured.
|
| RISK MANAGEMENT |
Management of the varied risks to which a business firm
or association might be subject. It includes analyzing all
exposures to gauge the likelihood of loss and choosing options
to better manage or minimize loss. These options typically
include reducing and eliminating the risk with safety measures,
buying insurance, and self-insurance.
|
| RISK RETENTION GROUPS |
Insurance companies that band together as self-insurers
and form an organization that is chartered and licensed as
an insurer in at least one state to handle liability insurance.
|
| RISK-BASED CAPITAL |
The need for insurance companies to be capitalized according
to the inherent riskiness of the type of insurance they sell.
Higher-risk types of insurance, liability as opposed to property
business, generally necessitate higher levels of capital.
|
|
| S Back To Top |
| SALVAGE |
Damaged property an insurer takes over to reduce its loss
after paying a claim. Insurers receive salvage rights over
property on which they have paid claims, such as badly-damaged
cars. Insurers that paid claims on cargoes lost at sea now
have the right to recover sunken treasures. Salvage charges
are the costs associated with recovering that property.
|
| SCHEDULE |
A list of individual items or groups of items that are covered
under one policy or a listing of specific benefits, charges,
credits, assets or other defined items.
|
| SECONDARY MARKET |
Market for previously issued and outstanding securities.
|
| SECURITIES AND EXCHANGE COMMISSION / SEC |
The organization that oversees publicly-held insurance companies.
Those companies make periodic financial disclosures to the
SEC, including an annual financial statement (or 10K), and
a quarterly financial statement (or 10-Q). Companies must
also disclose any material events and other information about
their stock.
|
| SECURITIES OUTSTANDING |
Stock held by shareholders.
|
| SECURITIZATION OF INSURANCE RISK |
Using the capital markets to expand and diversify the assumption
of insurance risk. The issuance of bonds or notes to third-party
investors directly or indirectly by an insurance or reinsurance
companyCatastrophe bonds)
|
| SELF-INSURANCE |
The concept of assuming a financial risk oneself, instead
of paying an insurance company to take it on. Every policyholder
is a self-insurer in terms of paying a deductible and co-payments.
Large firms often self-insure frequent, small losses such
as damage to their fleet of vehicles or minor workplace injuries.
However, to protect injured employees state laws set out requirements
for the assumption of workers compensation programs. Self-insurance
also refers to employers who assume all or part of the responsibility
for paying the health insurance claims of their employees.
Firms that self insure for health claims are exempt from state
insurance laws mandating the illnesses that group health insurers
must cover.
|
| SEVERITY |
Size of a loss. One of the criteria used in calculating
premiums rates.
|
| SEWER BACK-UP COVERAGE |
An optional part of homeowners insurance that covers sewers.
|
| SHARED MARKET |
See Residual market
|
| SOFT MARKET |
An environment where insurance is plentiful and sold at
a lower cost, also known as a buyers’ market. (See Property/casualty
insurance cycle)
|
| SOLVENCY |
Insurance companies’ ability to pay the claims of policyholders.
Regulations to promote solvency include minimum capital and
surplus requirements, statutory accounting conventions, limits
to insurance company investment and corporate activities,
financial ratio tests, and financial data disclosure.
|
| SPREAD OF RISK |
The selling of insurance in multiple areas to multiple policyholders
to minimize the danger that all policyholders will have losses
at the same time. Companies are more likely to insure perils
that offer a good spread of risk. Flood insurance is an example
of a poor spread of risk because the people most likely to
buy it are the people close to rivers and other bodies of
water that flood. (See Adverse selection)
|
| STACKING |
Practice that increases the money available to pay auto
liability claims. In states where this practice is permitted
by law, courts may allow policyholders who have several cars
insured under a single policy, or multiple vehicles insured
under different policies, to add up the limit of liability
available for each vehicle.
|
| STATUTORY ACCOUNTING PRINCIPLES / SAP |
More conservative standards than under GAAP accounting rules,
they are imposed by state laws that emphasize the present
solvency of insurance companies. SAP helps ensure that the
company will have sufficient funds readily available to meet
all anticipated insurance obligations by recognizing liabilities
earlier or at a higher value than GAAP and assets later or
at a lower value. For example, SAP requires that selling expenses
be recorded immediately rather Admitted
assets)
|
| STOCK INSURANCE COMPANY |
An insurance company owned by its stockholders who share
in profits through earnings distributions and increases in
stock value.
|
| STRUCTURED SETTLEMENT |
Legal agreement to pay a designated person, usually someone
who has been injured, a specified sum of money in periodic
payments, usually for his or her lifetime, instead of in a
single lump sum payment. (See Annuity)
|
| SUBROGATION |
The legal process by which an insurance company, after paying
a loss, seeks to recover the amount of the loss from another
party who is legally liable for it.
|
| SUPERFUND |
A federal law enacted in 1980 to initiate cleanup of the
nation’s abandoned hazardous waste dump sites and to respond
to accidents that release hazardous substances into the environment.
The law is officially called the Comprehensive Environmental
Response, Compensation, and Liability Act.
|
| SURETY BOND |
A contract guaranteeing the performance of a specific obligation.
Simply put, it is a three-party agreement under which one
party, the surety company, answers to a second party, the
owner, creditor or “obligee,” for a third party’s debts, default
or nonperformance. Contractors are often required to purchase
surety bonds if they are working on public projects. The surety
company becomes responsible for carrying out the work or paying
for the loss up to the bond “penalty” if the contractor fails
to perform.
|
| SURPLUS |
The remainder after an insurer’s liabilities are subtracted
from its assets. The financial cushion that protects policyholders
in case of unexpectedly high claims. (See Capital;
Risk-based capital)
|
| SURPLUS LINES |
Property/casualty insurance coverage that isn’t available
from insurers licensed in the state, called admitted companies,
and must be purchased from a non-admitted carrier. Examples
include risks of an unusual nature that require greater flexibility
in policy terms and conditions than exist in standard forms
or where the highest rates allowed by state regulators are
considered inadequate by admitted companies. Laws governing
surplus lines vary by state.
|
| SWAPS |
The simultaneous buying, selling or exchange of one security
for another among investors to change maturities in a bond
portfolio, for example, or because investment goals have changed.
|
|
| T Back To Top |
| TERM INSURANCE |
A form of life insurance that covers the insured person
for a certain period of time, the “term” that is specified
in the policy. It pays a benefit to a designated beneficiary
only when the insured dies within that specified period which
can be one, five, 10 or even 20 years. Term life policies
are renewable but premiums increase with age.
|
| TERRITORIAL RATING |
A method of classifying risks by geographic location to
set a fair price for coverage. The location of the insured
may have a considerable impact on the cost of losses. The
chance of an accident or theft is much higher in an urban
area than in a rural one, for example.
|
| TERRORISM COVERAGE |
Included as a part of the package in standard commercial
insurance policies before September 11, 2001 virtually free
of charge. Since September 11, terrorism coverage prices have
increased substantially to reflect the current risk.
|
| THIRD-PARTY ADMINISTRATOR |
Outside group that performs clerical functions for an insurance
company.
|
| THIRD-PARTY COVERAGE |
Liability coverage purchased by the policyholder as a protection
against possible lawsuits filed by a third party. The insured
and the insurer are the first and second parties to the insurance
contract. (See First-party coverage)
|
| TIME DEPOSIT |
Funds that are held in a savings account for a predetermined
period of time at a set interest rate. Banks can refuse to
allow withdrawals from these accounts until the period has
expired or assess a penalty for early withdrawals.
|
| TITLE INSURANCE |
Insurance that indemnifies the owner of real estate in the
event that his or her clear ownership of property is challenged
by the discovery of faults in the title.
|
| TORT |
A legal term denoting a wrongful act resulting in injury
or damage on which a civil court action, or legal proceeding,
may be based.
|
| TORT LAW |
The body of law governing negligence, intentional interference,
and other wrongful acts for which civil action can be brought,
except for breach of contract, which is covered by contract
law.
|
| TORT REFORM |
Refers to legislation designed to reduce liability costs
through limits on various kinds of damages and through modification
of liability rules.
|
| TOTAL LOSS |
The condition of an automobile or other property when damage
is so extensive that repair costs would exceed the value of
the vehicle or property.
|
| TRANSPARENCY |
A term used to explain the way information on financial
matters, such as financial reports and actions of companies
or markets, are communicated so that they are easily understood
and frank.
|
| TREASURY SECURITIES |
Interest-bearing obligations of the U.S. government issued
by the Treasury as a means of borrowing money to meet government
expenditures not covered by tax revenues. Marketable Treasury
securities fall into three categories — bills, notes and bonds.
Marketable Treasury obligations are currently issued in book
entry form only; that is, the purchaser receives a statement,
rather than an engraved certificate.
|
| TREATY REINSURANCE |
A standing agreement between insurers and reinsurers. Under
a treaty each party automatically accepts specific percentages
of the insurer’s business.
|
|
| U Back To Top |
| UMBRELLA POLICY |
Coverage for losses above the limit of an underlying policy
or policies such as homeowners and auto insurance. While it
applies to losses over the dollar amount in the underlying
policies, terms of coverage are sometimes broader than those
of underlying policies.
|
| UNDERINSURANCE |
The result of the policyholder’s failure to buy sufficient
insurance. An underinsured policyholder may only receive part
of the cost of replacing or repairing damaged items covered
in the policy.
|
| UNDERWRITING |
Examining, accepting, or rejecting insurance risks and classifying
the ones that are accepted, in order to charge appropriate
premiums for them.
|
| UNDERWRITING INCOME |
The insurer’s profit on the insurance sale after all expenses
and losses have been paid. When premiums aren’t sufficient
to cover claims and expenses, the result is an underwriting
loss. Underwriting losses are typically offset by investment
income.
|
| UNEARNED PREMIUM |
The portion of a premium already received by the insurer
under which protection has not yet been provided. The entire
premium is not earned until the policy period expires, even
though premiums are typically paid in advance.
|
| UNINSURABLE RISK |
Risks for which it is difficult for someone to get insurance.
(See Insurable risk)
|
| UNINSURED MOTORISTS COVERAGE |
Portion of an auto insurance policy that protects a policyholder
from uninsured and hit-and-run drivers.
|
| UNIVERSAL LIFE INSURANCE |
A flexible premium policy that combines protection against
premature death with a type of savings vehicle, known as a
cash value account, that typically earns a money market rate
of interest. Death benefits can be changed during the life
of the policy within limits, generally subject to a medical
examination. Once funds accumulate in the cash value account,
the premium can be paid at any time but the policy will lapse
if there isn’t enough money to cover annual mortality charges
and administrative costs.
|
| UTILIZATION REVIEW |
See Medical utilization review
|
|
| V Back To Top |
| VALUED POLICY |
A policy under which the insurer pays a specified amount
of money to or on behalf of the insured upon the occurrence
of a defined loss. The money amount is not related to the
extent of the loss. Life insurance policies are an example.
|
| VANDALISM |
The malicious and often random destruction or spoilage of
another person’s property.
|
| VARIABLE ANNUITY |
See Annuity
|
| VARIABLE LIFE INSURANCE |
A policy that combines protection against premature death
with a savings account that can be invested in stocks, bonds,
and money market mutual funds at the policyholder’s discretion.
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| VIATICAL SETTLEMENT COMPANIES |
Insurance firms that buy life insurance policies at a steep
discount from policyholders who are often terminally ill and
need the payment for medications or treatments. The companies
provide early payouts to the policyholder, assume the premium
payments, and collect the face value of the policy upon the
policyholder’s death.
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| VOID |
A policy contract that for some reason specified in the
policy becomes free of all legal effect. One example under
which a policy could be voided is when information a policyholder
provided is proven untrue.
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| VOLATILITY |
A measure of the degree of fluctuation in a stock’s price.
Volatility is exemplified by large, frequent price swings
up and down.
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| VOLCANO COVERAGE |
Most homeowners policies cover damage from a volcanic eruption.
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| VOLUME |
Number of shares a stock trades either per day or per week.
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| WAIVER |
The surrender of a right or privilege. In life insurance,
a provision that sets certain conditions, such as disablement,
which allow coverage to remain in force without payment of
premiums.
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| WAR RISK |
Special coverage on cargo in overseas ships against the
risk of being confiscated by a government in wartime. It is
excluded from standard ocean marine insurance and can be purchased
separately. It often excludes cargo awaiting shipment on a
wharf or on ships after 15 days of arrival in port.
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| WATER-DAMAGE INSURANCE COVERAGE |
Protection provided in most homeowners insurance policies
against sudden and accidental water damage, from burst pipes
for example. Does not cover damage from problems resulting
from a lack of proper maintenance such as dripping air conditioners.
Water damage from floods is covered under separate flood insurance
policies issued by the federal government.
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| WEATHER DERIVATIVE |
An insurance or securities product used as a hedge by energy-related
businesses and others whose sales tend to fluctuate depending
on the weather.
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| WEATHER INSURANCE |
A type of business interruption insurance that compensates
for financial losses caused by adverse weather conditions,
such as constant rain on the day scheduled for a major outdoor
concert.
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| WHOLE LIFE INSURANCE |
The oldest kind of cash value life insurance that combines
protection against premature death with a savings account.
Premiums are fixed and guaranteed and remain level throughout
the policy’s lifetime.
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| WORKERS COMPENSATION |
Insurance that pays for medical care and physical rehabilitation
of injured workers and helps to replace lost wages while they
are unable to work. State laws, which vary significantly,
govern the amount of benefits paid and other compensation
provisions.
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| WRAP-UP INSURANCE |
Broad policy coordinated to cover liability exposures for
a large group of businesses that have something in common.
Might be used to insure all businesses working on a large
construction project, such as an apartment complex.
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| WRITE |
To insure, underwrite, or accept an application for insurance.
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| WRITTEN PREMIUMS |
See Premiums written
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| 401(K) PLAN |
An employer-sponsored retirement savings plan funded by
employee contributions, which may or may not be matched by
the employer. Federal laws allow employees to invest pre-tax
dollars, up to a stated maximum each year.
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| 529 SAVINGS PLANS |
State-administered plans designed to encourage households
to save for college education. Named after a part of the Internal
Revenue tax code, these saving plans allow earnings to accumulate
free of federal income tax and sometimes to be withdrawn to
pay for college costs tax-free. There are two types of plans:
savings and prepaid tuition. Plan assets are managed either
by the state’s treasurer or an outside investment company.
Most offer a range of investment options.
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