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.
ACTUAL CASH VALUE - A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation
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.
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.
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 ANNUITY CONTRACT FEE - Covers the cost of administering an annuity contract.
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.
ANNUITANT - The person(s) who receives the income from an annuity contract. Usually the owner of the contract or his or her spouse.
ANNUITIZATION - The conversion of the account balance of a deferred annuity contract to income payments.
ANNUITY - A life insurance product that pays periodic income benefits for a specific period of time or over the course of the annuitant’s lifetime. There are two basic types of annuities: deferred and immediate: Deferred annuities allow assets to grow tax deferred over time before being converted to payments to the annuitant. Immediate annuities allow payments to begin within about a year of purchase.
ANNUITY ACCUMULATION PHASE OR PERIOD - The period during which the owner of a deferred annuity makes payments to build up assets.
ANNUITY ADMINISTRATIVE CHARGES - Covers the cost of customer services for owners of variable annuities.
ANNUITY BENEFICIARY - In certain types of annuities, a person who receives annuity contract payments if the annuity owner or annuitant dies while payments are still due.
ANNUITY CONTRACT - An agreement similar to an insurance policy for other insurance products such as auto insurance.
ANNUITY CONTRACT OWNER - The person or entity that purchases an annuity and has all rights to the contract. Usually, but not always, the annuitant (the person who receives incomes from the contract).
ANNUITY DEATH BENEFITS - The guarantee that if an annuity contract owner dies before annuitization (the switchover from the savings to the payment phase) the beneficiary will receive the value of the annuity that is due.
ANNUITY INSURANCE CHARGES - Covers administrative and mortality and expense risk costs.
ANNUITY INVESTMENT MANAGEMENT FEE - The fee paid for the management of variable annuity invested assets.
ANNUITY ISSUER - The insurance company that issues the annuity.
ANNUITY PROSPECTUS - Legal document providing detailed information about variable annuity contracts. Must be offered to each prospective buyer.
ANNUITY PURCHASE RATE - The cost of an annuity based on such factors as the age and gender of the contract owner.
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.
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.
AUTO INSURANCE POLICY - Full Comprehensive coverage against accidental loss and/or damage and/or theft of the motor vehicle, including legal liability of the participant, to third parties arising out of the use of the motor vehicle. The Policy is also extended to cover the risk of Terrorism to the extent of the full value of the vehicle.
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.
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.
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.
BINDER - Temporary authorization of coverage issued prior to the actual insurance policy.
BANKERS BLANKET INSURANCE - This policy is designed to provide package covers for the banks and financial institutions and it covers indemnity to the participant’s employees, property on premises, property in transit, forged cheques, damage to office and contents, and counterfeited currency.
BODILY INJURY LIABILITY COVERAGE - Portion of an auto insurance policy that covers injuries the policyholder causes to someone else.
BOILER AND PRESSURE VESSELS’ INSURANCE - Covers Boilers and Pressure Vessels against the results of explosion, implosion or collapse and also covers the damage to surrounding property, liability to third parties, etc.
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 - This policy provides coverage loss and/or damage to the participant’s property whilst within the business premises against the risks of Theft/Burglary consequent upon forcible and violence entry. The policy also covers damage to the premises resulting from such attempted Theft/Burglary. The policy is however issued only in conjunction with our standard fire and allied perils policy.
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 WorldTradeCenter 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.
CAPITAL MARKETS - The markets in which equities and debt are traded.
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.
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.
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.
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 WorldTradeCenter 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 - The coverage under this policy is specifically designed to meet the increasing demand of providing financial compensation for loss/damage of Cellular Mobile Telephones against the risk of loss/damage due to fire, violent theft, armed hold-ups, robbery, etc. The basis of settlement shall be on market value of the mobile set at the time of loss or the sum covered, whichever is less.
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.
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.
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.
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.
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.
COMMERCIAL MULTIPLE PERIL POLICY - Package policy that includes property, boiler and machinery, crime, and general liability coverage.
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.
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 THIRD PARTY INSURANCE - This is the basic plan that meets legal motor insurance/takaful requirements under the Motor Vehicles’ Act 1939. The policy covers legal liability of the participant to third parties arising out of the use of the motor vehicle. It covers the third party only who may be injured or killed in an accident or whose vehicle or property may be damaged. It does not cover damage to the Participant’s/Policy holder’s own vehicle or property or any injuries or death of the Participant himself.
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
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 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.
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.
DEFERRED ANNUITY - An annuity contract that is purchased either with a single tax-deferred premium or with periodic tax-deferred premiums over time. Payments begin at a predetermined point in time, such as retirement.
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.
DIFFERENCE IN CONDITIONS - Policy designed to fill in gaps in a business’s commercial property insurance coverage. There is no standard policy. Policies are specifically tailored to the policyholder’s needs.
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.
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.
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.
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.
ELECTRONIC COMMERCE / E-COMMERCE - The sale of products such as insurance over the Internet.
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.
ENDORSEMENT - A written form attached to an insurance policy that alters the policy’s coverage, terms, or conditions. Sometimes called a rider.
EQUITY - In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.
EQUITY INDEXED ANNUITY - Non-traditional fixed annuity. The specified rate of interest guarantees a fixed minimum rate of interest like traditional fixed annuities. At the same time, additional interest may be credited to policy values based upon positive changes, if any, in an established index such as the S&P 500. The amount of additional interest depends upon the particular design of the policy. They are sold by licensed insurance agents and regulated by state insurance departments.
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.
ESCROW ACCOUNT - Funds that a lender collects to pay monthly premiums in mortgage and homeowners insurance, and sometimes to pay property taxes.
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.
EXCESS OF LOSS REINSURANCE - A contract between an insurer and a reinsurer, whereby the insurer agrees to pay a specified portion of a claim and the reinsurer to pay all or a part of the claim above that amount.
EXCLUSION - A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.
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
EXPENSE RATIO - Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing, and commissions.
EXPERIENCE - Record of losses.
EXPOSURE - Possibility of loss
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.
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.
FIDELITY GUARANTEE TAKAFUL POLICY - This policy is designed to provide coverage against acts of misappropriation or embezzlement committed by the permanent and authorised employees of an organization in the course of their employment.
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.
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.
FIRE & ALLIED PERILS POLICY - Covers the insured property against the risk of fire and other allied perils such as lightning, explosion, riots & strikes, earthquakes, atmospheric disturbances, etc .
FIXED ANNUITY - An annuity that guarantees a specific rate of return. In the case of a deferred annuity, a minimum rate of interest is guaranteed during the savings phase. During the payment phase, a fixed amount of income, paid on a regular schedule, is guaranteed.
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.
FOREIGN INSURANCE COMPANY - Name given to an insurance company based in one state by the other states in which it does business.
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.
FREQUENCY - Number of times a loss occurs. One of the criteria used in calculating premium rates.
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.
FUTURES - Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.
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.
GLASS INSURANCE - Coverage under this policy includes breakage (but does not include damage by scratching) of any glass installed at the premises specified. The policy also covers any writing or ornamentation on glass if specifically described in the policy cover.
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.
GUARANTEE PERIOD - Period during which the level of interest specified under a fixed annuity is guaranteed.
GUARANTEED DEATH BENEFIT - Basic death benefits guaranteed under variable annuity contracts.
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.
GUARANTEED LIVING BENEFIT - A guarantee in a variable annuity that a certain level of annuity payment will be maintained. Serves as a protection against investment risks. Several types exists.
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.
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.
HACKER INSURANCE - A coverage that protects businesses engaged in electronic commerce from losses caused by hackers.
HARD MARKET - A seller’s market in which insurance is expensive and in short supply.
HOUSEHOLDER’S INSURANCE POLICY - Covers Home and Contents against the risks of fire, earthquake, flood, burglary, bursting of pipes, etc.
HOUSE YEAR - Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for householder’s insurance.
IMMEDIATE ANNUITY - A product purchased with a lump sum, usually at the time retirement begins or afterwards. Payments begin within about a year. Immediate annuities can be either fixed or variable.
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.
INCURRED LOSSES - Losses occurring within a fixed period, whether or not adjusted or paid during the same period.
INDEMNIFY - Provide financial compensation for losses.
INDEPENDENT AGENT - Agent who is self-employed, is paid on commission, and represents several insurance companies
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.
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.
INSTITUTIONAL INVESTOR - An organization such as a bank or insurance company that buys and sells large quantities of securities.
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.
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.
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.
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.
INSURANCE-TO-VALUE - 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.
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.
INTERNET INSURER - An insurer that sells exclusively via the Internet.
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.
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.
JOINT AND SURVIVOR ANNUITY - An annuity with two annuitants, usually spouses. Payments continue until the death of the longest living of the two.
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.
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.
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.
LADDERING - A technique that consists of staggering the maturity dates and the mix of different types of bonds.
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.
LIABILITY INSURANCE - Insurance for what the policyholder is legally obligated to pay because of bodily injury or property damage caused to another person.
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.
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.
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.
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 - Marine Cargo cover protect goods against various risks involved during transit, for all types of cargo transported by the various modes of conveyance such as sea, air, land and parcel post, from warehouse to warehouse.
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.
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.
MORTALITY AND EXPENSE (M&E) RISK CHARGE - A fee that covers such annuity contract guarantees as death benefits.
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.
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.
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.
NAMED PERIL - Peril specifically mentioned as covered in an insurance policy.
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.
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.
OCCUPATIONAL DISEASE - Abnormal condition or illness caused by factors associated with the workplace. Like occupational injuries, this is covered by workers compensation policies.
OCCURRENCE POLICY - Insurance that pays claims arising out of incidents that occur during the policy term, even if they are filed many years later.
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.
ORIGINAL EQUIPMENT MANUFACTURER PARTS / OEM - Sheet metal auto parts made by the manufacturer of the vehicle.
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.
PACKAGE POLICY - A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
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 ACCIDENT TAKAFUL POLICY - This is a 24 – hours’ worldwide coverage providing compensation in case of death or loss of limb or bodily injury to the covered resulting in temporary or permanent disablement, partial disablement or total disablement arising out of an accident. The standard coverage may also be extended to cover reimbursement of medical expenses resulting out of such accident. The policy covers: i. Accidental Death ii. Permanent Disablement iii. Temporary Disablement (both Total & Partial) iv. Repatriation of body or Funeral Expenses v. Medical Expenses Coverage (Optional).
PERSONAL LINES - Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies.
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.
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.
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 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.
PROOF OF LOSS - Documents showing the insurance company that a loss occurred.
QUALIFIED ANNUITY - A form of annuity purchased with pretax dollars as part of a retirement plan that benefits from special tax treatment, such as a 401(k) plan.
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.
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.
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.
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.
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.
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 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 company or a pooling entity as a means of raising money to cover risks.
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.
SINGLE PREMIUM ANNUITY - An annuity that is paid in full upon purchase.
SOFT MARKET - An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market.
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.
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.
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.
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.
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.
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.
SURRENDER CHARGE - A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.
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.
TERM CERTAIN ANNUITY - An form of annuity that pays out over a fixed period rather than when the annuitant dies.
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.
THIRD-PARTY COVERAGE - This is the basic plan that meets legal motor insurance/Takaful requirements under the Motor Vehicles’ Act 1939. The policy covers legal liability of the participant to third parties arising out of the use of the motor vehicle. It covers the third party only who may be injured or killed in an accident or whose vehicle or property may be damaged. It does not cover damage to the Participant’s/Policy holder’s own vehicle or property or any injuries or death of the Participant himself.
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.
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.
TRAVEL INSURANCE - Travel Insurance is a ‘360 degree’ i.e. round-the-clock worldwide personal accident coverage, protecting you and your family against the risks of:
I) Personal Accident – covers accidental death, permanent disablement, temporary disablement both total and partial. II) Medical Expenses - covers reimbursement of hospitalization expenses due to accident or illness. III) Emergency Medical Evacuation – covers the expenses required to shift the injured the nearest medical facility, where appropriate medical treatment can be obtained. IV) Medical Repatriation - if injury or sickness commencing during the period of coverage results in death, all reasonable expenses incurred for preparation and return of the remains to the country of residence (i.e. Pakistan) can be reimbursed under this head. V) Loss of checked baggage - covers total and complete loss of baggage that was checked-in by an international airline. VI) Loss of passport – covers reasonable and necessary expenses to obtain a duplicate passport or a valid travel document, in case of fortuitous loss or damage.
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.
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.
UNBUNDLED CONTRACTS - A form of annuity contract that gives purchasers the freedom to choose among certain optional features in their contract.
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.
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 - An annuity whose contract value or income payments vary according to the performance of the stocks, bonds and other investments selected by the contract owner.
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.
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.
VOLATILITY - A measure of the degree of fluctuation in a stock’s price. Volatility is exemplified by large, frequent price swings up and down.
VOLUME - Number of shares a stock trades either per day or per week.
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.
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.
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.
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.
WORKMEN COMPENSATION INSURANCE - This policy is designed to indemnify the participant, if at any time during the period of coverage of insurance, any employee in the Participant’s immediate service shall sustain personal injury by accident or disease arising out of and in the course of his employment by the participant in the Business, provided and if the participant shall be liable to pay compensation for such injury either under:
I) The Workmen Compensation Act 1923 and subsequent amendments of the said Act prior to the date of the issuance of the Policy; II) Fatal Accidents’ Act, 1855; III) Common Law.
WRITE - To insure, underwrite, or accept an application for insurance.
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