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Glossary of Termsa Absolute Assignment Assignment by a policy owner of all control of and rights in the policy to a third party. Accident An unplanned event, unexpected and undersigned and occurring suddenly at a definite place. Accident Frequency The rate of occurrence of accidents, normally expressed in terms of the number of accidents over a specific period of time.One means for measuring the effectiveness of loss prevention actions.Accident Severity A measure of the severity or seriousness of losses, rather than the number of losses.It is measured in terms of time lost from work rather than the number of individual accidents.It is another way of measuring effectiveness of loss prevention services.Accident Year Experience Premium and loss costs related to accidents which have occurred during a 12-month period. Accidental Means Unexpected, undersigned, or fortuitous cause of an accidental injury. By definition, accidental means requires the cause to be accidental, as well as the resulting injury.Example, using a chainsaw, the worker cut off his thumb, (not accidental means); he dropped the saw and cut off his toes, that is accidental means. Account Current A statement provided to an agent by an insurer listing written premiums, cancellations, endorsements, and commissions. Acquisition Cost Expenses incurred by an insurer or reinsurer that directly relate to acquiring the insurance accounts.The key element of this cost is the sales representative’s commission. Act of God An event that arises from natural causes with no human intervention that could not have been prevented by reasonable care or foresight.Examples include flood, lightning, and earthquakes Actual Cash Value An amount equal to the replacement cost of lost or damaged property at the time of loss, minus depreciation.There is a tendency for the actual cash value of buildings to closely parallel the market value of the property. Adhesion A characteristic of a unilateral contract which is offered on a take it or leave it basis. Most insurance contracts are contracts of adhesion because the terms are drawn up by the insurer and the insured simply adheres.That’s why ambiguous provisions are often interpreted by courts in favor of the insured. Adjuster An insurer’s representative who works to determine the extent of their liability for loss when a claim is reported. Admitted Company An insurance company authorized and licensed to do business in a given state. Advance Premium The deposit or provisional premium paid at the inception of a contract that provides for future premium adjustments.It is based on an estimate of what the final premium will be. Adverse Selection The tendency for below average risks buying and maintaining insurance.When insured’s select only those coverages that are most likely to have losses, adverse selection occurs. Agent One who solicits, negotiates or effects contracts of insurance on behalf of an insurer.The rights, authority, and obligations of an agent are subject to the terms of an agency contract with an insurer, and statutory and common law. Aggregate Limit The amount of coverage that the insured has under the contract for a specific period of time, usually the policy term, no matter how many separate accidents may occur. Aleatory Contract A contract in which the number of dollars to be given up by each party is not equal.Insurance contracts are aleatory as the policyholder pays a premium and may collect nothing or may collect a great deal more than the amount of the premium if loss occurs. Alienated Property Property that an insured no longer owns or holds title to. All-Risks Insurance Usually referred to as Special Form, and is used to mean insurance against loss or damage to property from any fortuitous cause except those that are specifically excluded. Apparent Authority Authority of an agent that is created when the agent oversteps actual authority, and inaction by the insurer does nothing to counter the public impression that such authority exists. Application The form on which applicants state facts requested by the insurer which, when combined with information from other sources, the insurer decides whether to accept the risk, modify the coverage, or decline the risk. Apportionment When two or more companies cover the same loss, the method of dividing loss among the companies in the same proportion that each participates in the total coverage. Appraisal An evaluation of property to ascertain either the appropriate amount of insurance to be written or the amount of loss to be paid. Avoidance of Risk Taking steps to remove a hazard, engage in an alternative activity, or otherwise end a specific exposure.One of four major risk management techniques. b Bad Faith The failure of an insurer to settle within policy limits when there was an opportunity to do so and a court awards damages in excess of the policy limits. Binder An agreement executed by an agent or insurer putting insurance into force before the formal contract has been written or the premium paid.In reinsurance, it is referred to as a cover note. Broker One who represents the insured in the solicitation, negotiation or procurement of insurance, and who may render services incidental to those functions.The broker may also be an agent of the insurer for certain purposes such as policy delivery or collection of premium. Broker of Record A broker who has been designated to handle certain insurance contracts for the policyholder. Burning Cost Ratio Historical incurred losses, excluding IBNR, to the subject premium of an existing or proposed reinsurance agreement.The burning cost ratio, adjusted for IBNR, other costs, and profit loads is a tool used in making rates for excess of loss reinsurance. Burning Ratio The ratio of losses suffered to the amount of insurance in effect. Not a loss ratio, which is the ratio of losses incurred to premiums earned. Buy-Back Deductible A deductible which may be eliminated for an additional premium in order to provide first-dollar coverage. c Calendar Year Experience The measurement of the booked incurred losses to the earned premiums entered on accounting records during the 12-month calendar year period regardless of the dates of the loss events. Cancelable A contract of insurance that contains provisions for termination by the insurer and/or the insured.Nearly every form of insurance is cancelable.Life, some health policies, and in some states, automobile policies are regulated as to when or if they can be cancelled. Captive Agent One who sells insurance for only one company as opposed to an agent who represents several companies. Captive Insurer A legally recognized insurance company organized and owned by another organization and has at its main purpose the insuring of the risks of the parent organization. Carrier Occasionally used to designate the insurer.Because of the confusion with the transportation industry, carrier is not as preferred as insurer. Catastrophe Hazard The hazard of large loss by occurrence of a peril to which a large number of insureds are subject.Flood, tornado, hurricane, and earthquake are examples of a catastrophe hazard. Caveat Emptor Let the buyer beware. Chattel Mortgage A type of mortgage where the collateral is personal property rather than land or buildings. Claim A demand made by the insured, or the insured’s beneficiary, for payment of the benefits provided by the contract. Claim Expense The costs of processing, investigating and settling claims.Claim expenses include court costs, interest on awards and judgements, legal fees, and other costs directly attributed to settlement of a specific claim (allocated costs). Ordinary overhead such as salaries and fixed expenses are defined as unallocated loss adjustment expenses and are excluded from claim expense. Claimant The person making a demand for payment of benefits. Claims Made Basis The provision in a contract of insurance that coverage applies only to those losses which occur and are reported during the term of the contract. Losses occurring before the coverage term can sometimes be covered by “prior-acts” coverage being added to the contract; and losses reported after the term of the contract can sometimes be covered by adding ‘tail’ coverage. Claim Reserve Amounts set aside to meet costs of claims incurred but not yet settled.The reserve would be the funds kept based on the estimate of what the claim will cost when finally settled. Coinsurance Clause The clause in the insurance contract that defines how losses are to be adjusted and penalized if the insured fails to maintain the amount of insurance equal to the stipulated percentage of the total value of the property insured.In consideration of a reduced rate the insured agrees to carry insurance equal to whatever the stipulated percentage is to the total value of the property.If that condition is not met, the company pays claims only in the proportion to the amount of coverage that was carried.The equation used to determine what amount may be collected for partial loss is: Amount of Insurance Carried X Loss = Pay Amount that Should Have Been Carried Collusion An agreement, usually secret, between two or more persons to defraud or deprive another of their property or rights. Combined Ratio The sum of an expense and a loss ratio.Underwriting profit occurs when the combined ratio is under 100%, and underwriting loss occurs when the combined ratio is over 100%. Commingling An illegal practice which occurs when an agent mixes personal finds with the insured’s or insurer’s finds. Common Law Liability Responsibility based on common law for injury or damage to another’s person or property which rests on an individual because of actions or negligence.
Common Policy Declarations A common declaration page which is part of every policy that shows information applicable to the entire policy such as policy number, insurer, insured, total premium, forms attached, etc.Individual coverage parts may have their own declaration page. Conflagration A massive fire which destroys many contiguous properties. Conversion Wrongful use of property by one in lawful possession of it. Change of one policy form to another usually without evidence of insurability Cover Note A written statement usually issued by an intermediary, broker, or direct writer indicating that coverage has been effected.Also known as The Slip or Binder. Cut-Through Endorsement An endorsement which requires that, in the event of the insolvency of an insurer, any loss covered by a reinsurance agreement will be paid by the reinsurer directly to the insured or a third pa rtybeneficiary.Also called assumption of liability endorsement. d Daily Report An abbreviated statement of pertinent policy information with copies for the insurer, the agent and others. Usually the top page of a policy. Date of Issue The date on a policy which states when the contract was issued by the insurer.Not necessarily the same as the effective date of the policy. Declaratory Judgment A court decision sought by either the insured or insurer to determine whether an insurance company has an obligation to defend, indemnify or pay on behalf of its policyholder under a policy for a particular loss or losses. Deductible The portion of an insured loss to be borne by the insured before he is entitled to recovery from the insurer. Degree of Risk The amount of uncertainty that exists in a given situation.The degree of risk present in a coin flip is 50%, as there is a 50% chance that the side chosen (head or tails) will come up. Depreciation A decrease in the value of any type of tangible property over a period of time resulting from use, wear and tear or obsolescence. |
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