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Insurance Glossary - Select the letter
| A
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| 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.
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| 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.
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| 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.
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| 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)
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| 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
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| 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.
|
| 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
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| 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)
|
| 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 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.
|
| 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. (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
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| 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.
|
|
| E
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| 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.
|
| 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.
|
| 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.
|
| EMPLOYEE
RETIREMENT INCOME SECURITY ACT / ERISA |
Federal
legislation that protects employees by establishing minimum
standards for private pension and welfare plans.
|
| EMPLOYMENT
PRACTICES LIABILITY COVERAGE |
Liability
insurance for employers that covers wrongful termination,
discrimination, or sexual harassment toward the insured's
employees or former employees.
|
| ENDORSEMENT |
A
written form attached to an insurance policy that alters the
policy's coverage, terms, or conditions. Sometimes called
a rider.
|
| ENVIRONMENTAL
IMPAIRMENT LIABILITY COVERAGE |
A
form of insurance designed to cover losses and liabilities
arising from damage to property caused by pollution.
|
| EQUITY |
In
investments, the ownership interest of shareholders. In a
corporation, stocks as opposed to bonds.
|
| 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.
|
| 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. (See Captive agent)
|
| 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.
|
| 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.
|
| 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)
|
| 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.
|
| 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.
|
| FEDERAL
INSURANCE ADMINISTRATION / FIA |
Federal
agency in charge of administering the National Flood Insurance
Program. It does not regulate the insurance industry.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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)
|
| 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)
|
| 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
INSURANCE |
Coverage
protecting property against losses caused by a fire or lightning
that is usually included in homeowners or commercial multiple
peril policies.
|
| 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)
|
| 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)
|
| 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.
|
| 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)
|
| 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.
|
| 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.
|
|
| G
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| 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)
|
| 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)
|
| 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)
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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
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)
|
| 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.
|
| 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.
|
|
| H
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| 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. (SeeProperty/casualty insurance
cycle)
|
| 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)
|
| HOUSE
YEAR |
Equal
to 365 days of insured coverage for a single dwelling. It
is the standard measurement for homeowners insurance.
|
| 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.
|
|
| I
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| 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.
|
| 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. (See Captive
agent)
|
| 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.
|
| 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.
|
| 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)
|
| 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)
|
| 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. (See Beach and
windstorm plans; Fair access to
insurance requirements plans / FAIR plans; Joint
underwriting association / JUA)
|
| 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.
|
| 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.
|
| INSURANCE-TO-VALUE |
Insurance
written in an amount approximating the value of the insured
property.
|
| 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.
|
| 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.
|
|
| J
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| 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)
|
| 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.
|
|
| K
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| 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.
|
|
| L
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| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
|
| M
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| 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)
|
| 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
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| 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
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| 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
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| 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
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| |
| R
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| 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
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| 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 ratheAdmitted
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
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| 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.
|
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| U
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| 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
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| 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.
|
| 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.
|
| 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.
|
| VOLCANO
COVERAGE |
Most
homeowners policies cover damage from a volcanic eruption.
|
| VOLUME |
Number
of shares a stock trades either per day or per week.
|
|
| W
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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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| 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.
|
| WRITE |
To
insure, underwrite, or accept an application for insurance.
|
| WRITTEN
PREMIUMS |
See
Premiums written
|
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| 4
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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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| 5
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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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