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Online Insurance Glossary - Select the letter
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A Back To Top |
| ACCELERATED DEATH BENEFITS |
A life insurance policy option that provides
policy proceeds to insured individuals over their lifetimes, in
the event of a terminal illness. This is in lieu of a
traditional policy that pays beneficiaries after the insured's
death. Such benefits kick in if the insured becomes terminally
ill, needs extreme medical intervention, or must reside in a
nursing home. The payments made while the insured is living are
deducted from any death benefits paid to beneficiaries.
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| 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.
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| ACCOUNT RECEIVABLES |
See Receivables
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| ACTUAL CASH VALUE |
A form of insurance that pays damages equal to
the replacement value of damaged property minus depreciation.
(See Replacement cost)
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| 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)
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| ADMITTED COMPANY |
An insurance company licensed and authorized to
do business in a particular state.
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| 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.
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| AFFINITY SALES |
Selling insurance through groups such as
professional and business associations.
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| AFTERMARKET PARTS |
See Crash parts; Generic auto parts
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| AGENCY COMPANIES |
Companies that market and sell products via
independent agents.
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| 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.
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| 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.
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| ALLIED LINES |
Property insurance that is usually bought in
conjunction with fire insurance; it includes wind, water damage,
and vandalism coverage.
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| 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.
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| 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.
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| 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.
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| 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.
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| APPORTIONMENT |
The dividing of a loss proportionately among
two or more insurers that cover the same loss.
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| APPRAISAL |
A survey to determine a property's insurable
value, or the amount of a loss.
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| 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.
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| ARSON |
The deliberate setting of a fire.
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| 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.
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| 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)
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| AUTO INSURANCE POLICY |
There are basically six different types of
coverages. Some may be required by law. Others are optional.
They are:
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Bodily injury liability, for injuries the policyholder causes
to someone else.
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Medical payments or Personal Injury Protection (PIP) for
treatment of injuries to the driver and passengers of the
policyholder's car.
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Property damage liability, for damage the policyholder causes
to someone else's property.
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Collision, for damage to the policyholder's car from a
collision.
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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.
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Uninsured motorists coverage, for costs resulting from an
accident involving a hit-and-run driver or a driver who does
not have insurance.
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| 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)
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| 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.
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B Back To Top |
| BALANCE SHEET |
Provides a snapshot of a company's financial
condition at one point in time. It shows assets, including
investments and reinsurance, and liabilities, such as loss
reserves to pay claims in the future, as of a certain date. It
also states a company's equity, known as policyholder surplus.
Changes in that surplus are one indicator of an insurer's
financial standing.
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| 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.
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| BASIS POINT |
0.01 percent of the yield of a mortgage, bond
or note. The smallest measure used.
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| 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)
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| BINDER |
Temporary authorization of coverage issued
prior to the actual insurance policy.
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| 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.
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| BODILY INJURY LIABILITY COVERAGE |
Portion of an auto insurance policy that covers
injuries the policyholder causes to someone else.
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| 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.
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| 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.
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| BOND RATING |
An evaluation of a bond's financial strength,
conducted by such major ratings agencies as Standard & Poor's
and Moody's Investors Service.
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| BOOK OF BUSINESS |
Total amount of insurance on an insurer's books
at a particular point in time.
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| 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.
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| 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.
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| 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.
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| 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.
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C Back To Top |
| CAPACITY |
| The supply of insurance available to meet
demand. Capacity depends on the industry's financial ability to
accept risk. For an individual insurer, the maximum amount of
risk it can underwrite based on its financial condition. The
adequacy of an insurer's capital relative to its exposure to
loss is an important measure of solvency.
A property/casualty insurer must maintain a certain level of
capital and policyholder surplus to underwrite risks. This
capital is known as capacity. When the industry is hit by high
losses, such as after the World Trade Center terrorist attack,
capacity is diminished. It can be restored by increases in net
income, favorable investment returns, reinsuring more risk and
or raising additional capital. When there is excess capacity,
usually because of a high return on investments, premiums tend
to decline as insurers compete for market share. As premiums
decline, underwriting losses are likely to grow, reducing
capacity and causing insurers to raise rates and tighten
conditions and limits in an effort to increase profitability.
Policyholder surplus is sometimes used as a measure of capacity.
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| 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)
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| CAPITAL MARKETS |
The markets in which equities and debt are
traded. (See Securitization of insurance risk)
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| 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)
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| CAPTIVES |
Insurers that are created and wholly-owned by
one or more non-insurers, to provide owners with coverage. A
form of self-insurance.
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| CAR YEAR |
Equal to 365 days of insured coverage for a
single vehicle. It is the standard measurement for automobile
insurance.
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| 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.
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| 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.
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| CATASTROPHE BONDS |
Risk-based securities that pay high interest
rates and provide insurance companies with a form of reinsurance
to pay losses from a catastrophe such as those caused by a major
hurricane. They allow insurance risk to be sold to institutional
investors in the form of bonds, thus spreading the risk. (See
Securitization of insurance risk)
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| CATASTROPHE DEDUCTIBLE |
A percentage or dollar amount that a homeowner
must pay before the insurance policy kicks in when a major
natural disaster occurs. These large deductibles limit an
insurer's potential losses in such cases, allowing it to insure
more property. A property insurer may not be able to buy
reinsurance to protect its own bottom line unless it keeps its
potential maximum losses under a certain level.
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| CATASTROPHE FACTOR |
Probability of catastrophic loss, based on the
total number of catastrophes in a state over a 40-year period.
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| CATASTROPHE MODEL |
Using computers, a method to mesh long-term
disaster information with current demographic, building and
other data to determine the potential cost of natural disasters
and other catastrophic losses for a given geographic area.
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| 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.
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| CELL PHONE INSURANCE |
Separate insurance provided to cover cell
phones for damage or theft. Policies are often sold with the
cell phones themselves.
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| CHARTERED FINANCIAL CONSULTANT / ChFC |
A professional designation given by The
American College to financial services professionals who
complete courses in financial planning.
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| CHARTERED LIFE UNDERWRITER / CLU |
A professional designation by The American
College for those who pass business examinations on insurance,
investments, and taxation, and have life insurance planning
experience.
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| CHARTERED PROPERTY/CASUALTY UNDERWRITER /
CPCU |
A professional designation given by the
American Institute for Property and Liability Underwriters.
National examinations and three years of work experience are
required.
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| CLAIMS-MADE POLICY |
A form of insurance that pays claims presented
to the insurer during the term of the policy or within a
specific term after its expiration. It limits liability
insurers' exposure to unknown future liabilities. (See
Occurrence policy)
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| 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.
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| 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.
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| COLLATERAL |
Property that is offered to secure a loan or
other credit and that becomes subject to seizure on default.
(Also called security.)
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| 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.
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| COLLISION COVERAGE |
Portion of an auto insurance policy that covers
the damage to the policyholder's car from a collision.
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| 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.
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| 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.
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| 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)
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| COMMERCIAL MULTIPLE PERIL POLICY |
Package policy that includes property, boiler
and machinery, crime, and general liability coverages.
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| 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.
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| 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.
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| 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.
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| COMPETITIVE REPLACEMENT PARTS |
See Crash parts; Generic auto parts
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| COMPETITIVE STATE FUND |
A facility established by a state to sell
workers compensation in competition with private insurers.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| COVERAGE |
Synonym for insurance.
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| CRASH PARTS |
Sheet metal parts that are most often damaged
in a car crash. (See Generic auto parts)
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| CREDIT |
The promise to pay in the future in order to
buy or borrow in the present. The right to defer payment of
debt.
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| 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.
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| 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.
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| 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.
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| 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.
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| CREDIT RATING |
See Bond rating
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| 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.)
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| 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.
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D Back To Top |
| DECLARATION |
Part of a property or liability insurance
policy that states the name and address of policyholder,
property insured, its location and description, the policy
period, premiums, and supplemental information. Referred to as
the "dec page."
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| 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.
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| 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.
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| 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.
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| DEMAND DEPOSIT |
Customer assets that are held in a checking
account. Funds can be readily withdrawn by check, "on demand."
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| DEMUTUALIZATION |
The conversion of insurance companies from
mutual companies owned by their policyholders into
publicly-traded stock companies.
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| 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.
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| 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.
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| 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.
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| DIMINUTION OF VALUE |
The idea that a vehicle loses value after it
has been damaged in an accident and repaired.
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| 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.
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| 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.
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| 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.
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| 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.
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| 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.
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| DOMESTIC INSURANCE COMPANY |
Term used by a state to refer to any company
incorporated there.
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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.
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EARNED PREMIUM |
The portion of premium that applies to the expired part of the
policy period. Insurance premiums are payable in advance but the
insurance company does not fully earn them until the policy
period expires.
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EARTHQUAKE INSURANCE |
Covers a building and its contents, but includes a large
percentage deductible on each. A special policy or endorsement
exists because earthquakes are not covered by standard
homeowners or most business policies.
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ECONOMIC LOSS |
Total financial loss resulting from the death or disability of a
wage earner, or from the destruction of property. Includes the
loss of earnings, medical expenses, funeral expenses, the cost
of restoring or replacing property, and legal expenses. It does
not include noneconomic losses, such as pain caused by an
injury.
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ELECTRONIC COMMERCE / E-COMMERCE |
The sale of products such as insurance over the Internet.
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ELIMINATION PERIOD |
A kind of deductible or waiting period usually found in
disability policies. It is counted in days from the beginning of
the illness or injury.
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EMPLOYEE RETIREMENT INCOME SECURITY ACT / ERISA |
Federal legislation that protects employees by establishing
minimum standards for private pension and welfare plans.
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EMPLOYMENT PRACTICES LIABILITY COVERAGE |
Liability insurance for employers that covers wrongful
termination, discrimination, or sexual harassment toward the
insured's employees or former employees.
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ENDORSEMENT |
A written form attached to an insurance policy that alters the
policy's coverage, terms, or conditions. Sometimes called a
rider.
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ENVIRONMENTAL IMPAIRMENT LIABILITY COVERAGE |
A form of insurance designed to cover losses and liabilities
arising from damage to property caused by pollution.
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EQUITY |
In investments, the ownership interest of shareholders. In a
corporation, stocks as opposed to bonds.
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ERRORS AND OMISSIONS COVERAGE / E&O |
A professional liability policy covering the policyholder for
negligent acts and omissions that may harm his or her clients.
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ESCROW ACCOUNT |
Funds that a lender collects to pay monthly premiums in mortgage
and homeowners insurance, and sometimes to pay property taxes.
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EXCESS AND SURPLUS LINES |
Property/casualty coverage that isn't available from insurers
licensed by the state (called admitted insurers) and must be
purchased from a non-admitted carrier.
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EXCLUSION |
A provision in an insurance policy that eliminates coverage for
certain risks, people, property classes, or locations.
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EXCLUSIVE AGENT |
A captive agent, or a person who represents only one insurance
company and is restricted by agreement from submitting business
to any other company unless it is first rejected by the agent's
company. (See Captive agent)
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EXPENSE RATIO |
Percentage of each premium dollar that goes to insurers'
expenses including overhead, marketing, and commissions.
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EXPERIENCE |
Record of losses.
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EXPOSURE |
Possibility of loss.
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EXTENDED COVERAGE |
An endorsement added to an insurance policy, or clause within a
policy, that provides additional coverage for risks other than
those in a basic policy.
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EXTENDED REPLACEMENT COST COVERAGE |
Pays a certain amount above the policy limit to replace a
damaged home, generally 120 percent or 125 percent. Similar to a
guaranteed replacement cost policy, which has no percentage
limits. Most homeowner policy limits track inflation in building
costs. Guaranteed and extended replacement cost policies are
designed to protect the policyholder after a major disaster when
the high demand for building contractors and materials can push
up the normal cost of reconstruction. (See Guaranteed
replacement cost coverage)
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FACULTATIVE REINSURANCE |
A reinsurance policy that provides an insurer with coverage for
specific individual risks that are unusual or so large that they
aren't covered in the insurance company's reinsurance treaties.
This can include policies for jumbo jets or oil rigs. Reinsurers
have no obligation to take on facultative reinsurance, but can
assess each risk individually. By contrast, under treaty
reinsurance, the reinsurer agrees to assume a certain percentage
of entire classes of business, such as various kinds of auto, up
to preset limits.
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FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS / FAIR PLANS |
Insurance pools that sell property insurance to people who can't
buy it in the voluntary market because of high risk over which
they may have no control. FAIR Plans, which exist in 28 states
and the District of Columbia, insure fire, vandalism, riot, and
windstorm losses, and some sell homeowners insurance which
includes liability. Plans vary by state, but all require
property insurers licensed in a state to participate in the pool
and share in the profits and losses. (See Residual market)
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FARMOWNERS-RANCHOWNERS INSURANCE |
Package policy that protects the policyholder against named
perils and liabilities and usually covers homes and their
contents, along with barns, stables, and other structures.
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FEDERAL FUNDS |
Reserve balances that depository institutions lend each other,
usually on an overnight basis. In addition, Federal funds
include certain other kinds of borrowings by depository
institutions from each other and from federal agencies.
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FEDERAL INSURANCE ADMINISTRATION / FIA |
Federal agency in charge of administering the National Flood
Insurance Program. It does not regulate the insurance industry.
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FEDERAL RESERVE BOARD |
Seven-member board that supervises the banking system by issuing
regulations controlling bank holding companies and federal laws
over the banking industry. It also controls and oversees the
U.S. monetary system and credit supply.
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FIDELITY BOND |
A form of protection that covers policyholders for losses that
they incur as a result of fraudulent acts by specified
individuals. It usually insures a business for losses caused by
the dishonest acts of its employees.
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FIDUCIARY BOND |
A type of surety bond, sometimes called a probate bond, which is
required of certain fiduciaries, such as executors and trustees,
that guarantees the performance of their responsibilities.
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FIDUCIARY LIABILITY |
Legal responsibility of a fiduciary to safeguard assets of
beneficiaries. A fiduciary, for example a pension fund manager,
is required to manage investments held in trust in the best
interest of beneficiaries. Fiduciary liability insurance covers
breaches of fiduciary duty such as misstatements or misleading
statements, errors and omissions.
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FILE-AND-USE STATES |
States where insurers must file rate changes with their
regulators, but don't have to wait for approval to put them into
effect.
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FINANCIAL GUARANTEE INSURANCE |
Covers losses from specific financial transactions and
guarantees that investors in debt instruments, such as municipal
bonds, receive timely payment of principal and interest if there
is a default. Raises the credit rating of debt to which the
guarantee is attached. Investment bankers who sell asset-backed
securities, securities backed by loan portfolios, use this
insurance to enhance marketability. (See Municipal bond
insurance)
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FINANCIAL RESPONSIBILITY LAW |
A state law requiring that all automobile drivers show proof
that they can pay damages up to a minimum amount if involved in
an auto accident. Varies from state to state but can be met by
carrying a minimum amount of auto liability insurance. (See
Compulsory auto insurance)
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FINITE RISK REINSURANCE |
Contract under which the ultimate liability of the reinsurer is
capped and on which anticipated investment income is expressly
acknowledged as an underwriting component. Also known as
Financial Reinsurance because this type of coverage is often
bought to improve the balance sheet effects of statutory
accounting principles.
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FIRE INSURANCE |
Coverage protecting property against losses caused by a fire or
lightning that is usually included in homeowners or commercial
multiple peril policies.
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FIRST-PARTY COVERAGE |
Coverage for the policyholder's own property or person. In
no-fault auto insurance it pays for the cost of injuries. In
no-fault states with the broadest coverage, the personal injury
protection (PIP) part of the policy pays for medical care, lost
income, funeral expenses and, where the injured person is not
able to provide services such as child care, for substitute
services. (See No-fault; Third-party coverage)
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FIXED ANNUITY |
An annuity that pays the annuitant a guaranteed, fixed return
every month for a fixed premium. The guarantee is based on the
expected return of the underlying investments of the insurance
company. (See Annuity)
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FLOATER |
Attached to a homeowners policy, a floater insures movable
property, covering losses wherever they may occur. Among the
items often insured with a floater are expensive jewelry,
musical instruments, and furs. It provides broader coverage than
a regular homeowners policy for these items.
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FLOOD INSURANCE |
Coverage for flood damage is available from the federal
government under the National Flood Insurance Program but is
sold by licensed insurance agents. Flood coverage is excluded
under homeowners policies and many commercial property policies.
However, flood damage is covered under the comprehensive portion
of an auto insurance policy. (See Adverse selection)
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FORCED PLACE INSURANCE |
Insurance purchased by a bank or creditor on an uninsured
debtor's behalf so if the property is damaged, funding is
available to repair it.
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FOREIGN INSURANCE COMPANY |
Name given to an insurance company based in one state by the
other states in which it does business.
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FRAUD |
Intentional lying or concealment by policyholders to obtain
payment of an insurance claim that would otherwise not be paid,
or lying or misrepresentation by the insurance company managers,
employees, agents, and brokers for financial gain.
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FREQUENCY |
Number of times a loss occurs. One of the criteria used in
calculating premium rates.
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FRONTING |
A procedure in which a primary insurer acts as the insurer of
record by issuing a policy, but then passes the entire risk to a
reinsurer in exchange for a commission. Often, the fronting
insurer is licensed to do business in a state or country where
the risk is located, but the reinsurer is not. The reinsurer in
this scenario is often a captive or an independent insurance
company that cannot sell insurance directly in a particular
country.
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FUTURES |
Agreement to buy a security for a set price at a certain date.
Futures contracts usually involve commodities, indexes or
financial futures.
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GAP INSURANCE |
An automobile insurance option, available in some states, that
covers the difference between a car's actual cash value when it
is stolen or wrecked and the amount the consumer owes the
leasing or finance company. Mainly used for leased cars. (See
Actual cash value)
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GENERALLY ACCEPTED ACCOUNTING PRINCIPLES/GAAP |
Generally accepted accounting principles (GAAP) accounting is
used in financial statements that publicly-held companies
prepare for the Securities and Exchange Commission. (See
Statutory accounting principles / SAP)
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GENERIC AUTO PARTS |
Auto crash parts produced by firms that are not associated with
car manufacturers. Insurers consider these parts, when
certified, at least as good as those that come from the original
equipment manufacturer (OEM). They are often cheaper than the
identical part produced by the OEM. (See Crash parts;
Aftermarket parts; Competitive replacement parts; Original
equipment manufacturer parts / OEM)
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GLASS INSURANCE |
Coverage for glass breakage caused by all risks; fire and war
are sometimes excluded. Insurance can be bought for windows,
structural glass, leaded glass, and mirrors. Available with or
without a deductible.
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GRADUATED DRIVER LICENSES |
Licenses for younger drivers that allow them to improve their
skills. Regulations vary by state, but often restrict night time
driving. Young drivers receive a learner's permit, followed by a
provisional license, before they can receive a standard drivers
license.
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GRAMM-LEACH-BLILEY ACT |
Financial services legislation, passed by Congress in 1999, that
removed Depression-era prohibitions against the combination of
commercial banking and investment-banking activities. It allows
insurance companies, banks, and securities firms to engage in
each others' activities and own one another.
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GROUP INSURANCE |
A single policy covering a group of individuals, usually
employees of the same company or members of the same association
and their dependents. Coverage occurs under a master policy
issued to the employer or association.
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GUARANTEED INCOME CONTRACT / GIC |
Often an option in an employer-sponsored retirement savings
plan. Contract between an insurance company and the plan that
guarantees a stated rate of return on invested capital over the
life of the contract.
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GUARANTEED REPLACEMENT COST COVERAGE |
Homeowners policy that pays the full cost of replacing or
repairing a damaged or destroyed home, even if it is above the
policy limit. (See Extended replacement cost coverage)
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GUARANTY FUND |
The mechanism by which solvent insurers ensure that some of the
policyholder and third party claims against insurance companies
that fail are paid. Such funds are required in all 50 states,
the District of Columbia and Puerto Rico, but the type and
amount of claim covered by the fund varies from state to state.
Some states pay policyholders' unearned premiums - the portion
of the premium for which no coverage was provided because the
company was insolvent. Some have deductibles. Most states have
no limits on workers compensation payments. Guaranty funds are
supported by assessments on insurers doing business in the
state.
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GUN LIABILITY |
A new legal concept that holds gun manufacturers liable for the
cost of injuries caused by guns. Several cities have filed
lawsuits based on this concept.
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HACKER INSURANCE |
A coverage that protects businesses engaged in electronic
commerce from losses caused by hackers.
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HARD MARKET |
A seller's market in which insurance is expensive and in short
supply. (See Property/casualty insurance cycle)
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HOMEOWNERS INSURANCE POLICY |
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The typical homeowners insurance policy covers the house, the
garage and other structures on the property, as well as personal
possessions inside the house such as furniture, appliances and
clothing, against a wide variety of perils including windstorms,
fire and theft. The extent of the perils covered depends on the
type of policy. An all-risk policy offers the broadest coverage.
This covers all perils except those specifically excluded in the
policy.
Homeowners insurance also covers additional living expenses.
Known as Loss of Use, this provision in the policy reimburses
the policyholder for the extra cost of living elsewhere while
the house is being restored after a disaster. The liability
portion of the policy covers the homeowner for accidental
injuries caused to third parties and/or their property, such as
a guest slipping and falling down improperly maintained stairs.
Coverage for flood and earthquake damage is excluded and must be
purchased separately. (See Flood insurance; Earthquake
insurance)
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HOUSE YEAR |
Equal to 365 days of insured coverage for a single dwelling. It
is the standard measurement for homeowners insurance.
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HURRICANE DEDUCTIBLE |
A percentage or dollar amount added to a homeowner's insurance
policy to limit an insurer's exposure to loss from a hurricane.
Higher deductibles are instituted in higher risk areas, such as
coastal regions. Specific details, such as the intensity of the
storm for the deductible to be triggered and the extent of the
high risk area, vary from insurer to insurer and state to state.
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IDENTITY THEFT INSURANCE |
Coverage for expenses incurred as the result of an identity
theft. Can include costs for notarizing fraud affidavits and
certified mail, lost income from time taken off from work to
meet with law-enforcement personnel or credit agencies, fees for
reapplying for loans and attorney's fees to defend against
lawsuits and remove criminal or civil judgements.
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INCURRED BUT NOT REPORTED LOSSES / IBNR |
Losses that are not filed with the insurer or reinsurer until
years after the policy is sold. Some liability claims may be
filed long after the event that caused the injury to occur.
Asbestos-related diseases, for example, do not show up until
decades after the exposure. IBNR also refers to estimates made
about claims already reported but where the full extent of the
injury is not yet known, such as a workers compensation claim
where the degree to which work-related injuries prevents a
worker from earning what he or she earned before the injury
unfolds over time. Insurance companies regularly adjust reserves
for such losses as new information becomes available.
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INCURRED LOSSES |
Losses occurring within a fixed period, whether or not adjusted
or paid during the same period.
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INDEMNIFY |
Provide financial compensation for losses.
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INDEPENDENT AGENT |
Agent who is self-employed, is paid on commission, and
represents several insurance companies. (See Captive agent)
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INDIVIDUAL RETIREMENT ACCOUNT/IRA |
A tax-deductible savings plan for those who are self-employed,
or those whose earnings are below a certain level or whose
employers do not offer retirement plans. Others may make limited
contributions on a tax-deferred basis. The Roth IRA, a special
kind of retirement account created in 1997, may offer greater
tax benefits to certain individuals.
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INFLATION GUARD CLAUSE |
A provision added to a homeowners insurance policy that
automatically adjusts the coverage limit on the dwelling each
time the policy is renewed to reflect current construction
costs.
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INLAND MARINE INSURANCE |
This broad type of coverage was developed for shipments that do
not involve ocean transport. Covers articles in transit by all
forms of land and air transportation as well as bridges, tunnels
and other means of transportation and communication. Floaters
that cover expensive personal items such as fine art and jewelry
are included in this category. (See Floater)
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INSOLVENCY |
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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
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