Glossary of
Insurance Terms
To help you better understand
insurance terminology, please click below on the first
letter of the term you wish to view, or scroll down to view the entire list.
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| A-SHARE
VARIABLE ANNUITY |
A form of
variable annuity contract where the contract holder pays sales charges
up front rather than eventually having to pay a surrender charge.
|
|
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.
|
| ACTUAL
CASH VALUE |
A form of
insurance that pays damages equal to the replacement value of damaged
property minus depreciation.
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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.
|
| 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.
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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.
|
| 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.
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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.
|
| ANNUAL
ANNUITY CONTRACT FEE |
Covers the
cost of administering an annuity contract.
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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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|
ANNUITANT |
The person
(s) who receives the income from an annuity contract. Usually the owner
of the contract or his or her spouse.
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|
ANNUITIZATION |
The
conversion of the account balance of a deferred annuity contract to
income payments.
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| ANNUITY |
A life
insurance product that pays periodic income benefits for a specific
period of time or over the course of the annuitant’s lifetime. There are
two basic types of annuities: deferred and immediate: Deferred annuities
allow assets to grow tax deferred over time before being converted to
payments to the annuitant. Immediate annuities allow payments to begin
within about a year of purchase.
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| ANNUITY
ACCUMULATION PHASE OR PERIOD |
The period
during which the owner of a deferred annuity makes payments to build up
assets.
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| ANNUITY
ADMINISTRATIVE CHARGES |
Covers the
cost of customer services for owners of variable annuities.
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| ANNUITY
BENEFICIARY |
In certain
types of annuities, a person who receives annuity contract payments if
the annuity owner or annuitant dies while payments are still due.
|
| ANNUITY
CONTRACT |
An
agreement similar to an insurance policy for other insurance products
such as auto insurance.
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| ANNUITY
CONTRACT OWNER |
The person
or entity that purchases an annuity and has all rights to the contract.
Usually, but not always, the annuitant (the person who receives incomes
from the contract).
|
| ANNUITY
DEATH BENEFITS |
The
guarantee that if an annuity contract owner dies before annuitization
(the switchover from the savings to the payment phase) the beneficiary
will receive the value of the annuity that is due.
|
| ANNUITY
INSURANCE CHARGES |
Covers
administrative and mortality and expense risk costs.
|
| ANNUITY
INVESTMENT MANAGEMENT FEE |
The fee
paid for the management of variable annuity invested assets.
|
| ANNUITY
ISSUER |
The
insurance company that issues the annuity.
|
| ANNUITY
PROSPECTUS |
Legal
document providing detailed information about variable annuity
contracts. Must be offered to each prospective buyer.
|
| ANNUITY
PURCHASE RATE |
The cost of
an annuity based on such factors as the age and gender of the contract
owner.
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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.
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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.
|
| 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.
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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.
|
| ASSIGNED
RISK PLANS |
Facilities
through which drivers can obtain auto insurance if they are unable to
buy it in the regular or voluntary market. These are the most well-known
type of residual auto insurance market, which exist in every state. In
an assigned risk plan, all insurers selling auto insurance in the state
are assigned these drivers to insure, based on the amount of insurance
they sell in the regular market.
|
| AUTO
INSURANCE POLICY |
There are
basically six different types of coverage. 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.
|
| 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-SHARE
VARIABLE ANNUITY |
A form of
variable annuity contract with no initial sales charge but if the
contract is cancelled the holder pays deferred sales charges (usually
from 5 to 7 percent the first year, declining to zero after from 5 to 7
years). The most common form of annuity contract.
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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.
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| BINDER |
Temporary
authorization of coverage issued prior to the actual insurance policy.
|
| BLANKET
INSURANCE |
Coverage
for more than one type of property at one location or one type of
property at more than one location. Example: chain stores.
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| 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
INCOME INSURANCE (also known as 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.
|
| BUSINESS
OWNERS POLICY / BOP |
A policy
that combines property, liability and business interruption coverage for
small- to medium-sized businesses. Coverage is generally cheaper than if
purchased through separate insurance policies.
|
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| C-SHARE
VARIABLE ANNUITIES |
A form of
variable annuity contract where the contract holder pays no sales up
front or surrender charges. Owners can claim full liquidity at any time.
|
| 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 risk of an insurer’s business. A company
underwriting medical device manufacturers needs a larger cushion of
capital than a company writing Main Street business, for example.
|
| CAPITAL
MARKETS |
The markets
in which equities and debt are traded.
|
| CAPTIVE
AGENT |
A person
who represents only one insurance company and is restricted by agreement
from submitting business to any other company, unless it is first
rejected by the agent’s captive company.
|
| CAPTIVES |
Insurers
that are created and wholly-owned by one or more non-insurers, to
provide owners with coverage. A form of self-insurance.
|
| CAR YEAR |
Equal to
365 days of insured coverage for a single vehicle. It is the standard
measurement for automobile insurance.
|
| CASE
MANAGEMENT |
A system of
coordinating medical services to treat a patient, improve care, and
reduce cost. A case manager coordinates health care delivery for
patients.
|
|
CATASTROPHE |
Term used
for statistical recording purposes to refer to a single incident or a
series of closely related incidents causing severe insured property
losses totaling more than a given amount, currently $25 million.
|
|
CATASTROPHE BONDS |
Risk-based
securities that pay high interest rates and provide insurance companies
with a form of reinsurance to pay losses from a catastrophe such as
those caused by a major hurricane. They allow insurance risk to be sold
to institutional investors in the form of bonds, thus spreading the
risk.
|
|
CATASTROPHE DEDUCTIBLE |
A
percentage or dollar amount that a homeowner must pay before the
insurance policy kicks in when a major natural disaster occurs. These
large deductibles limit an insurer’s potential losses in such cases,
allowing it to insure more property. A property insurer may not be able
to buy reinsurance to protect its own bottom line unless it keeps its
potential maximum losses under a certain level.
|
|
CATASTROPHE FACTOR |
Probability
of catastrophic loss, based on the total number of catastrophes in a
state over a 40-year period.
|
|
CATASTROPHE MODEL |
Using
computers, a method to mesh long-term disaster information with current
demographic, building and other data to determine the potential cost of
natural disasters and other catastrophic losses for a given geographic
area.
|
|
CATASTROPHE REINSURANCE |
| Reinsurance
(insurance for insurers) for catastrophic losses. The insurance industry
is able to absorb the multibillion dollar losses caused by natural and
man-made disasters such as hurricanes, earthquakes and terrorist attacks
because losses are spread among thousands of companies including
catastrophe reinsurers who operate on a global basis. Insurers’ ability
and willingness to sell insurance fluctuates with the availability and
cost of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and the 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.
|
| 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.
|
|
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 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.
|
| CREDIT |
The promise
to pay in the future in order to buy or borrow in the present. The right
to defer payment of debt.
|
| CREDIT
DERIVATIVES |
A contract
that enables a user, such as a bank, to better manage its credit risk. A
way of transferring credit risk to another party.
|
| CREDIT
ENHANCEMENT |
A technique
to lower the interest payments on a bond by raising the issue’s credit
rating, often through insurance in the form of a financial guarantee or
with standby letters of credit issued by a bank.
|
| CREDIT
INSURANCE |
Commercial
coverage against losses resulting from the failure of business debtors
to pay their obligation to the insured, usually due to insolvency. The
coverage is geared to manufacturers, wholesalers, and service providers
who may be dependent on a few accounts and therefore could lose
significant income in the event of an insolvency.
|
| CREDIT
LIFE INSURANCE |
Life
insurance coverage on a borrower designed to repay the balance of a loan
in the event the borrower dies before the loan is repaid. It may also
include disablement and can be offered as an option in connection with
credit cards and auto loans.
|
| CREDIT
SCORE |
The number
produced by an analysis of an individual’s credit history. The use of
credit information affects all consumers in many ways, from getting a
job, finding a place to live, securing a loan, getting a telephone, and
buying insurance. Credit history is routinely reviewed by insurers
before issuing a commercial policy because businesses in poor financial
condition tend to cut back on safety which can lead to more accidents
and more claims. Auto and home insurers may use information in a credit
history to produce an insurance score. Insurance scores may be used in
underwriting and rating insurance policies.
|
| CRIME
INSURANCE |
Term
referring to property coverages for the perils of burglary, theft and
robbery.
|
|
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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|
DECLARATION |
Part of a
property or liability insurance policy that states the name and address
of policyholder, property insured, its location and description, the
policy period, premiums, and supplemental information. Referred to as
the “dec page.”
|
|
DEDUCTIBLE |
The amount
of loss paid by the policyholder. Either a specified dollar amount, a
percentage of the claim amount, or a specified amount of time that must
elapse before benefits are paid. The bigger the deductible, the lower
the premium charged for the same coverage.
|
| DEFERRED
ANNUITY |
An annuity
contract that is purchased either with a single tax-deferred premium or
with periodic tax-deferred premiums over time. Payments begin at a
predetermined point in time, such as retirement.
|
| DEFINED
BENEFIT PLAN |
A
retirement plan under which pension benefits are fixed in advance by a
formula based generally on years of service to the company multiplied by
a specific percentage of wages, usually average earnings over that
period or highest average earnings over the final years with the
company.
|
| DEFINED
CONTRIBUTION PLAN |
An employee
benefit plan under which the employer sets up benefit accounts and
contributions are made to it by the employer and by the employee. The
employer usually matches the employee's contribution up to a stated
limit.
|
| DEMAND
DEPOSIT |
Customer
assets that are held in a checking account. Funds can be readily
withdrawn by check, “on demand.”
|
|
DEMUTUALIZATION |
The
conversion of insurance companies from mutual companies owned by their
policyholders into publicly-traded stock companies.
|
|
DEPOSITORY INSTITUTION |
Financial
institution that obtains its funds mainly through deposits from the
public. Includes commercial banks, savings and loan associations,
savings banks, and credit unions.
|
|
DEREGULATION |
In
insurance, reducing regulatory control over insurance rates and forms.
Commercial insurance for businesses of a certain size has been
deregulated in many states.
|
|
DERIVATIVES |
Contracts
that derive their value from an underlying financial asset, such as
publicly-traded securities and foreign currencies. Often used as a hedge
against changes in value.
|
|
DIMINUTION OF VALUE |
The idea
that a vehicle loses value after it has been damaged in an accident and
repaired.
|
| DIRECT
PREMIUMS |
Property/casualty premiums collected by the insurer from policyholders,
before reinsurance premiums are deducted. Insurers share some direct
premiums and the risk involved with their reinsurers.
|
| DIRECT
SALES/ DIRECT RESPONSE |
Method of
selling insurance directly to the insured through an insurance company’s
own employees, through the mail, or via the Internet. This is in lieu of
using captive or exclusive agents.
|
| DIRECT
WRITERS |
Insurance
companies that sell directly to the public using exclusive agents or
their own employees, through the mail, or via Internet. Large insurers,
whether predominately direct writers or agency companies, are
increasingly using many different channels to sell insurance. In
reinsurance, denotes reinsurers that deal directly with the insurance
companies they reinsure without using a broker.
|
|
DIRECTORS AND OFFICERS LIABILITY INSURANCE/D&O |
Covers
directors and officers of a company for negligent acts or omissions, and
for misleading statements that result in suits against the company,
often by shareholders. Directors and officers insurance policies usually
contain two coverages: personal coverage for individual directors and
officers who are not indemnified by the corporation for their legal
expenses or judgments against them – some corporations are not required
by their corporate or state charters to provide indemnification; and
corporate reimbursement coverage for indemnifying directors and
officers. Entity coverage for claims made specifically against the
company may also be available.
|
|
DIVIDENDS |
Money
returned to policyholders from an insurance company’s earnings.
Considered a partial premium refund rather than a taxable distribution,
reflecting the difference between the premium charged and actual losses.
Many life insurance policies and some property/casualty policies pay
dividends to their owners. Life insurance policies that pay dividends
are called participating policies.
|
| DOMESTIC
INSURANCE COMPANY |
Term used
by a state to refer to any company incorporated there.
|
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| 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
DISHONESTY COVERAGE |
Covers
direct losses and damage to businesses resulting from the dishonest acts
of employees.
|
| EMPLOYEE
RETIREMENT INCOME SECURITY ACT / ERISA |
Federal
legislation that protects employees by establishing minimum standards
for private pension and welfare plans.
|
|
EMPLOYER’S LIABILITY |
Part B of
the workers compensation policy that provides coverage for lawsuits
filed by injured employees who, under certain circumstances, can sue
under common law.
|
|
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.
|
| EQUITY
INDEXED ANNUITY |
A form of
annuity whose value is link to an index, generally the S&P 500. It also
provides a guaranteed minimum to protect against market risk.
|
| ERRORS
AND OMISSIONS COVERAGE / E&O |
A
professional liability policy covering the policyholder for negligent
acts and omissions that may harm his or her clients.
|
| ESCROW
ACCOUNT |
Funds that
a lender collects to pay monthly premiums in mortgage and homeowners
insurance, and sometimes to pay property taxes.
|
| EXCESS
AND SURPLUS LINES |
Property/casualty coverage that isn’t available from insurers licensed
by the state (called admitted insurers) and must be purchased from a
non-admitted carrier.
|
| EXCESS
OF LOSS REINSURANCE |
A contract
between an insurer and a reinsurer, whereby the insurer agrees to pay a
specified portion of a claim and the reinsurer to pay all or a part of
the claim above that amount.
|
|
EXCLUSION |
A provision
in an insurance policy that eliminates coverage for certain risks,
people, property classes, or locations.
|
|
EXCLUSIVE AGENT |
A captive
agent, or a person who represents only one insurance company and is
restricted by agreement from submitting business to any other company
unless it is first rejected by the agent’s company.
|
|
EXCLUSIVE REMEDY |
Part of the
social contract that forms the basis for workers compensation statutes
under which employers are responsible for work-related injury and
disease, regardless of whether is was the employee’s fault and in return
the injured employee gives up the right to sue when the employer’s
negligence causes the harm.
|
| 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.
|
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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
|
|
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.
|
|
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.
|
| 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
|
| FIXED
ANNUITY |
An annuity
that guarantees a specific rate of return. In the case of a deferred
annuity, a minimum rate of interest is guaranteed during the savings
phase. During the payment phase, a fixed amount of income, paid on a
regular schedule, is guaranteed.
|
| FLOATER |
Attached to
a homeowners policy, a floater insures movable property, covering losses
wherever they may occur. Among the items often insured with a floater
are expensive jewelry, musical instruments, and furs. It provides
broader coverage than a regular homeowners policy for these items.
|
| 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.
|
| 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.
|
|
FREE-LOOK PERIOD |
A period of
up to one month during which the purchaser of an annuity can cancel the
contract with no penalty. Rules vary by state.
|
|
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.
|
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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.
|
|
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
|
| GENERIC
AUTO PARTS |
Auto crash
parts produced by firms that are not associated with car manufacturers.
Insurers consider these parts, when certified, at least as good as those
that come from the original equipment manufacturer (OEM). They are often
cheaper than the identical part produced by the OEM.
|
| GLASS
INSURANCE |
Coverage
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.
|
|
GUARANTEE PERIOD |
Period
during which the level of interest specified under a fixed annuity is
guaranteed.
|
|
GUARANTEED DEATH BENEFIT |
Basic death
benefits guaranteed under variable annuity contracts.
|
|
GUARANTEED INCOME CONTRACT / GIC |
Often an
option in an employer-sponsored retirement savings plan. Contract
between an insurance company and the plan that guarantees a stated rate
of return on invested capital over the life of the contract.
|
|
GUARANTEED LIVING BENEFIT |
A guarantee
in a variable annuity that a certain level of annuity payment will be
maintained. Serves as a protection against investment risks. Several
types exists.
|
|
GUARANTEED REPLACEMENT COST COVERAGE |
Homeowners
policy that pays the full cost of replacing or repairing a damaged or
destroyed home, even if it is above the policy limit.
|
| GUARANTY
FUND |
The
mechanism by which solvent insurers ensure that some of the policyholder
and third party claims against insurance companies that fail are paid.
Such funds are required in all 50 states, the District of Columbia and
Puerto Rico, but the type and amount of claim covered by the fund varies
from state to state. Some states pay policyholders’ unearned premiums –
the portion of the premium for which no coverage was provided because
the company was insolvent. Some have deductibles. Most states have no
limits on workers compensation payments. Guaranty funds are supported by
assessments on insurers doing business in the state.
|
| 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.
|
| HARD
MARKET |
A seller’s
market in which insurance is expensive and in short supply.
|
|
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.
|
| 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.
|
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the Page
| 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 judgments.
|
|
IMMEDIATE ANNUITY |
A product
purchased with a lump sum, usually at the time retirement begins or
afterwards. Payments begin within about a year. Immediate annuities can
be either fixed or variable.
|
| INCURRED
BUT NOT REPORTED LOSSES / IBNR |
Losses that
are not filed with the insurer or reinsurer until years after the policy
is sold. Some liability claims may be filed long after the event that
caused the injury to occur. Asbestos-related diseases, for example, do
not show up until decades after the exposure. IBNR also refers to
estimates made about claims already reported but where the full extent
of the injury is not yet known, such as a workers compensation claim
where the degree to which work-related injuries prevents a worker from
earning what he or she earned before the injury unfolds over time.
Insurance companies regularly adjust reserves for such losses as new
information becomes available.
|
| INCURRED
LOSSES |
Losses
occurring within a fixed period, whether or not adjusted or paid during
the same period.
|
|
INDEMNIFY |
Provide
financial compensation for losses.
|
|
INDEPENDENT AGENT |
Agent who
is self-employed, is paid on commission, and represents several
insurance companies.
|
|
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.
|
|
INSOLVENCY |
Insurer’s
inability to pay debts. Insurance insolvency standards and the
regulatory actions taken vary from state to state. When regulators deem
an insurance company is in danger of becoming insolvent, they can take
one of three actions: place a company in conservatorship or
rehabilitation if the company can be saved or liquidation if salvage is
deemed impossible. The difference between the first two options is one
of degree – regulators guide companies in conservatorship but direct
those in rehabilitation. Typically the first sign of problems is
inability to pass the financial tests regulators administer as a routine
procedure.
|
|
INSTITUTIONAL INVESTOR |
An
organization such as a bank or insurance company that buys and sells
large quantities of securities.
|
|
INSURABLE RISK |
Risks for
which it is relatively easy to get insurance and that meet certain
criteria. These include being definable, accidental in nature, and part
of a group of similar risks large enough to make losses predictable. The
insurance company also must be able to come up with a reasonable price
for the insurance.
|
|
INSURANCE |
A system to
make large financial losses more affordable by pooling the risks of many
individuals and business entities and transferring them to an insurance
company or other large group in return for a premium.
|
|
INSURANCE POOL |
A group of
insurance companies that pool assets, enabling them to provide an amount
of insurance substantially more than can be provided by individual
companies to ensure large risks such as nuclear power stations. Pools
may be formed voluntarily or mandated by the state to cover risks that
can’t obtain coverage in the voluntary market such as coastal properties
subject to hurricanes.
|
|
INSURANCE 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.
|
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| JOINT
AND SURVIVOR ANNUITY |
An annuity
with two annuitants, usually spouses. Payments continue until the death
of the longest living of the two.
|
| 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.
|
| JUNK
BONDS |
| Corporate
bonds with credit ratings of BB or less. They pay a higher yield than
investment grade bonds because issuers have a higher perceived risk of
default. Such bonds involve market risk that could force investors,
including insurers, to sell the bonds when their value is low. Most
states place limits on insurers’ investments in these bonds. In general,
because property/casualty insurers can be called upon to provide huge
sums of money immediately after a disaster, their investments must be
liquid. Less than 2 percent are in real estate and a similarly small
percentage are in junk bonds. |
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| 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.
|
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| L-SHARE
VARIABLE ANNUITIES |
A form of
variable annuity contract usually with short surrender periods and
higher mortality and expense risk charges.
|
|
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.
|
| LIQUOR
LIABILITY |
Coverage
for bodily injury or property damage caused by an intoxicated person who
was served liquor by the policyholder.
|
| 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 ship owners
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.
|
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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.
|
|
MORTALITY AND EXPENSE (M&E) RISK CHARGE |
A fee that
covers such annuity contract guarantees as death benefits.
|
| MORTGAGE
GUARANTEE INSURANCE |
Coverage
for the mortgagee (usually a financial institution) in the event that a
mortgage holder defaults on a loan. Also called private mortgage
insurance (PMI).
|
| MORTGAGE
INSURANCE |
A form of
decreasing term insurance that covers the life of a person taking out a
mortgage. Death benefits provide for payment of the outstanding balance
of the loan. Coverage is in decreasing term insurance, so the amount of
coverage decreases as the debt decreases. A variant, mortgage
unemployment insurance pays the mortgage of a policyholder who becomes
involuntarily unemployed.
|
|
MORTGAGE-BACKED SECURITIES |
Investment
grade securities backed by a pool of mortgages. The issuer uses the cash
flow from mortgages to meet interest payments on the bonds.
|
| MULTIPLE
PERIL POLICY |
A package
policy, such as a homeowners or business insurance policy, that provides
coverage against several different perils. It also refers to the
combination of property and liability coverage in one policy. In the
early days of insurance, coverages for property damage and liability
were purchased separately.
|
|
MUNICIPAL BOND INSURANCE |
Coverage
that guarantees bondholders timely payment of interest and principal
even if the issuer of the bonds defaults. Offered by insurance companies
with high credit ratings, the coverage raises the credit rating of a
municipality offering the bond to that of the insurance company. It
allows a municipality to raise money at lower interest rates. A form of
financial guarantee insurance.
|
|
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. |
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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.
|
| 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.
|
|
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.
|
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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.
|
|
OCCURRENCE POLICY |
Insurance
that pays claims arising out of incidents that occur during the policy
term, even if they are filed many years later.
|
| 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.
|
| ORIGINAL
EQUIPMENT MANUFACTURER PARTS / OEM |
Sheet metal
auto parts made by the manufacturer of the vehicle.
|
|
OVER-THE-COUNTER (OTC) |
| Security
that is not listed or traded on an exchange such as the New York Stock
Exchange. Business in over-the-counter securities is conducted through
dealers using electronic networks. |
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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
|
| 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.
|
|
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.
|
| 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.
|
| PROOF OF
LOSS |
Documents
showing the insurance company that a loss occurred.
|
|
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.
|
| PURE
LIFE ANNUITY |
A form of
annuity that ends payments when the annuitant dies. Payments may be
fixed or variable.
|
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|
QUALIFIED ANNUITY |
A form of
annuity purchased with pretax dollars as part of a retirement plan that
benefits from special tax treatment, such as a 401(k) plan.
|
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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.
|
| 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.
|
| 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 risk
of the type of insurance they sell. Higher-risk types of insurance,
liability as opposed to property business, generally necessitate higher
levels of capital.
|
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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 company or a pooling entity
as a means of raising money to cover risks.
|
|
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
|
| SINGLE
PREMIUM ANNUITY |
An annuity
that is paid in full upon purchase.
|
| SOFT
MARKET |
An
environment where insurance is plentiful and sold at a lower cost, also
known as a buyers’ market.
|
| SOLVENCY |
Insurance
companies’ ability to pay the claims of policyholders. Regulations to
promote solvency include minimum capital and surplus requirements,
statutory accounting conventions, limits to insurance company investment
and corporate activities, financial ratio tests, and financial data
disclosure.
|
| SPREAD
OF RISK |
The selling
of insurance in multiple areas to multiple policyholders to minimize the
danger that all policyholders will have losses at the same time.
Companies are more likely to insure perils that offer a good spread of
risk. Flood insurance is an example of a poor spread of risk because the
people most likely to buy it are the people close to rivers and other
bodies of water that flood.
|
| STACKING |
Practice
that increases the money available to pay auto liability claims. In
states where this practice is permitted by law, courts may allow
policyholders who have several cars insured under a single policy, or
multiple vehicles insured under different policies, to add up the limit
of liability available for each vehicle.
|
|
STATUTORY ACCOUNTING PRINCIPLES / SAP |
More
conservative standards than under GAAP accounting rules, they are
imposed by state laws that emphasize the present solvency of insurance
companies. SAP helps ensure that the company will have sufficient funds
readily available to meet all anticipated insurance obligations by
recognizing liabilities earlier or at a higher value than GAAP and
assets later or at a lower value. For example, SAP requires that selling
expenses be recorded immediately rather than amortized over the life of
the policy.
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| STOCK
INSURANCE COMPANY |
An
insurance company owned by its stockholders who share in profits through
earnings distributions and increases in stock value.
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|
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.
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|
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.
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|
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.
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| 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.
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| 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.
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| SURPLUS
LINES |
Property/casualty insurance coverage that isn’t available from insurers
licensed in the state, called admitted companies, and must be purchased
from a non-admitted carrier. Examples include risks of an unusual nature
that require greater flexibility in policy terms and conditions than
exist in standard forms or where the highest rates allowed by state
regulators are considered inadequate by admitted companies. Laws
governing surplus lines vary by state.
|
|
SURRENDER CHARGE |
A charge
for withdrawals from an annuity contract before a designated surrender
charge period, usually from five to seven years.
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| 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. |
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| TERM
CERTAIN ANNUITY |
An form of
annuity that pays out over a fixed period rather than when the annuitant
dies.
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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.
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|
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.
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|
THIRD-PARTY ADMINISTRATOR |
Outside
group that performs clerical functions for an insurance company.
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|
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.
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| 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.
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| 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.
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| 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.
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| 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.
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|
TRANSPARENCY |
A term used
to explain the way information on financial matters, such as financial
reports and actions of companies or markets, are communicated so that
they are easily understood and frank.
|
| TRAVEL
INSURANCE |
Insurance
to cover problems associated with traveling, generally including trip
cancellation due to illness, lost luggage and other incidents.
|
| 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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| 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.
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|
UNBUNDLED CONTRACTS |
A form of
annuity contract that gives purchasers the freedom to choose among
certain optional features in their contract.
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|
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.
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|
UNDERWRITING |
Examining,
accepting, or rejecting insurance risks and classifying the ones that
are accepted, in order to charge appropriate premiums for them.
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|
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.
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| 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.
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|
UNINSURABLE RISK |
Risks for
which it is difficult for someone to get insurance.
|
|
UNINSURED MOTORISTS COVERAGE |
Portion of
an auto insurance policy that protects a policyholder from uninsured and
hit-and-run drivers.
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|
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.
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|
UTILIZATION REVIEW |
See Medical
utilization review
|
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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.
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|
VANDALISM |
The
malicious and often random destruction or spoilage of another person’s
property.
|
| VARIABLE
ANNUITY |
An annuity
whose contract value or income payments vary according to the
performance of the stocks, bonds and other investments selected by the
contract owner.
|
| VARIABLE
LIFE INSURANCE |
A policy
that combines protection against premature death with a savings account
that can be invested in stocks, bonds, and money market mutual funds at
the policyholder’s discretion.
|
| VIATICAL
SETTLEMENT COMPANIES |
Insurance
firms that buy life insurance policies at a steep discount from
policyholders who are often terminally ill and need the payment for
medications or treatments. The companies provide early payouts to the
policyholder, assume the premium payments, and collect the face value of
the policy upon the policyholder’s death.
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| VOID |
A policy
contract that for some reason specified in the policy becomes free of
all legal effect. One example under which a policy could be voided is
when information a policyholder provided is proven untrue.
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|
VOLATILITY |
A measure
of the degree of fluctuation in a stock’s price. Volatility is
exemplified by large, frequent price swings up and down.
|
| VOLCANO
COVERAGE |
Most
homeowners policies cover damage from a volcanic eruption.
|
| VOLUME |
Number of
shares a stock trades either per day or per week.
|
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| WAIVER |
The
surrender of a right or privilege. In life insurance, a provision that
sets certain conditions, such as disablement, which allow coverage to
remain in force without payment of premiums.
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| WAR RISK |
Special
coverage on cargo in overseas ships against the risk of being
confiscated by a government in wartime. It is excluded from standard
ocean marine insurance and can be purchased separately. It often
excludes cargo awaiting shipment on a wharf or on ships after 15 days of
arrival in port.
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|
WATER-DAMAGE INSURANCE COVERAGE |
Protection
provided in most homeowners insurance policies against sudden and
accidental water damage, from burst pipes for example. Does not cover
damage from problems resulting from a lack of proper maintenance such as
dripping air conditioners. Water damage from floods is covered under
separate flood insurance policies issued by the federal government.
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| WEATHER
DERIVATIVE |
An
insurance or securities product used as a hedge by energy-related
businesses and others whose sales tend to fluctuate depending on the
weather.
|
| WEATHER
INSURANCE |
A type of
business interruption insurance that compensates for financial losses
caused by adverse weather conditions, such as constant rain on the day
scheduled for a major outdoor concert.
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| WHOLE
LIFE INSURANCE |
The oldest
kind of cash value life insurance that combines protection against
premature death with a savings account. Premiums are fixed and
guaranteed and remain level throughout the policy’s lifetime.
|
| WORKERS
COMPENSATION |
Insurance
that pays for medical care and physical rehabilitation of injured
workers and helps to replace lost wages while they are unable to work.
State laws, which vary significantly, govern the amount of benefits paid
and other compensation provisions.
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| WRAP-UP
INSURANCE |
Broad
policy coordinated to cover liability exposures for a large group of
businesses that have something in common. Might be used to insure all
businesses working on a large construction project, such as an apartment
complex.
|
| WRITE |
To insure,
underwrite, or accept an application for insurance.
|
| WRITTEN
PREMIUMS |
See
Premiums written
|
|
