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Insurance Glossary (A - C)

Ab initio - Latin term meaning "from the beginning". Usually used in reference to contracts to indicate their existence or validity relates back to their creation like an (unlawful) contract 'ab initio'. E.g. means the contract was void during its entire alleged existence.
Abandonment - Deliberate voluntary relinquishment of property or a right, normally because the expense involved in salvaging or recovering the property or right would be greater than its value once recovered or preserved. Also known as construtive total loss
Accident - An event or happening which is unforseen and unintended.
Accommodation Business - Insurance risks which are accepted by an insurer, not necessarily because the underwriter believes that they are a good underwriting proposition, but more to assist or support a broker whose relationship or volume of business the underwriter values.
Act of God - An event or happening which is generally considered as being beyond human control (earthquake, lightning, flood, cyclone or other natural event).
Accumulation - A concentration of risk where an insurer may find it has multiple risks of the same category or geographic location which substantially increases the overall exposure.
Acquisition Costs - The expenses incurred by an insurer or reinsurer which are directly related to acquiring insurance business (commissions paid to intermediaries, marketing costs etc).
Actual Total Loss - A loss is generally defined as an actual total loss where the subject matter of the insurance is either totally destroyed or changed to be unable to be used effectively.
Ad valorem - Latin term meaning "in proportion to the value". The term is generally used in commerce in reference to certain duties, called ad valorem duties, which are levied at certain rates per cent on the value of the subject matter.
Additional Cost of Working / Increased Cost of Working - The increased costs incurred after a property damage loss, to limit any reduction in turnover or revenue, and to maintain normal business operations. These expenses could include such items as hiring alternate premises, temporary staff, additional freight or storage etc. (Most policies limit the amount they will pay for these costs to the amount that is being saved in turnover or revenue - i.e. you cannot spend more than a dollar to save a dollar).
Additional Perils - Additional insured risk which are normally added to a standard set of perils. Examples are perils such as storm, flood, impact damage etc which are added to the standard fire perils in a fire insurance policy.
Adjuster - An independent individual or organisation appointed by the insurer, who is responsible for the evaluation, quantification and recommendation for settlement of an insured claim. (This is referred to as "adjusting" the loss".)
Admitted Assets - Assets recognised and accepted by insurance regulators in determining the capital adequacy and/or solvency of insurers or reinsurers.
Admitted Insurer - An insurer (or reinsurer) who is licensed or authorised to do business in a particular state or country. The insurer / reinsurer does not necessarily need to have a physical presence in that state or territory.
Advance Profits Insurance - Business interruption coverage for a new premise or operation, based on the expected revenues and profit which will be generated at completion of the project.
Adverse Selection - The conscious and deliberate submission of risks or segments of business to an insurer or reinsurer, that are less attractive than those being retained by the insured. This might occur with an original insured under a binding authority with an insurer, or by an insurer under a reinsurance arrangement with a reinsurer.
Advice - In some jurisdictions (e.g. Australia's Financial Services compliance regime) the concept of providing advice has been given strict definitions. The FSR legislation defines advice as a statement made which influences or is intended to influence, a person to purchase a particular financial product or service.
Affreightment - The expression usually employed in shipping to describe the contract by which a vessel or the use of it, is let out to hire. The freighter on their part agrees to pay a specified price, called "freight", for the carriage of the goods or the use of the ship. The contract is expressed in a bill of lading.
Agent - An insurance agent is an intermediary who arranges insurance, but legally acts in the interests of the insurer, not the insured business.
Aggregate Deductible - A deductible applying in some insurance contracts, in which all losses up to an agreed amount in any one period are self insured. The insurer pays claims once the aggregate amount has been exceeded.
Aggregate Limit - A limit applying in some insurance contracts, in which all losses up to an agreed amount in any one period will be insured. Once the aggregate amount has been exceeded, there is no further insurance coverage.
Agreed Value - Contracts of insurance can be arranged on an "agreed value" basis. Under this approach, the value of the subject matter insured, is determined at the inception of the cover and usually does not change during that period.
Aleatory Contract - A contract whose value to either or both of the parties depends on chance or future events, or where the monetary values of the parties' performance are unequal. Insurance contracts are aleatory because the policyowner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. The policyholder pays a premium and may collect nothing from the insurer if no loss occurs. On the other hand, if a loss does occur, the policyholder may collect considerably more than the amount of the premium.
All Risks Insurance - Coverage under an insurance policy where all losses are insured, unless they are specifically excluded. (N.B. A number of insurers and legal counsel have advised against the use of the term "all-risk" due to its ambiguity).
Amount Subject - The maximum value of insured property which insurers believe could be destroyed by any insurable event no matter how catastrophic. Generally used in underwriting large risks in order to compute rates and to understand the need for capacity, as well as to appreciate all exposures.
APRA - Australian Prudential Regulation Authority.
Arbitration - A process to resolve disputes where both parties agree to be bound by the decisions of a selected party, known as an Arbitrator.
Arson - The act of unlawfully setting fire to property.
ASIC - Australian Securities and Investment Commission.
Assessor - An individual or firm who is appointed to determine liability or assess loss in the event of a claim
Assigned Risk - A programme normally legislated by government, which is designed to provide an insurance market for risks that are considered undesirable or otherwise uninsurable. The legislation requires all insurers in that particular state to participate in the Assigned Risk Plan, usually on a proportionate basis to the amount of conventional business they underwrite. (An example is the automobile insurance plans in the USA for drivers that cannot obtain it through conventional means - California Automobile Assigned Risk Plan and the Connecticut Automobile Insurance Assigned Risk Plan are two examples).
Attachment Point - The dollar value of an insured's self retained risk or level of loss at which point insurance will then apply.
Attestation Clause - A clause in an insurance contract which confirm that the insurers have agreed to provide the coverage under certain conditions, evidenced by their signing or stamping of the document.
Average - Also known as co insurance, a clause which allows an insurer to reduce the amount of an insurance claim, in proportion to the level of any under insurance.
Bailee - One who is charged with the temporary care and possession of the property of another. E.g. a garage is bailee of a customer's (bailor's) car (the bailment) and a jeweller is a bailee of customers' jewellery while in its possession for repair or appraisal.
Bailees Liability Coverage - Insurance covering damage caused by a bailee or employee to goods left in their care. A bailees legal responsibility is to exercise care appropriate to the circumstances of the bailment.
Bankers Blanket Bond - A form of insurance designed to protect financial institutions against loss from dishonest acts of employees, burglary, robbery, or theft both on the premises and in transit, forgery and counterfeiting, misplacement and a number of other perils particular to the finance sector.
Barratry - 1) In Marine this law relates to the wilful and illegal sinking, casting away, or damaging of a ship at sea or its cargo by the master or crew. 2) In English law barratry relates to the practice of exciting and encouraging lawsuits and quarrels.
Basic Premium - The initial premium paid at the beginning of an adjustable insurance contract. Normally at the end of the policy period and/or agreed subsequent periods, the basic premium is adjusted retrospectively based on agreed factors such as claims experience, underwriting values etc.
Basis Point - 0.01 percent of the yield of a mortgage, bond or other financial note. The smallest measure used.
Betterment - A term used to describe an advantage that an insured receives under an insurance policy, where the property being reinstated after a claim is left in a better or more valuable position than it was prior to the claim. Depending upon the policy conditions, the insurer may reduce the amount paid under the policy, or seek a contribution towards the cost of the reinstatement.
Bid Bond - A bond intended to guarantee that the bidder on a construction, supply or service contract will enter into the contract if successful in their bid. Should the bidder fail to enter the contract, the underwriter or guarantor of the bond (known as the surety) may be called upon to pay the difference between the amount of the principal's bid and the bid of the next lowest qualified bidder
Bill of Lading - A document issued by a carrier as receipt for goods being transported, which outlines the carrier's liability, limitations and exemptions in respect of the goods.
Binder - An agreement between an insurer and an intermediary which gives the intermediary the authority to insure organisations on their behalf. In this capacity, the intermediary is acting on behalf of the insurer, not the insured.
Blanket Coverage - Insurance which covers more than one item of insured property or other interest without apportioning a specific sum insured against each insured item. A blanket policy is usually subject to a maximum limit in respect of any one loss and may contain certain restrictions absent in "specific" or "itemised" policies, such as the use of a coinsurance clause.
BLEVE - Boiling Liquid Expanding Vapour Explosion - the explosive release of expanding vapour and boiling liquid following the catastrophic failure of a pressure vessel holding a pressure liquefied gas such as propane or LPG. A BLEVE is the worst possible outcome when a propane or LPG tank is exposed to fire. BLEVE hazards include fireballs, blast, projectiles and possible toxic clouds or vapour cloud explosions.
Bond - Insurance bonds are normally three-party contracts in which one party (the surety) agrees to guarantee the act, performance, or behaviour of a second party (the principal), to a third party (the obligee).
Bordereau - A detailed summary of premium, underwriting and/or loss information on risks insured under an agreement with the insurer or reinsurer.
Broadform - A type of liability policy that provides extended coverage for the traditional bodily injury and property damage components. A broadform liability policy often extends the coverage definitions to include such things as mental anguish, false arrest, malicious prosecution, libel, slander, defamation, wrongful entry or eviction etc.
Broker - An insurance broker arranges insurance on behalf of a person or business with a range of insurers. The broker is independent of the insurers, and legally is seen to act on behalf of the insured not the insurer.
Brokerage - An amount (usually expressed as a percentage) that is paid to a broker or agent, by an insurer or reinsurer, as part of their acquisitions costs in underwriting insurance business. The percentage varies widely depending on coverage, the insurer, and the work undertaken by the broker. Also known as commission.
Bumbershoot - An English word for "umbrella" used in a context to indicate a broad marine umbrella liability insurance policy providing coverage for marine risks. Can include protection and indemnity, general average, collision, sue and labour as well as general liability exposures.
Burning Cost - A term used to express the pure cost of losses and/or the ratio of losses within a specific period against premiums paid in the same period.
Burning Layer - The first layer of coverage in property or casualty insurance which will experience the primary losses.
Capacity - The amount of capital available from an insurance company or the market, for underwriting insurance coverage.
Captive Insurer - A company owned and established primarily for an organisation to insure its own losses, and transfer catastrophe risks to reinsurers.
Case Management - A system of coordinating medical services to treat a patient, improve care, and reduce cost. A case manager coordinates the delivery of medical service and health for patients.
Catastrophe - A sudden violent and widespread disaster that impacts on many organisations and/or results in substantial loss.
Catastrophe Bonds - Risk-based securities that pay above market interest rates to investors who provide insurance companies with a form of reinsurance to pay losses from a catastrophic event. They allow insurance risk to be sold to institutional investors in the form of bonds.
Catastrophe Reinsurance - A form of non proportional reinsurance where the reinsurer indemnifies the insurer for the amount of accumulated losses which exceed a specified retention. These accumulated losses usually are resulting from a catastrophic event or series of events.
Caveat Emptor - Latin term meaning let the buyer beware
Cede - To transfer to a reinsurer all or part of the insurance or reinsurance written by a ceding, or primary, insurer. Also means to purchase reinsurance.
Cedant - A ceding insurer or reinsurer.
Certificate of Insurance - Confirmation of coverage provided by the insurer or broker evidencing currency of the policy, and outlining the principal provisions of the insurance policy.
Cession - The component of insurance which is passed to a reinsurer by a primary insurer who has insured the original risks. A cession may be the entire amount or a portion of single risks, a specifically defined group of policies, or classes of business, as outlined in the reinsurance contract.
Civil Liability - Many professional indemnity policies provide indemnity for a negligent breach of the professional duty of the insured. It is often possible to negotiate broader coverage that does not require their to be a negligent breach, which is referred to as civil liability coverage.
Claims Made - Most professional liability coverages are arranged on what is known as a claims made wording. This means that the policy only responds to claims first made against your business during the policy period, irrespective of when the act of negligence was actually committed. Once the period of insurance has expired, no claims can be made on insurers unless they were notified at some time during the currency of the policy.
Claims Triangulation - A table which charts the movement of total incurred losses from the original policy period, over several subsequent periods. It is used to analyse the development pattern of losses over time and project the accuracy of early loss estimates and/or the likely total paid incurred, based on any movement in value of the original estimates.
Clash Cover - A form of non proportional reinsurance covering an insurers exposure to a larger single loss than intended in the same loss occurrence. A clash cover provides payment when the unusual circumstances occur where two or more policies experience the same occurrence of loss and the total amount of the payment of losses for the multiple policies exceeds the clash cover retention amount. Sometimes referred to as Unknown Accumulation Cover or Contingency Cover.
Class Action - Legal action brought by a group of people or organisations with the same grievance or claim against a common defendant.
Closing - A document prepared by a broker to confirm to an insurer the details of an insurance placement.
Co-insurance - 1) A provision in an insurance policy allowing insurers to reduce the amount of any claim in proportion to an amount by which the insured has under insured (also known as the average provision); and / or 2) A process by which a number of insurers agree to participate in an insurance risk (as co-insurers).
Combined Ratio - A performance measurement for insurers which compares the sum of claims, commissions and expenses against the premiums written.
Combined Single Limit - An aggregate limit of liability coverage for bodily injury and property damage in one accident or occurrence.
Commercial General Liability (CGL) - Common name for a combined broadform public and products liability insurance policy.
Commission - See Brokerage
Common Law - The law that has evolved over time as a result of previous court decisions, rather than by specific legislation introduced.
Commutation - Normally used to refer to the cancellation or dissolution of an insurance or reinsurance contract, in which there are profits or losses which are agreed and paid in complete discharge of all future obligations.
Completed Operations Liability - This arises out of faulty or defective work that was performed under a project which has subsequently been handed over to the principal.
Compulsory Insurance - Insurance coverage which an insured is compelled to arrange under legislation. E.g. workers compensation or automobile bodily injury insurance in some jurisdictions.
Condition - A section of an insurance policy which stipulates certain undertakings, usually by the insured, for the policy to respond properly. These are usually related to the manner in which the insured must conduct themselves, particularly regarding the notification and handling of claims. An insurer may be able to refuse indemnity under the policy if a condition has not been complied with - a condition precedent to liability. (In Australia this would be subject to the provisions of the Insurance Contracts Act.)
Conflagration - A very intense and uncontrolled fire extending to many properties, or over a large area.
Consequential Loss - A loss which is in addition to and in consequence of a claim under a policy, often an economic loss such as revenue or profits.
Consideration - A principal under English law, that for a contract to be valid, each party must provide something of value "in consideration" of the contractual agreement. In an insurance contract, the consideration provided by the insured is the premium, and the consideration made by the insurer is the promise to pay should a loss, accident or injury occur (usually of a magnitude many times more than the consideration paid by the insured).
Constructive Total Loss - An insurance claim which is settled for a full amount, on the basis that the cost to repair or recover the damaged property, would exceed the indemnity replacement cost or market value of the item. Also know as abandonment
Contingent Liability - A liability which arises independently from an insured as a result of negligence on the part of another person or organisation, but for which the insured may be held responsible. An example of contingent liability is that of a principal contractor, who may incur liability as a result of actions undertaken by subcontractors. See also Vicarious Liability
Continuous Cover Clause - Under this clause, the insurer agrees that if you provide notice of a claim that should or could have been notified under a previous policy period, then the insurer will accept notification of the claim, provided that the same insurer has been covering you on a continuous basis since the date when the notification should have been made.
Contra Proferentem - Latin term used to address ambiguity in construction of a contract. Under the contra proferentem rule, any ambiguity in a contract will be construed against the party responsible for drafting the contract.
Contract - A legally enforceable arrangement between two or more entities.
Contract of Adhesion - A contract drafted by one party and offered with little opportunity for the other party to bargain or alter the provisions. Contracts of adhesion generally contain detailed standard terms and conditions, written in legal or business language difficult for ordinary consumers to understand. Insurance policies can be considered contracts of adhesion because they are drafted by the insurer and offered without providing the insured with any opportunity to make significant alteration. As a result, courts generally rule in favour of an insured where there is an ambiguity in the insurance policy provisions.
Contractual Liability - Legal liability or responsibilities of another party that are assumed under a verbal or written contract.
Contribution - 1) An insurers "contribution" is their share of an insured loss; and/or 2) The "contribution clause" in an insurance policy generally states that where one or more insurers are covering the same loss, they will share the loss or liability on a proportionate basis. Under Australia's Insurance Contracts Act the insured can nominate one insurer to be responsible to pay all of the loss, and then seek recovery from the other insurers(s).
Controlled Master Programme - A group of linked policies arranged to provide regional or global coverage for companies which have insurable risks in multiple territories (generally for property or liability insurance). Usually there is a master policy which is issued in the country in which the insured has its headquarters domiciled, and then a subset of local policies where required for practical or legislative reasons.
Costs Inclusive Excess - means the insured must pay the amount of the excess towards the legal and defence costs and any claim settlement amount.
Costs Exclusive Excess - means the insured does not pay any excess towards the legal and defence costs but only pays the amount of the excess towards the settlement of any claim.
Crime Insurance - See Fidelity Insurance
Cross Liabilities Clause - A clause in liability contracts which obligates the insurers to treat each insured under a combined policy as if they were a separate insured entity.
Cut Through Clause - A clause in a reinsurance contract which clarifies that, should the primary insurer becomes insolvent, the reinsurer is still liable for its stated share of the loss and that payment will be made directly to the insured, not to the insolvent insurer. Generally used when the financial security or rating of the insurer is insufficient to attract insured's with strict minimum financial standards for insurers

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Insurance Glossary (A - C)

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