Glossary

A

 

Accounts Receivable Insurance

A coverage which protects a business when records are destroyed by an insured peril and the Insured Company cannot therefore recover moneys owed. This policy covers this uncollectible money including the cost of record reconstruction and additional collection charges.

Actual Cash Value

Refers to the cost of replacing damaged or destroyed property with new comparable new property less depreciation.

Additional Insured

Another person, company or entity with the same insurance protection as the Named Insured.

Adjuster

A person or company hired by an Insurer to settle claims brought by an Insured. Independent Adjusters often are individuals or firms which represent a number of Insurance Companies. Public Adjusters on the other hand usually represent the Insured (claimant) and work on a fee basis.

Admitted Insurance

Refers to a policy that is issued by a locally licensed Insurer in the country where the property or risk is located.

Agreed Amount

Refers to a provision in a fire insurance policy whereby the coinsurance clause is suspended as long as the Insured carries an amount of insurance specified by the Insurer (usually 90% or more).

All Risks

Refers to policies which cover each and every loss except for those specifically excluded. If a peril is not excluded, it is automatically covered.

Appraisal

Refers to the valuation of property for establishing a proper amount of insurance prior to a loss or determining the value of the property resulting from a loss by an insured peril.

Arbitration Clause

Refers to a clause in a property insurance policy that states that in the event that an Insured and the Insurer cannot agree of the amount of a loss settlement that each party will appoint its own appraiser.

B

 

Blanket Insurance

Refers to a single property policy covering different types of property in more than one location with no specified limit on each property.

Blanket Insurance

Refers to a single property policy covering different types of property in more than one location with no specified limit on each property.

Bodily Injury

Refers to physical damage to an individual. Liability insurance covers bodily injury to a Third Party resulting from the negligent acts of an Insured.

Bodily Injury

Refers to physical damage to an individual. Liability insurance covers bodily injury to a Third Party resulting from the negligent acts of an Insured.

Broad Form Property Damage

This endorsement to a General Liability policy eliminates the exclusion of property in care, custody or control of the Insured and therefore provides coverage for said property.

Broker of Record Letter

Provides a contractual agreement between the Insured and the Broker or Agent. This letter gives the Broker / Agent authority to represent the Insured's interest with the Insurer and gives the Broker / Agent the legal right to commissions.

Builders Risk

This type of policy insures contractors for damages to buildings under construction. The coverage can be written on either of two forms. Completed Value which states that the insurance carried represents 100% of the completed value of the building. Reporting basis which contemplates carrying an amount of insurance which corresponds to the stage of completion at any given time.

C

 

Cancellation

The cancellation provision of a policy allows either the Insured or Insurer to cancel a policy. These provisions vary depending on country requirements, market practices, and type of insurance. A careful reading of the provision for each policy is advised.

Captive Insurance Company

This usually is an insurance company formed to insure the risks of its owner (parent company).

Cede

Refers to the transfer of risk from an Insurer to a reinsurance company (Reinsurer).

Claims Made Basis (Liability Coverage)

Claims made during the effective period of a policy require the Insurer to be responsible for payment (up to the policy limit), regardless of when the event causing the claim occurred.

Claims Occurrence Basis (Liability Coverage)

If a claim arises out of an event during the policy period, the Insurer is responsible for payments (up to the policy limits) regardless of when the Insured reports the claim.

Coinsurance

A property insurance policy clause which states the amount of insurance the Insured is required to carry. This usually refers to a stated percentage of the value of the property at risk.

Combined Single Limit

Refers to bodily injury liability and property damage liability expressed as a single sum of coverage.

Compulsory Insurance

Refers to coverage required by law. Such coverage must be written on an admitted basis in the country of insured operations.

Consequential Loss

Refers to the value of loss resulting from the use of property. Business Interruption policies can be used to cover the loss of income - the consequential loss - until the business can reopen following a direct damage loss (fire, for example).

Contingent Business Interruption

This form of coverage protects the Insured for the loss of net earnings due to the loss of a key supplier's inability to operate as a result of damage or destruction of its property.

Controlled Master Program (CMP)

Refers to a program wherein all policies and their terms and conditions are agreed centrally with a worldwide Insurer(s) and supported by underlying (admitted where required and/or desired) policies issued in each country where the Insured operates.

Cut-Through Endorsement

This guarantees that a reinsurance company will pay losses incurred by a Third Party even though that Third Party has no contractual arrangement with the reinsurance company. In practical terms such an endorsement permits the Controlled Master Program underwriter / Insurer to pay the claim directly to the Insured, instead of paying the claim through the local admitted Insurer (as its reinsurer).

D

 

Debris Removal

Used in property insurance and provides for the reimbursement for the removal of debris resulting from an insured peril.

Deductible

Refers to the amount of loss that the Insured pays in a claim amount. Deductible applies to both direct damage to the property and the business interruption losses. Direct damage losses call for an agreed amount that the Insured will pay before the Insurer pays. The deductible amount in a business interruption contract is often referred to as a 'waiting period or elimination period'. This waiting period refers to the length of time an Insured must wait before any benefits from the policy are paid.

Defense Costs

Refers to the expense of defending a lawsuit. Ideally the Insured should require a policy which pays all the defense costs in addition to the policy limits.

Depreciation

Refers to the decrease in the value of an asset (property - real or personal) over a period of time based on a predetermined schedule.

Difference-in-Conditions Insurance (DIC)

Refers to a policy or clauses in property insurance which 'wrap around' basic perils provided by local primary policies so as to include, as an example, the perils of earthquake, flood, collapse, etc. The use of a DIC policy or clause in the Master Policy provides worldwide consistency of terms and conditions.

Difference-in-Limits Insurance (DIL)

This wording is mostly found in the Master Policy and provides excess limits over locally admitted underlying policies bringing them to a predetermined uniform level within the Controlled Master Program (CMP).

Drop-Down Clause

Refers to a provision in an umbrella liability policy wherein losses which come within the retention limits of the underlying (primary) policy are paid by the umbrella Insurer because the underlying limits have been exhausted.

E

 

Excess of Loss Reinsurance

Refers to a method whereby an Insurer pays the amount of each claim for each risk up to a predetermined limit and the Reinsurer pays the amount of claim in excess to a specific amount.

Extra Expense Insurance

Coverage for exposures related to efforts to get a business damaged by an insured peril back to the position it would have been had no loss occurred.

Extra-Territorial Benefits

This refers to Workers' Compensation Schemes (Private or State-run) where covered employees working abroad are injured and afforded benefits under such scheme. Extra-Territorial Benefits vary from country to country.

F

 

Facultative Obligatory Treaty Reinsurance

This type of reinsurance treaty is a cross between facultative and treaty reinsurance. The ceding company can assign certain risks to its Reinsurer which it is then obliged to accept.

Facultative Reinsurance

Refers to individual risks offered by an Insurer to a Reinsurer. Each party is free to negotiate terms as they wish.

Fire Legal Liability

This insurance applies to property loss liability as the result of negligence on the part of the Insured which allows the spreading of fire to others' property.

Fortuitous Loss

Refers to a loss occurring by pure chance or accident - not intentional.

Fronting (Company)

In international insurance, this refers to a locally admitted Insurer ceding the local risk, less any retention - fronting fee - and/or taxes, to its Reinsurer.

G

 

General Liability Insurance

Refers to coverage for an Insured when negligent acts or omissions result in bodily injury and / or property damage on the premises of a business, when an individual is injured as the result using the Insured's product manufactured or distributed by a business, or when someone is injured in the general course of operations of a business.

Global Program

Refers to a worldwide insurance program which includes the parent company's domicile. As opposed to a Controlled Master Program (CMP) which covers mostly only the foreign operations of a multinational company.

Gross Earnings (Business Interruption)

Refers to coverage for loss in the gross earnings (minus expenses that cease during the period of interruption) as a result of a business interruption caused by damage to covered property by an insured peril.

Gross Negligence

Refers to reckless action with regard to consequences.

Guarantee Endorsement

In non-restricted countries, achieving the terms, conditions and coverage of the Master Policy is not a problem; however, rather than translating each and every policy to be sure it agrees with the Master, a Guarantee Endorsement should be endorsed so that all its provisions apply locally - regardless of the local terms and conditions.

H

 

Hazard

Refers to an occurrence that increases to likelihood of a loss.

Highly Protected Risk (HPR)

Are generally risks where some action has been taken to reduce the possibility and severity of loss. The construction of a functioning sprinkler system in a building is an example of such an action. HPR properties are better risks and therefore result in lower premium rates.

Hold Harmless Agreements

Refers to the assumption of liability by way of a contractual agreement by one party, which relieves the other party of any liability.

Home Foreign

Describes the international insurance program of a multinational company and is a phrase used principally by international Brokers and Insurers to connote a type of program.

I

 

Inchmaree

Used in marine insurance to indicate coverage for property damaged or destroyed as a result of negligence on the part of the crew.

Increased Cost of Construction

Used in property insurance when after a loss local laws require a certain type of construction be used to repair or replace the damaged or destroyed building in order to conform to current code(s) at an increased cost.

Indemnity

Compensation for a loss.

Indemnity Agreement

A policy clause that provides that the Insured will be restored to the financial condition it would have been in had no loss occurred.

Inflation Endorsement

This endorsement is attached to property policies in order to automatically adjust the amount of insurance based on the construction cost index in a given country.

Inherent Vice

This property insurance exclusion excludes construction which is likely to cause of loss and also other 'attractive nuisances' such as rodent droppings in a sugar warehouse.

J

 

Joint Loss Agreement

Refers to the division of a loss payment among policies and / or Insurers in the proportion that each policy bears to the total.

L

 

Layering

The combination of a number of policies which each add to the total limit available by attaching above the limits which came before (under it). Layering applies mostly to large companies with the need for capacity not afforded by a single Insurer.

Long Term Agreements

These agreements between the Insured and the Insurer usually range in policy periods of 3 to 10 years, provide a premium discount for the Insured and are usually non-cancelable except under certain conditions.

Loss of Income Insurance

This coverage applies to property policies and provides for employees' loss of income after damage by an insured peril and causes unemployment.

Loss Reserves

This refers to provisions being taken for known claims but not paid and for incurred but not reported (IBNR) claims.

M

 

Maximum Foreseeable Loss

This refers to the worst case scenario where an estimate is made of the maximum loss amount in the event of a catastrophe loss.

Maximum Probable Loss

This refers to the maximum value of a loss under realistic circumstances in which, for example, various fire protection and suppression systems extinguished a fire before additional damaged could be done.

N

 

Named Perils Policy

An insurance policy which specifies the perils which will be covered. An event caused by an unnamed peril will not be covered.

No-Fault Automobile Insurance

A type of automobile policy in which the Insured's own policy provides indemnity for bodily injury and / or property damage without regard to fault.

Non-Admitted Insurance

Insurance which is not provided by a locally admitted (licensed) Insurer in a given country or state.

P

 

Pooling

A method by which each Insurer in a pool shares in each and every risk written by other members.

Pre-existing conditions

This refers to the medical status (previous accidents or diseases) of an insured person before the beginning of a health insurance plan. Some insurance plans do not insure pre-existing conditions.

Product Recall Insurance

This coverage is most often excluded from General Liability policies; however, in some instances in certain countries this coverage can be purchased. The coverage provides for the expenses incurred by a company recalling its product whether or not defective.

Public Liability Insurance

This broad coverage is intended for companies and generally covers all exposures for property damage and bodily injury except aviation and automobile exposures.

Q

 

Quota Share Reinsurance

This is a form of automatic reinsurance which requires the Insurer to transfer and the Reinsurer to accept a previously agreed percentage of every risk within a defined category of business written by the Insurer.

R

 

Replacement Cost (less physical depreciation)

This is the amount it takes to replace an Insured's damaged or destroyed property with one of like kind and quality. The objective is to put the Insured back in the financial position it would have been in had no loss occurred.

Retrospective Rating

This refers to a way of establishing rates in which the current year's premium is calculated to reflect the actual year's loss experience. Premiums are adjusted at the end of the year to reflect the actual loss experience.

S

 

Self Insurance

Protecting one's self or company by putting aside money to pay for otherwise insurable and predictable losses. To purchase insurance for these types of losses would cost more because in addition to the premium charged, Insurers charge for their overhead, selling, general and administrative charges plus any premium taxes.

Self-Insured Retention (SIR)

Refers to the portion of a loss that is retained by the Insured.

T

 

Third Party

Refers to an individual other than the Insured who has incurred a loss as the result of the acts or omissions of the Insured.

U

 

Umbrella Liability

This is a form of excess insurance (over primary liability policies) but it also serves to fill gaps in coverage under the basic primary policies.

Underinsurance

Refers to either the failure to purchase adequate insurance limits or the failure to meet a coinsurance requirement.