Introduction to Business Insurance terms.

 

  • Actual Cash Value: Unless otherwise defined in the policy, Actual Cash Value in California means Fair Market Value. The Fair Market Value of an item is the dollar amount that a knowledgeable buyer (under no unusual pressure) is willing to pay and a knowledgeable seller (under no unusual pressure) is willing to accept.
  • Agent: A licensed individual or organization authorized to sell and service insurance policies for an insurance company.
  • Aggregate Limit: The maximum dollar amount of coverage in force for a property damage policy or liability policy. This maximum amount can be figured on a per occurrence basis or as a general aggregate for the complete policy term.
  • Agreed Value: A method of loss valuation where the insured and the insurer list an agreed upon amount to be paid in case of loss. This valuation method is most common in property insurance when insuring valuable artwork, antiques, or classic autos. A professional appraisal is usually required.
  • Arbitration Clause: A clause in an insurance policy that allows the insured and the insurer to each appoint an arbitrator if they cannot agree upon an appropriate claim settlement. Once the arbitrators have been selected, they in turn appoint an independent umpire. If the arbitrators disagree, then the umpire decides which claims settlement to support. The final decision is binding.

 

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  • Betterment: A situation that occurs in a loss when an old piece of property is replaced by a brand new item. The insured is put in a better financial position than they were before the loss occurred, and consequentially may have to pay the difference in price for the betterment.
  • Binder: A short-term agreement that provides temporary insurance coverage until the policy can be issued or delivered.
  • Broker: A licensed individual or organization who sells and services insurance polices on your behalf.
  • Broker-agent: A licensed individual who can act as an agent representing one or more insurers, and also as a broker dealing with one or more insurers representing your interests.

 

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  • Cancellation: The termination of an in-force insurance contract by either the insured or the insurer before its normal expiration date.
  • Claim: Notice to an insurance company that a loss has occurred that may be covered under the terms and conditions of the policy.
  • Claim Adjuster: The person who evaluates the damage caused by a covered loss and determines the amount to be paid under the policy terms.
  • Claims Made: A liability insurance policy where coverage applies to claims filed during the policy period no matter when the loss occurred subject to a retroactive inception date.
  • Coinsurance: An insurance clause that defines the amount of each loss that the company pays according to the amount of insurance carried, divided by the amount of insurance required. This basic formula relates to a contracted percentage of coverage that must be required to prevent a coinsurance penalty.
  • Combined Single Limit: When bodily injury liability and property damage liability is expressed as a single sum (limit) of coverage.
  • Commercial Lines: Insurance coverages for businesses, commercial institutions, and professional organizations, as contrasted with personal insurance.
  • Commission: A portion of the policy premium that is paid to an agent by the insurance company as compensation for the agent's work.
  • Concurrent Causation: Occurs when two or more perils cause a loss. When only one of these perils is covered by the insurance policy, the court generally rules that the entire loss is covered. Many insurance companies have reworded their policies to clarify that only a loss attributed to a covered peril is indeed covered.
  • Conditions: The portion of an insurance contract that sets forth the rights and duties of the insured and the insurer.
  • Consequential Bodily Injury: In Workers Compensation, special circumstances can arise when a work-related injury causes some sort of non-work related injury.
  • Coverage: Protection that is provided under an insurance policy.

 

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  • Declarations (DEC) Page: Usually the first page of an insurance policy that contains the full legal name of the insurance company, the policy number, effective and expiration dates, premium payable, the amount and types of coverage, and the deductibles.
  • Deductible: The amount of the loss that the insured is responsible to pay before benefits from the insurance policy are payable.
  • Depreciation: The actual or accounting recognition of the decrease in value of property over a period of time according to a predetermined schedule.
  • Dual Capacity: In Workers Compensation, an employer may be liable two ways to an employee who incurs bodily injury on the job as a result of using a product or service produced by that employer. The employee is eligible for Workers Compensation benefits and may also sue the employer because of the effectiveness of the injuring product or service.

 

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  • Earned Premium: The portion of the policy premium paid by an insured that has been allocated to the insurance company's loss experience, expenses, and profit year to date.
  • Endorsement: A written agreement that changes the terms of an insurance policy by adding or subtracting coverage.
  • Effective Date: The starting date of an insurance policy: the date the policy goes in to force.
  • Exclusion: A contractual provision in an insurance policy that denies or restricts coverage for certain perils, persons, property, or locations.
  • Experience Modification: The adjustment of premium resulting from the use of experience rating. Experience rating plans reflect an insured's past loss experience (usually from the past three years) and uses this experience to modify and determine the premium for the current policy year.
  • Expiration Date: The termination date of coverage as indicated on an insurance policy.

 

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  • First Party: The policyholder (insured) in an insurance contract.
  • Flat Cancellation: Cancellation that takes place on the policy effective date. No premium charge is made; however, other charges (i.e., service) may apply.
  • Fraud: An intentionally deceptive act committed to obtain an unfair or unlawful advantage. Fraud usually involves monetary gain.
  • Frequency: The number of times a loss occurs.

 

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  • Hazard: A circumstance that increases the likelihood or potential severity of a loss.

 

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  • Indemnity: In a property and casualty contract, the objective is to restore an insured to the same financial position after the loss that the insured had prior to the loss. In the most basic sense, indemnity is compensation for a loss.
  • Independent Adjuster: A person or organization that provides claim adjusting services to different insurers on a contract basis.
  • Insurable Interest: Any interest (most commonly ownership) that a person, company, or corporation has in a subject of insurance such as a business, building, or auto, which can be damaged and may cause the person, company, or corporation financial loss or other tangible deprivation. Generally, an insurable interest must be demonstrated when a policy is issued and must exist at the time of loss.
  • Insurance: A method of shifting risk from a person, business, or organization to an insurance company in exchange for the payment of premium. The insurance company commits to be responsible for covered losses.
  • Insured: The policyholder(s) entitled to coverage under an insurance policy.
  • Insurer: The insurance company who issues insurance and agrees to pay for losses and provide covered benefits.
  • Insuring Agreement: The portion of an insurance contract that describes what is covered. The insuring agreement usually states the perils insured against, the person(s) and/or property covered, the property locations, and the period of the contract.

 

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  • Judgment Rating: A rating modification (either decrease or increase) that is based on the underwriters experience, best judgment, and analysis in classifying and underwriting a particular type of risk.

 

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  • Lapse: In property and casualty insurance a lapse in the termination of a policy because of a failure to pay premium when due.
  • Liability Insurance: Coverage for a policyholder's legal liability resulting from injuries to other persons or damage to their property.
  • License: A certificate of authority issued by the CDI to an insurer, agent, broker, or broker-agent to transact insurance business.
  • Limits of Insurance: The maximum amount of benefits the insurance company agrees to pay in the event of a loss.
  • Loss of Consortium: A potential situation in any bodily injury claim (including Workers Compensation claims) where a spouse contends that the bodily injury of their partner deprives them of the natural affection (spousal duties), help, and companionship of said spouse.
  • Loss Payable Clause: A provision that authorizes the insurer to make a loss payment to a person, company, or organization (loss payee) other than the insured. The loss payee must have an insurable interest (such as a lienholder for business personal property or a mortgagee on real property).

 

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  • Managing General Agent (MGA): An agent contractually authorized by an insurance company to manage all or part of the insurer's business activities. An MGA can manage the marketing, underwriting, policy issuance, premium collection, appointing and supervision of other agents, claims payments, and reinsurance negotiations of an insurance company.
  • Material Misrepresentation: A factual falsification made in such a manner that the insurance company would have refused to insure the risk if the truth had been known at policy issuance. A material misrepresentation gives an insurance company grounds to rescind a contract.
  • Misquote: An incorrect estimate of an insurance premium.

 

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  • Nonpayment of Premium: Failure by the policyholder to pay the premium on a policy or pay the installment premium payments due on a policy.
  • Nonrenewal: The termination of an insurance policy on its normal expiration date.

 

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  • Occurrence: A liability insurance policy that covers claims arising out of occurrences that take place during the policy period, regardless of when the claim is filed.

 

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  • Peril: Cause of loss.
  • Personal Lines: Insurance written on the personal and real property of an individual (or individuals) to include such policies as homeowners insurance and personal auto insurance, as contrasted with commercial lines.
  • Policy: A contract that states the rights and duties of the insurance company and the insured.
  • Premium: The monetary payment that an insured makes to an insurance company in exchange for the contract indemnifying the insured against potential loss. Simply put this is the payment made by the insured to keep an insurance policy in effect.
  • Producer: A term used by the insurance industry to refer to agent, brokers, broker-agents, and solicitors.
  • Pro Rata Cancellation: A cancellation of a policy by an insurance company that returns the unearned premium to the policyholder (the portion of the premium for the remaining time period that the policy will not be in force).
  • Provisions: The statement of policy conditions in an insurance policy.
  • Public Adjuster: A licensed person or organization that represents the policyholder by contract in property damage claims negotiations with an insurance company.

 

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  • Quotation: An estimate of the cost of insurance based on the information supplied to the agent, broker, broker-agent, or the insurance company.

 

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  • Recision: The cancellation of an insurance policy back to its effective date resulting in a return of all premium charged.
  • Regulations: Requirements developed by the CDI that implement laws passed by the legislature. Regulations go through a public comment process and must be approved by the state Office of Administrative Law.
  • Reinstatement: The restoration of a lapsed or canceled policy.
  • Renewal: The continuation of an insurance policy (offer of renewal) into a new term from the same insurance company that issued the existing policy.
  • Replacement Cost: The amount that it costs to replace lost or damaged property with new property of like kind or quality in the local market.

 

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  • Schedule Rating: A method of pricing property and liability insurance. Schedule Rating uses debits and credits to modify a base rate figured by the special characteristics of the risk exposure. Insurers develop Schedule Rating because actuarial experience shows a direct relationship between certain physical characteristics and the possibility of loss. Most schedule rating plans must be filed and approved by the CDI.
  • Second Party: The insurance company in an insurance contract.
  • Self-Insured Retention (SIR): The portion of a property or liability loss retained by a policyholder.
  • Severity: The size of a loss. Loss severity is used as a factor in establishing premium rates.
  • Short Rate Cancellation: A cancellation initiated by policyholder request in which the premium returned is subject to an administrative penalty.
  • Sistership Liability: Exists when a manufacturer refuses to withdraw a product as ordered by a government agency or company management. Once a defective product has been identified and recalled, an insurance company excludes all other claims arising from the defective product due to the negligent failure of the company to take the product off the market.
  • Split Limits: The technique for expressing limits of liability coverage under a particular insurance policy by stating separate limits for different types of claims growing out of a single event or combination of events. Coverage can be split (limited) per person, per occurrence, between bodily and property damage, or in other ways.
  • Subrogation: The process of recovering the amount of claim damages paid out to a policyholder from the legally liable party. When a company pursues the legally liable third party, they are required to include the policyholder's deductible in the recovery process.

 

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  • Third Party: An individual other than the policyholder or the insurance company who has suffered a loss and may be able to collect compensation under the policy due to the negligent acts or omissions of the policyholder.
  • Third Party Over: The legal doctrine that involves an injured employee bringing suit against a third party who (for one reason or another) is able to bring an action against the employer.

 

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  • Underwrite: The process to evaluate the insurance application and independent sources in order to verify the information provided and to determine the acceptability of the risk.
  • Underwriter: The person who performs the underwriting process to accept, reject, or modify risks on behalf of the insurer.
  • Unearned Premium: The portion of the written premium applicable to the unexpired or unused part of the policy period for which the premium has been paid. For example, in an annual premium policy 11/12 of the premium is unearned at the end of the first month of the policy.

 

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  • Waiver: The relinquishment of a known right, which may be expressed or implied.
  • Written Premium: The total premium on all policies written by an insurer during a specified period of time, regardless of what portion has been earned.

 

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  1. The glossary is for informational purposes only.
  2. The actual terms of an insurance policy prevail over the information provided in the glossary.
  3. In the case of a dispute, the insurance policy is controlling and a court will rely on the policy as it is written in English to resolve the dispute.
  4. The policy is the sole source of rights and obligations of the insurer and the insured.
  5. The information contained in the glossary does not create rights or obligations on the part of the insured, the insurer, the agent, the broker, or the state.
  6. The glossary is not intended to be a substitute for the actual policy written in English.
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