Insurance Glossary

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Insurance Glossary

INSURANCE GLOSSARY

Adjuster: A representative of the insurer who helps determine the extent of the insurer’s liability for loss when a claim is submitted.

Agent:  An individual who sells and services insurance policies. Agents are either “independent” and represent two or more insurance companies, or are “captive” or “career” and officially represent one company.

Capital and Surplus (Policyholder Surplus): The amount remaining after liabilities are deducted from all assets. Essentially, this is an insurer’s statutory net worth. Capital and surplus provides financial protection to policyholders in the event that a company suffers unexpected losses.

Casualty Coverage: Insurance for the legal liability resulting from losses caused by injury to people or damage to the property of others. This coverage includes automobile, workers’ compensation, employers’ liability, general liability, plate glass, theft, and personal liability.

Claims Costs: Costs incurred by an insurance company for adjusting, settling, and servicing claims. These include costs for claims and indemnity payments, adjuster fees, legal fees, and expert fees.

Co-insurance: Provision in an insurance policy, which is usually optional, under which the policyholder, for a reduced rate, agrees to maintain insurance equal to a specified percentage of the value of the property covered. Policyholders who fail to maintain the minimum amount of coverage specified, assume a proportional share of the loss.

Commercial Lines: Insurance for businesses, organizations, institutions, government agencies, or other commercial establishments.

Expense Ratio: Ratio for underwriting expenses (including commissions) divided by net premiums written. This ratio measures a company’s operational efficiency in underwriting its book of business.

Guaranty Fund: State-operated fund derived from assessments against solvent insurance companies that is used to pay losses to insolvent companies’ claimants.

Lapse: Termination of an insurance policy for nonpayment of premium.

Loss-Adjustment Expenses: Expenses incurred to investigate and settle losses.

Loss Control: Measures that reduce the frequency and/or severity of losses including exposure avoidance and loss prevention.

Loss Ratio: The ratio of incurred losses and loss adjustment expenses divided by the net premiums earned. This ratio is one measurement of a company’s underlying profitability.

Loss Reserves: Liability established to pay anticipated claims costs and expenses associated with settling claims, including a provision for incurred but not reported losses.

Mutual Insurance Company: An insurance company that is owned by its policyholders and issues no capital stock.

Occurrence: An event that results in an insured loss.

Policy: A written insurance contract that includes clauses, riders, and endorsements.

Premium: The amount paid for insurance coverage.

Property Coverage: Insurance that provides financial protection against losses or damage to personal property from fire, windstorm, hail, vandalism, and more.

Reinsurance: Insurance that an insurer buys to spread some of its risk of loss on the policies it has underwritten. Reinsurance enables an insurer to underwrite more insurance, stabilize its underwriting results, and secure catastrophe protection against shock losses.

Risk Management: The process of managing risks a company might be exposed to by analyzing the possibility of loss, and then using techniques to avoid those risks.

Statutory Accounting: Accounting practices and principles required of insurers reporting to insurance regulatory authorities.

Subrogation: The right of an insurer that has taken over another’s loss also to take over the other person’s right to pursue remedies against a third party.

Underwriting: The process of evaluating risks for insurance and determining what amount of premium should be paid for those risks, and under what terms the insurance company will accept them.