Insurance Terms

Accident: An event or occurrence that is unforeseen and unintended.

Actual Cash Value: Property insurance valuation method. The replacement cost of property damaged or destroyed at the time of loss, less depreciation.

ACV: Actual Cash Value

ADA: Americans with Disabilities Act

Additional Insured: A person or organization that meets the definition of an insured within an insurance policy. The party is not named specifically, but it is insured due to a group or class (e.g., employees, officers, and directors).

Additional Named Insured: A person or organization, other than the first named insured, specifically named as an insured in the declarations of the policy.

Adjuster/Adjustor: A person who investigates and settles losses for an insurance company. May be an employee of the insurer or an employee of an independent adjusting firm.

Advertising Injury: Injury arising out of an offense committed in the course of advertising activities. Examples include libel, slander, defamation, violation of right of privacy, piracy, unfair competition, or infringement of copyright, title, or slogan.

Agent: A legal representative of an insurance company. The agent’s role in the insurance transaction is to sell and service insurance. This person may be an employee. See also Independent Agent, Direct Writer, and Captive Agent.

Agent of Record: See Broker of Record

Aggregate Limit: A limitation in many liability policies stipulating the maximum amount available for the total of all claims paid in a period of time. Aggregates are usually annual.

Agreed Amount Endorsement: An endorsement to property insurance policies that removes the penalty for coinsurance issues by agreeing that the amount of insurance meets any coinsurance requirements.

All Risk: Antiquated term to describe the perils in a property insurance policy. It has been replaced by the term “special risk.” Using “all” got insurers and agents into trouble. See Special Risk.

Application: A form completed by the insured and/or the agent, providing information used in the underwriting and pricing process. The application becomes a part of the insurance policy for many lines of insurance.

ARAP: Rating system for assigned risk insurance programs managed by some states.

ARP: Assigned Risk Plan

Assessable Policy: An insurance policy that allows insurers to return to policyholders (as a group) for additional funds to cover losses of the group greater than anticipated. Usually only utilized in mutual insurance companies and captive/self-insurance plans.

Assigned Risk Plan: Also known as “The Pool.” This is a risk-sharing mechanism set up by states to provide insurance for employers where no standard insurance company is interested. The problem may be with the risk (poor loss experience) or with the state’s workers’ compensation system (the state insurance has set up a system where insurers feel that they cannot make money).

Associate in Risk Management (ARM): Professional designation. A course of study including the management of risks using techniques other than insurance.

Audit Worksheet: The document prepared by the auditor that outlines the payrolls of your company. In many cases, the worksheet will show the remuneration of each employee and the classification assigned to that individual. The information on the worksheet is used to calculate the final premium.

Audited Premium: The final premium based upon the audited, actual payrolls.

Auditor: See Premium Auditor.

Average Weekly Wage: A wage figure used to determine the payout in lost wages to an employee injured in a workers’ compensation loss.

B&M: See Boiler & Machinery Policy.

Bailee: An individual or entity that holds property of another. Examples are dry cleaners, jewelers, appliance repair firms, and computer repair firms.

Bailee Insurance: Insurance on the property of others held by a bailee.

Banker’s Blanket Bond: See Financial Institutions Bond.

Banker’s Professional Liability Insurance: Coverage for wrongful acts by the bank in the relationship with a customer. Usually a section of the directors’ and officers’ insurance.

BI: Bodily Injury

BII: Business Income Insurance or Business Interruption Insurance.

Binder: An oral or written statement that insurance coverage has been placed in effect. Usually issued by an insurance agent or the insurance company pending the actual policy being issued.

Blanket Insurance: A single limit of property insurance that insures multiple classes of property (buildings and contents) over multiple locations. Specific insurance provides specific coverage to a specific property. Blanket coverage lumps all property into one amount of insurance.

Bodily Injury: Injury or death. Some liability policies include emotional distress in the definition.

Boiler & Machinery Policy: Provides coverage for damage to equipment and machinery by mechanical breakdown, power surge, etc.

BOP: Business Owners’ Policy

BOR: See Broker of Record.

BPL: Banker’s Professional Liability

Broker: An insurance professional who represents the insured in the insurance transaction. Sometimes used incorrectly as a synonym for agent.

Broker of Record Letter: A form letter used to indicate a policyholder’s preference to an insurance company as to which insurance agent will have exclusive rights to the insured. Excludes all other agents/brokers from accessing the insurance company in question for that policyholder.

Builder’s Risk Insurance: Property insurance designed to protect buildings under construction or renovation. The policy recognizes the unique issues and hazards of construction. The rating of the policy recognizes the increasing values at risk.

Burglary: Breaking and entering into another person’s building with felonious intent.

Business Income Insurance: See Loss of Business Income.

Business Insurance: A subset of insurance that applies to the risks and hazards of business ventures, as opposed to personal insurance.

Business Interruption Insurance: Part of property insurance that pays for the lost profits and continuing expenses that result from physical damage to insured property caused by an insured peril. See also Loss of Business Income, Extra Expense.

Business Owner’s Policy: A package of insurance coverage providing both property and general liability insurance. Usually designed for smaller retail and office businesses.

Cafeteria Plan: See Flexible Benefit Plan.

Cancellation: Discontinuance of an insurance policy prior to policy expiration. May be at the request of the insured or by the insured’s action (nonpayment of premium). In extreme cases, the insurance company cancels a policy for an increase in hazard. Cancellations are largely governed by state law.

Captive Agent: An insurance agent who represents a single insurer or a single group of insurers. Captive agents may have to give their represented insurers first right of refusal, or may be barred from accessing other insurers altogether.

Captive Insurance Company: An insurance company, owned by one or more noninsurance companies, formed to provide insurance coverage for the owners.

Carrier: The insurance company.

Casualty Insurance: Classification of insurance dealing with losses caused by issues of liability through bodily injury, personal injury, wrongful acts, or property damage. This includes: auto insurance– general liability– workers’ compensation– professional liability– directors’ and officers’ liability– fiduciary liability.

Many casualty insurers also write surety business.

Cede: To transfer all or part of a risk written by an insurer to a reinsurer.

Certificate of Insurance: Proof of the existence at a moment in time of an insurance policy. Usually prepared by an insurance agent, this document lists the coverage included in a program of insurance. Prepared for the information of a business associate of the insured — a subcontractor would have his agent issue a certificate to the general contractor.

Certified Insurance Counselor: Professional designation in property and liability insurance administered by the Society of Certified Insurance Counselors.

CGL: Commercial General Liability.

CGL Policy: See Commercial General Liability Policy.

Chartered Property and Casualty Underwriter: Professional designation administered by the American Institute for Property and Liability Underwriters. The course of study includes extensive examinations covering the breadth of property and casualty insurance issues.

CIC: See Certified Insurance Counselor.

Claims Made: Refers to the trigger of liability coverage. An occurrence policy responds to events that happen (occur) during the policy period. Claims-made policies respond to lawsuits filed (the making of a claim) during the policy period.

Classification: Work comp. See Employment Classification.

Closed Claim: A claim that has been resolved. No further payments or treatments are expected.

CNP: Closed No Payment. Used on loss runs and claim reports to indicate that no payment was made on a claim, and the file has been closed.

Coinsurance: A penalty clause in property insurance policies that requires a certain percentage of the property’s value to be insured. For example: A building with a replacement cost of one million dollars and an eighty percent coinsurance clause must be insured for at least eight hundred thousand dollars (eighty percent of the one million dollar value) or a penalty is assessed at the time of a loss. Coinsurance in health insurance means the percentage of a loss paid by the insurance company. Liability insurance policies may have a coinsurance clause that denotes the percentage of the loss paid by the insurance company.

Collision Insurance: Auto Insurance — coverage for damage caused to the insured vehicle by an automobile accident or upset of the vehicle. Damage caused by collision with an animal or bird is covered by comprehensive automobile insurance.

Combination Safe Depository Policy: Covers losses to customers’ property in a safe depository due to a loss or damage from actual or attempted burglary or robbery. Policies may exclude cash and coins.

Commercial Auto Policy: Provides protection for liability arising out of the use of motor vehicles. Also provides physical damage coverage to specified vehicles (also known as comprehensive and collision coverage).

Commercial Crime Insurance: Coverage forms used to insure against burglary, robbery, or counterfeit currency for organizations other than banks and financial institutions.

Commercial Crime Policy: Crime insurance used by general businesses. Banks use the financial institutions bond.

Commercial General Liability Policy: Provides coverage for bodily injury and property damage either from operations or products.

Commercial Lines Insurance: A broad category of insurance indicating coverage for businesses, professionals, and commercial establishments.

Commercial Property Policy: Coverage for buildings and contents.

Computer Coverage Property insurance covering computer hardware, software, and data. Considered inland marine insurance.

Conditions: Qualifications on the terms made by an insurance company — insured must pay premiums, insured must notify insurance company of claims, etc.

Consolidated Omnibus Budget Reconciliation Act (COBRA): Health insurance. A federal law that provides certain former employees, retirees, spouses, and dependent children the right to temporary continuation of health coverage at group rates. Coverage is limited to eighteen months.

Coverage: The scope of protection of an insurance policy. Used as a synonym for insurance.

CPCU: See Chartered Property and Casualty Underwriter.

Credit Insurance: Coverage against default by creditors. Insureds can protect all of their accounts receivable or specific creditors. Some credit insurance companies also provide credit watch and account receivable advisory services.

CSR: See Customer Service Representative.

Customer Service Representative: An employee of an insurance agency or company that provides administrative and customer support functions.

Cyber Liability Insurance: See E-Banking Insurance.

D&O: Directors’ and Officers’ Insurance.

Death Benefit: Payment made to a policy beneficiary upon death.

Debit Card Coverage: Can be included in the financial institutions bond. Provides coverage for loss resulting directly from the fraudulent use of a debit card to obtain cash or pay for products or services by gaining access to an electronic payment device, provided that such device, as part of the transaction, electronically verifies the customer’s available funds in the customer’s depository account at the insured’s bank.

Debris Removal Clause: Extends property insurance to include payment for the removal of the debris from an insured loss. Includes demolition, transportation, and disposal of the rubble.

Dec: Declarations page. See Declarations.

Declarations: The part of an insurance policy that specifically describes the limits, premiums, rates, names, and other information relative to a specific insured.

Deductible: The part of a claim paid for by the insured. A five thousand dollar property deductible means that the insured pays the first five thousand dollars of any fire damage or other insured loss.

Difference in Conditions Policy: A property insurance policy that provides additional perils such as earthquake and flood coverage.

Definitions: The part of an insurance policy that defines many of the words used in the policy. Most policies highlight terms that are defined or place the term in quotation marks to indicate that the word is defined in the policy.

Depository Bond: Bond (surety) to guarantee the safety of funds made by depositors and their availability for withdrawal as indicated in the terms of deposit. Generally used for municipalities and school districts.

DIC: Difference in Conditions policy.

Direct Writer: An insurance company that does not work through independent insurance agents. Agents for direct writers are usually employees of the insurance company or in exclusive relationships with the insurance carrier. Liberty Mutual, State Farm, and Allstate are direct writers.

Directors’ & Officers’ Insurance Policy: Provides coverage for allegations of third parties for mismanagement, failure to act properly, and other “wrongful acts” against directors and officers. Coverage also can be included for the bank, known as Entity Coverage.

Discovery Period: See Extended Reporting Period.

Dishonesty Insurance: See Commercial Crime Policy.

Dividend: A return of premium given after a policy has expired based on loss experience of the insured or of a group of insureds. Low losses result in higher dividends. Under most state laws, insurers cannot guarantee dividends.

DOC: See Drive Other Car coverage.

Domestic: See Residence Employee.

Domestic Insurer: An insurer domiciled in a state in which the insured’s insurance is written.

Drive Other Car Coverage: An endorsement to the commercial auto policy that extends coverage for individuals who are provided personal use of a company vehicle and are not covered by a personal auto policy.

Earned Premium: Premium used in an insurance policy. In workers’ compensation, premium is earned as the employer incurs payroll expense.

E-Banking Insurance: Insurance designed to provide coverage for certain exposures unique to banking conducted over the Internet. Generally includes coverage for computer privacy liability, business interruption, copyright infringement, and public relations expense.

E-Commerce Insurance: See E-Banking.

EDP: Electronic Data Processing.

EE: Extra Expense.

EL: Employers’ Liability.

Employee Retirement Income Security Act: US federal law passed in 1974 that provides regulation over employee welfare plans —retirement funds, group insurance, pensions, etc.

Employers’ Liability: The second part of workers’ compensation insurance policies. Provides protection from liabilities that arise out of the employment relationship but are not covered by workers’ compensation. For example: a spouse of an employee who becomes ill because of chemical residues brought home on the employee’s clothing.

Employment Classification: The job code/description used to categorize employees and exposures.

Employment Practices Liability Insurance (EPLI): Liability insurance for acts of harassment, wrongful discharge, wrongful hiring, and discrimination.

Endorsement: Additional policy coverage, conditions, or exclusions added to the insurance contract by the insurance company. Sometimes called a Rider.

Entity Coverage: An extension of directors’ and officers’ insurance, providing coverage for legal actions against the insured entity.

EPLI: Employment Practices Liability Insurance.

ERISA: See Employment Retirement Income Security Act.

ERISA Bond: Provides the required protection for the assets of a retirement fund under the federal law known as ERISA.

E-Risk Insurance: See E-Banking.

Errors and Omissions Insurance: See Professional Liability Insurance.

Estimated Premium: Premiums determined at the beginning of a policy period based upon estimated payrolls. The insured pays for the policy based upon the estimated premium, and then the audit determines the final premium.

Excess and Surplus Lines: See Surplus Lines.

Excess Liability Policy: See Umbrella Liability.

Excess Loss Premium Factor: A part of retrospective rating programs. A factor to compensate the insurer for limiting the effects of losses over a certain amount, fifty thousand dollars for example.

Excess Losses: Part of the experience modification calculation. The amount of a loss that exceeds five thousand dollars. See also Primary Losses.

Exclusion: A part of an insurance contract that removes coverage for a specific set of circumstances. Flood is excluded from coverage on most property insurance policies.

Exclusive Agent: See Captive Agent.

Experience Modification Factor: A premium adjustment factor based upon the losses of a risk compared to losses of similar organizations. A ratio of expected losses to actual losses. Calculated by rating bureaus such as NCCI.

Experience Period: Policy and claim periods used in the experience modification (mod), usually the oldest three of the past four years. The 2006 mod is based on the data from years 2004, 2003, and 2002.

Exposure: A vulnerability to loss.

Exposure Basis: A unit of measuring exposure. In workers’ compensation, the exposure basis is remuneration. In the case of some rates for domestic help, the unit may be per employee. A liability policy may use payroll, sales, or area as the basis of premium.

Extended Discovery Period: See Extended Reporting Period.

Extended Reporting Period: A provision included in claims-made liability insurance policies where, after the expiration or cancellation of a policy, the insured can extend the time to discover a claim that occurred prior to the end of the policy. Also called a Tail or Discovery Period.

Extortion: Extracting money or forcing actions based on a threat of harm. A part of most kidnap and ransom insurance policies.

Extra Expense Insurance: A part of time element insurance that pays the increased costs necessary to get an insured back into business quickly after insured property is damaged by an insured peril.

Federal Employees’ Compensation Act: Workers’ compensation act for federal civilian government employees. Overseen by the government of the United States. Does not involve private insurers or state funds.

Federal Employers’ Liability Act (FELA): Applies to railway workers who are exempt from workers’ compensation statutes. Cases decided on the basis of employers’ liability.

Fellow Servant Rule: Archaic term used as a common-law defense for employers prior to workers’ compensation laws. Held that an employer was not liable for injuries to an employee if the injury was caused by a fellow employee.

Fidelity Bond: See Commercial Crime Policy.

Fiduciary: A person entrusted with property or the care of an asset.

Fiduciary Coverage: See Fiduciary Liability Insurance.

Fiduciary Duty: The duties expected of a fiduciary.

Fiduciary Liability Insurance: Protects the fiduciaries, directors, and officers of employee welfare plans (group insurance, pension plans, 401(k) plans) against actual or alleged wrongful acts. Covers liabilities imposed by the federal law ERISA.

Financial Institutions Bond: Pays for dishonest acts by employees or outsiders. Theft of money, forgery, counterfeit currency, damage by hackers, etc.

Fire Insurance: Broad term used to describe building and personal property insurance protection.

Fire Legal Liability: A part of the commercial general liability insurance policy that protects damage to the part of the building occupied by the insured that is damaged due to the insured’s negligence. Usually called upon to protect tenants for damage to the portion of the building they rent.

First Named Insured: The first person or organization listed on an insurance policy as an insured. First named insureds receive all policy notices and bills.

Flexible Benefit Plan: An employee benefit plan that allows employees to select among the various group life, medical expense, disability, dental, and other plans that best meet their specific needs.

Flood Insurance: Insurance against the peril of a general and temporary increase in the level of a stream, lake, river, or ocean.

Forced-Placed Insurance: Property insurance designed to cover properties where the bank’s customer (the mortgagee) has failed to buy his own property insurance. Usually written on a monthly reporting basis.

Foreign Insurer: An insurer domiciled in a state other than the one in which the insured’s insurance is written.

Form: The contract of insurance that outlines terms and conditions of protection.

FRIP: Fiduciary Responsibility Insurance Policy

Garagekeeper’s Insurance: Provides coverage for the liability of parking vehicles owned by others.

General Liability: See Commercial General Liability.

GL: General Liability

Governing Classification: The employment class with the highest remuneration on a policy, except for standard exception classifications.

Group Self-Insurance: Many employers banding together to insure their operations based on a pooling of exposures and risks. They become an insurer. Groups can be homogeneous (a bank workers’ compensation group) or heterogeneous (a plumber, a lumber yard, and a bank band together).

Guaranteed Cost: A workers’ compensation program that is not subject to adjustments in premiums based on losses. Guaranteed cost programs include audits, and premiums are adjusted based on changes to remuneration.

Hammer Clause: A provision in a professional liability policy or directors’ and officers’ insurance that limits the insurer’s liability should the insured refuse to accept a settlement offer from the plaintiff.

Hard Market: A description of the insurance marketplace used to indicate a period of increasing rates and constricting coverage/availability. A sellers’ market. The opposite of a soft market.

Hazard: A situation that presents a chance of loss or an increase in the severity of a potential loss.

Incurred Losses: The total of amounts paid and amounts reserved.

Indemnification: An agreement where one party agrees to provide protection for certain legal actions brought against the primary party by another.

Indemnity: As to property insurance — a legal principle that holds an insured should not collect more than what he or she lost in a claim. As to work comp — lost time payments, as opposed to medical bills.

Indemnity Contract: As to liability — a provision that the insurance company reimburses an insured after settlement of a claim.

Independent Adjuster: A contractor of the insurance company who manages insurance claims for the insurance company.

Independent Agent: An autonomous business that sells and services insurance policies as a representative of a variety of insurance companies.

Inland Marine Insurance: A class of insurance covering articles in transit as well as the modes of transportation. Includes cargo, equipment, bridges, tunnels, art, jewelry, property owned by others, and other items.

Insurance: A contractual agreement where an insurance company assumes the risks outlined in an insurance policy in return for payment of a premium.

Insurance Adjuster: The person who manages the claim process for the insurance company. May be an employee of the insurer or a contractor hired by the insurer.

Insurance Carrier: See Insurance Company.

Insurance Commissioner: The top insurance regulatory official in a state. May be called a Superintendent.

Insurance Company: A commercial enterprise formed to sell and service insurance policies.

Interstate Rating: An experience modification that includes payroll and loss information from more than one state. Some states do not participate in interstate rating plans.

IRA-Keogh Errors & Omissions Policy: Covers errors in the administration of IRA and Keogh plans.

K&R: Kidnapping and Ransom Insurance. See Kidnap, Ransom, and Extortion Insurance.

Kidnap, Ransom, and Extortion Insurance: Pays moneys demanded either for kidnapping or the threat of kidnapping. Also pays for extortion with a threat to property.

Liability: A legally enforceable obligation usually due to a breach of some duty or negligence.

Liability Insurance: Insurance that responds to a breach or negligence of the insured to another party.

Liquor Liability Insurance: Coverage designed to respond to liabilities arising out of the sale, manufacture, or serving of alcoholic beverages. Most commercial general liability policies exclude liquor liability claims only for those in the business of selling, manufacturing, or serving alcohol.

Longshoremen’s and Harbor Workers’ Act: See United States Longshoremen’s & Harbor Workers’ Act.

Loss: An accident or event that causes damage, injury, or illness.

Loss Adjustment Expenses: Monies spent to investigate and settle losses.

Loss Control: Practices and procedures used to minimize the severity of a loss. Also used to describe loss prevention activities.

Loss of Business Income: A part of time element insurance that pays for the lost profits and continuing expenses after damage to insured property caused by an insured peril.

Loss Prevention: Practices and procedures used to keep accidents from happening. Prevents frequency of loss. Also used to describe loss control activities.

Loss Ratio: Incurred losses (and loss adjustment expenses) divided by net premiums earned. Measures profitability. A measure of losses compared to premiums.

Loss Reserves: Estimated amounts for future payments of medical and wage payments for a specific claim.

Loss Run: A record of losses for a policy period.

Lost Wages: Amounts paid for wages lost by an employee due to a workers’ compensation claim.

LTD: Long-Term Disability.

Manual Premium: Calculated by multiplying payrolls by rate before application of any modification factors, schedule credits, or debits.

Manuscript Policy: A unique policy customized to the needs and exposures of a specific insured and a specific insurance company.

Medical Payments: General liability — coverage for medical bills incurred by a third party at an insured location. Coverage is not dependent on the negligence of the insured. Automobile — coverage for injuries to occupants of the insured vehicle caused by an auto accident.

Medical-Only Claims: Workers’ compensation claims where there is no lost time/wages.

Misrepresentation: A false, incorrect, improper, or incomplete statement of a material fact made in the application for an insurance policy. Constitutes fraud in many states.

Mod: See Experience Modification.

Modified Premium: The workers’ compensation premium after the application of the experience modification, but before other credits/debits are applied.

Monopolistic: A state workers’ compensation system where no private insurers are allowed to compete for business.

MOP: Manufacturers’ Output Policy.

Mortgage Errors and Omissions: Protects the bank’s interest in properties mortgaged. Should a mortgage customer not purchase insurance (and the bank not know it), the policy will pay the bank’s interest in the property should it be destroyed by a covered peril.

Mortgage Impairment Policy: See Mortgage Errors and Omissions.

MP: Medical Payments.

Mutual Insurance Companies: An insurance company owned by policyholders, as opposed to stockholders.

Named Insured: Individual(s) and organization(s) listed on the declarations as insured.

National Association of Insurance Commissioners (NAIC): Association of state insurance regulators who administer state insurance rules and laws. NAIC promotes uniformity in regulation throughout the country.

The National Council on Compensation Insurance (NCCI): The organization responsible in most states for administering classifications, experience modification factors, and collecting data used in rate-making. NCCI is not connected with any state government. It is a rate- and rule-making organization funded by insurance companies that use their services. They report information to states and are certainly regulated by state insurance departments. It is not, however, a government-run organization. They do act like it sometimes, though.

Net Premium: Premiums after all fees, charges, and credits.

NOC: As to work comp—see Not Otherwise Classified.

No-Fault Automobile Insurance: An approach used by certain states for liability issues resulting from auto accidents. Injuries resulting from auto accidents are paid for by the insurance covering the vehicle occupied by the injured person, rather than who was negligent.

Noncancelable: A policy feature that provides a guarantee of continuation of insurance at the insured’s option. Insurers may adjust premiums, however.

Not Otherwise Classified: As to work comp — a term used in the Scopes® classification manual and other rule books to indicate employment classifications that are not included in other class descriptions.

Occupational Disease: An illness or disease resulting from a work hazard or condition.

Occupational Hazard: A condition in a job or work environment that increases the peril of accident, sickness, or death.

Occurrence: Defined by most liability policies as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.”

Ocean Marine Insurance: Insures boats, vessels, and cargo transported over water.

OD: Occupational Disease.

Ordinance or Law Insurance: A part of property insurance that pays the increased cost of construction due to new zoning or building codes. Can also pay for demolition of the undamaged portion of a building that must be torn down due to violation of codes or ordinances. All coverage is triggered by a covered cause of loss plus the required action of laws or codes.

Other States: Work comp — the section of the policy that describes how coverage will apply outside of the states listed in the classification page of your policy.

Package Policy: Combining two or more insurance coverage sections into a single policy — property and liability coverages, for example. Homeowners’ and business owners’ policies are package policies.

Partial Disability: Work comp — impairment of a part of the body. May be permanent or temporary.

Payroll Audit: Work comp — an examination of employer records to determine final remuneration in individual employment classifications for the purpose of determining policy premium. Performed by an auditor.

Pending and Prior Litigation: An exclusion in many claims-made insurance policies for claims that were known prior to the inception date of the policy.

PD: Property Damage.

Peril: A cause of loss — fire, lightning, hail, and robbery are examples of perils.

Permanent Partial Disability: Partial impairment of a part of the body that is not reversible and will not heal — amputation of a finger, for example. May not impair work capacity for certain occupations. May remove an employee from the current occupation.

Permanent Total Disability: Total loss of work capacity that is not reversible or will not heal.

Personal Injury: Usually a part of the commercial general liability insurance policy. Provides coverage for libel, slander, false arrest, or defamation of character. Actual definition varies by policy.

Personal Injury Liability Insurance: Part of the commercial general liability insurance policy that provides protection for libel, slander, defamation, or violation of right of privacy; and wrongful entry, eviction, or other invasion of right of private occupancy.

Personal Injury Protection (PIP): Auto insurance. See No-Fault.

Personal Lines: Insurance coverage in property and casualty insurance for families and households — personal auto coverage and homeowner’s insurance, for example.

PI: Personal Injury,

Policy: The insurance contract. It spells out the terms, conditions, and exclusions of the insurance provided by the insurance company.

Policy Term: The period of time that the insurance policy is in force.

Policyholder: The person or organization that owns the insurance policy.

Pollution: A cause of loss that is excluded by most property and liability insurance policies. Usually requires a special pollution liability insurance policy.

Pool: See Assigned Risk Plan.

Premium: The price of insurance for a specified risk for a specified period of time.

Premium Auditor: Work comp — an individual who performs the audit of remuneration at the end of a policy period. May be an employee of the insurance company or a contractor hired by the insurance company.

Premium Discount: Work comp — a premium credit based on the size of the premium paid.

Premium Finance: Finance arrangement for the insured to make payment of the insurance premium.

Primary Insurance: The insurance policy that is responsible for paying the first part of a loss. Excess policies pay after primary policies pay.

Primary Losses: Work comp — part of the experience modification calculation. The first five thousand dollars of any loss. See also Excess Losses.

Product Liability Insurance: Protection from legal actions against an insured for bodily injury and property damage caused by a product sold, manufactured, processed, or provided by the insured.

Professional Liability Insurance: Insurance against negligent damage caused by a wrongful act of the insured. Usually excludes bodily injury and property damage. Also called malpractice insurance. Also called errors and omissions insurance.

Proof of Loss: Presentation by the insured of documentation of the extent of a claim. Usually used in property insurance policies as a condition. Insurers must respond (pay) within a certain time to the presentation by the insured of a proof of loss.

Property Damage: Physical damage to tangible property.

Property Insurance: Insurance protection for loss of tangible property owned by or in the care of the insured. Includes buildings, personal property, stock, inventory, and time element insurance.

Property Policy: See Commercial Property Policy.

Protection and Indemnity Insurance: Specialized insurance for boats and commercial vessels. Responds to the unique exposures of maritime law and federal laws such as the Jones Act.

Public Adjuster: A person or firm that is a representative of the insured in a claim for insurance benefits.

Rating Bureau: Work comp — an organization that compiles statistical and rate-making information to determine premiums. See NCCI. Non-NCCI states have their own rating bureaus.

RC: Replacement Cost.

Registered Mail Insurance: Provides insurance for loss, damage, or destruction of securities and other important or valuable papers during shipment.

Rehabilitation Benefits: Benefits payable to return an injured worker to work after a work-related injury or illness.

Reinsurance: Insurance purchased by insurance companies to provide a risk transfer mechanism. Also used by self-insurers and self-insured groups.

Remuneration: Payroll and other compensation paid to employees. Used to calculate premiums.

Renewal: The re-establishment of an insurance policy after the expiration of a prior term of coverage.

Replacement Cost: Property valuation method that uses the cost of replacement of an item or the cost of new construction without any deduction for depreciation.

Reservation of Rights: A response to a claim whereby the insurance company defends a case without any commitment as to the coverage provided by a policy.

Reserve: Amount expected to be paid on a claim that is not resolved or closed.

Residence Employee: Work comp — a person who performs full- or part-time household services.

Residual Market: See Assigned Risk Plan.

Retention: Amount of a claim paid by the insured. The term is usually used in liability insurance. Similar to a deductible.

Retention Plan: A loss-sensitive insurance plan that adjusts the premium up or down based on losses and associated costs.

Retrospective Rating: A loss-sensitive workers’ compensation insurance program where adjustments are made to premiums after policy expiration. Adjustments can go up or down subject to premium minimums and maximums.

Rider: See Endorsement.

Risk: (1) Exposure to loss, (2) an insured, or (3) a portion of an insured operation.

Risk Management: The process of addressing, in a systematic way, the hazards and exposures of an organization. Risks can be avoided, reduced, transferred, and retained. Insurance transfers the risk (or a part of it) to an insurance company.

Risk Retention Group: Alternative risk financing tool where similar businesses band together to share risks. Usually utilizes reinsurance and individual retentions along with regimented loss control and claims management process. Meets the requirements of the Risk Retention Act of 1986.

Safe Depository: See Combination Safe Depository.

Schedule Credit/Debit: Premium adjustment factors applied at the discretion of insurance company underwriters and based upon individual characteristics of the risk. Issues such as managed care, quality of management, loss control efforts, and the insurance company’s appetite for the risk are included.

Scopes® Manual: Work comp — a publication of NCCI that outlines the definitions of the six hundred-plus employment classifications.

Second Injury Fund: Work comp — a mechanism set up by states to minimize the impact of re-injuries. The theory is that employers will be reluctant to hire previously injured workers without such a system. Sometimes funded by surcharges on insurers for death claims where there are low medical bills.

Self-Insurance: Retention of the risk usually in a formal, calculated way. In workers’ compensation, state regulations impose financial and administrative qualifications. May involve reinsurance or very large deductibles to cover catastrophic losses. Self-insurance isn’t really insurance — you are retaining the risk.

Self-Insured Retention: See Retention.

Short-Rate Penalty: A penalty assessed when an insurance policy is cancelled by the insured in the middle of a policy period. Workers’ compensation short-rate penalties are high in the early months and gradually decline throughout the policy period. Short-rate penalties in other property and casualty policies are usually 10 percent of the unearned premium.

Side A: Coverage within a directors’ and officers’ insurance policy that pays for claims against individual directors or officers when corporate reimbursement isn’t allowed.

Side B: Coverage within a directors’ and officers’ insurance policy that pays for claims against individual directors or officers when corporate reimbursement is allowed.

Side C: Coverage within a directors’ and officers’ insurance policy that pays for claims against the bank. Also referred to as entity coverage.

Sliding Scale Dividend: A dividend plan that varies the size of the dividend payment based on the loss ratio of the insured.

Soft Market: A description of the insurance marketplace used to indicate a period of declining rates and expanding coverage/availability. A buyers’ market. The opposite of a hard market.

Sole Remedy: Workers’ compensation is said to be the sole remedy for an employee’s workplace injuries. In most states, employees may not seek payment from employers outside of workers’ compensation for an employer’s negligence or liability for an injury.

Special Risk: A type of property insurance policy where all perils (causes of loss) are insured except those that are excluded by the policy. Some common exclusions: flood, earthquake, animals, nuclear, and deterioration.

STAMP Bond: Securities Transfer Agents Medallion Program — provides signature guarantee.

Standard Exception Classifications: Work comp — employment classifications that are allowed on most policies in addition to the primary business classes. Clerical, sales, and driver are common standard exceptions.

Standard Markets: Insurance companies that are not surplus lines insurers.

Standard Policy: An insurance policy used by a preponderance of insurance companies to cover similar exposures and operations.

Standard Premium: Work comp — premium after application of the experience modifier and schedule credits or debits, but before premium discount.

State Fund: A workers’ compensation insurance system run by a state governmental agency. May be competitive with private insurers, or monopolistic. Also synonymous with assigned risk fund or pool.

STD: Short-Term Disability

Strict Liability: Liability that comes out of an exposure that is so onerous that negligence need not be proven (e.g., blasting within a city, the keeping of wild animals).

Subrogation: The procedure under which an insurance company recoups losses paid from the insurer of the negligent or responsible party. For example, a workers’ compensation insurer may subrogate against the auto insurer of the driver who caused an accident in which an employee is injured.

Surety Bond: An agreement that guarantees that the principal will fulfill its obligations to the obligee. Surety — bonding company. Principal — party performing the work. Obligee — entity for whom the principal is working to whom the surety is obligated.

Surplus Lines: Insurance written by non-admitted insurance companies.

Tail Coverage: See Extended Reporting Period.

Temporary Partial Disability: A condition where an injured worker’s capacity is impaired for a time, but he or she is able to continue working at reduced capacity. Full recovery is expected.

Temporary Total Disability: A condition where an injured worker is unable to work at all while he or she is recovering from injury. Full recovery is expected.

Terrorism Risk Insurance Act: Federal law outlining the taxpayer-funded reinsurance provided for certain types of terrorism losses.

Time Element Insurance: A subset of property insurance that pays the lost profits, continuing expenses, and increased expenses caused by an insured peril. Usually triggered by damage to insured property. See Loss of Business Income. See Extra Expense Insurance.

Tort: A civil wrong other than a breach of contract.

TRIA: Terrorism Risk Insurance Act.

Trust Department Errors & Omissions Policy: Provides protection for claims made against a bank for losses resulting from an error or omission by the trust department while performing trust functions.

Twisting: Inaccurate or incomplete insurance policy descriptions used to entice the surrender or cancellation of an insurance policy in favor of another policy.

U&O: Use and Occupancy (antiquated term).

UIM: Under-Insured Motorist.

UM: Uninsured Motorist.

Umbrella Liability: A form of excess insurance that provides additional limits of liability protection as well as increasing the breadth of the coverage provided.

Umbrella Liability Policy: Provides extra liability coverage above the general liability, auto liability, and employers’ liability coverage. Also known as excess liability.

Underlying Policies: The basic liability insurance policies that are accessed before excess or umbrella liability policies. Usually include auto liability, general liability, and employer’s liability.

Underwriter: (1) An insurance company, or (2) the individual who performs underwriting for an insurance company.

Underwriting: The process an insurance company goes through to classify, analyze, and price an insurance policy.

Unearned Premium: The difference between the premium paid and the earned premium.

Uninsured/Underinsured Motorist Coverage: Autopays the policyholder for injuries to occupants of the insured vehicle if the accident was caused by a driver who has too little or no liability insurance.

Unit Stat Card: Work comp — a form filed with a rating bureau by an insurance company to report remuneration and losses on a specific policy. Used to calculate the experience modification. Usually submitted based on losses shown at the six-month point in a policy.

United States Longshoremen’s & Harbor Workers’ Compensation Act: Federal workers’ compensation law that stipulates compensation for those who work in harbors and on wharves.

U.S.L. & H. See United States Longshoremen’s and Harbor Workers’ Compensation Act.

Voluntary Compensation: An endorsement to the standard workers’ compensation insurance policy; extends coverage to employees not required to be covered under the state’s workers’ compensation law. Farm workers, domestic help, business owners, for example. Usually has nothing to do with volunteers. The term refers to the voluntary addition of normally uncovered individuals.

Voluntary Market: The standard insurance market where insurers offer coverage on a competitive basis. Assigned risk insurance programs (auto or workers’ compensation) are involuntary markets. Also, insurance written outside of any assigned risk plan.

WC: Workers’ Compensation

Workers’ Compensation: (1) A state-mandated program of benefits for injured workers, and(2) an insurance policy designed to provide benefits based on a state’s workers’ compensation law.

Workers’ Compensation Insurance: Pays benefits as provided by state law for work-related injuries or diseases. The policy also provides protection for other types of work-related incidents.