Chapter 1 Glossary Flashcards
Accumulation of Risk
An Accumulation of risk occurs when a single event can give rise to claims under several different policies. Such an accumulation might occur by location or occupation for example
Claim cohort
A group of claims with a common period of origin. The period is usually a month, a quarter or a calendar year. The origin varies but is usually defined by the date of a claim, the date of reporting of a claim, the date of payment of a claim, or the date when the period of cover to which a claim attaches commenced.
Deductible
The amount which, in accordance with the terms of the policy, is deducted from the claim amount that would otherwise have been payable and will therefore be borne by the policyholder.
Discovery period
A time limit, usually defined in the policy wording or through legislative precedent, placed on the period within which claims must be reported. It generally applies to classes of business where several years may elapse between the occurrence of the event or the awareness of the condition that may give rise to a claim and the reporting of the claim to the insurer, for example, employer’s liability or professional indemnity.
Expiry Date
The date on which the insurance cover for a risk ceases.
Exposure
This term can be used in three senses:
- the state of being subject to the possibility of loss
- a measure of extent of risk
- the possibility of loss to insured property caused by its surroundings.
Exposure statistics are usually shown in one of three common bases: written exposures, earned exposures and in-force exposures.
Exposure unit/measure
The basic unit used by the insurer to measure the amount of risk insured, usually over a given period and usually used directly in rating, with premiums expressed as the rate per exposure unit of exposure times the number of units of exposure for the risk.
First loss
A form of insurance cover in which it is agreed that the sum insured is less than the full value of the insured property, and average will not be applied/
Knock-for-knock agreement
An agreement between two insurers specifying how claims costs are shared between them when vehicles insured by each of them are involved in the same accident. It specifies that each insurer meets the cost of the damage to the vehicle it has insured without any investigation or allocation of legal liability.
Latent claims
Strictly, latent claims are those claims that result from perils or causes that the insurer is unaware of at the time of writing a policy, and for which the potential for claims to be made many years later has not been appreciated.
In common parlance, latent claims are also those that generally take many years to be reported.
Line
Three different meanings arise, depending on context:
- the ceding offices’s retention under a surplus reinsurance treaty
- the percentage allocated to an insurer under coinsurance arrangements
- a class of business may also be referred to as a line of business (or LOB)
Long tailed business
Types of insurance in which a substantial number of claims take several years from the date of exposure and/or occurrence to be notified and/or settled.
Moral hazard
The risk than an insured may behave in a less risk averse manner when they are insured.
Nil claim
A claim that results in no payments by the insurer, because for example:
- the claim is found not to be valid
- the amount of the loss turns out to be no greater than the excess
- the policyholder has reported a claim in order to comply with the conditions of the policy but has elected to meet the cost in order to preserve any entitlement to no-claim discount.
No-claim Discount
A form of experience rating in which an individual policyholder may be granted a discount from the relevant base premium on his or her claims experience.
Peril
A type of event that may cause a loss that may or may not be covered by an insurance policy. An insured peril is one for which insurance cover is provided as opposed to an excluded peril for which insurance cover is not provided.
Personal lines
Types of insurance products offered to individuals, rather than to groups or business entities. Products include private motor, domestic household, private medical, personal accident and travel insurance.
Protected NCD
A modification to an NCD system whereby a policyholder who has attained a high level of NCD may elect to pay an extra premium in order to be able to make claims without losing future entitlement to discount. There may be a specified limit to the number of claims that can be made without affecting the discount, or the insurer may simply reserve the right to withdraw the policyholder’s options to continue or protected NCD.
Rating factor
A factor used to determine the premium rate for a policy, which is measurable in an objective way and relates to the intensity of the risk. It must therefore, be a risk factor or a proxy for a risk factor or risk factors.
Retroactive date
Used for claims made cover. It is the date after which claims must have occurred in order to be covered.
Risk factor
A factor that is expected, possibly with the support of statistical evidence to have an influence on the intensity of risk in an insurance cover.
Salvage
Amounts recovered by insurers from the sale of insured items that had become the property of the insurer by virtue of settling the claim.
Short-tailed business
Types of insurance in which most claims are usually notified and/or settled in a short period form the date of exposure and/or occurrence.
Subrogation
The substitution of one party for another as creditor, with a transfer of rights and responsibilities. It applies within insurance when an insurer accepts a claim by an insured, thus assuming the responsibility for any liabilities or recoveries relating to the claim. For example, the insurer will be responsible for defending legal disputes and will be entitled to the proceeds from the sale of damaged or recovered property.
Sunset clause
Clause defining the time limit within which a claim must be notified, if it is to be valid.
Uberrima fides
Latin for “utmost good faith”. This honesty principle is assumed to be observed by the parties to an insurance, or reinsurance contract.
Underinsurance
When the sum insured is less than that required under the terms of the contract. Depending on the policy conditions, where underinsurance is proved to exist, insurers may be able to claim that the policy is null and void. Alternatively, average may be applied to claim amounts.
Underwriter
An individual who assesses risks and decides the premiums, terms and conditions on which the risks can be accepted by the insurer.
Underwriting
The process of consideration of an insraunce risk. This includes assessing whether the risk is acceptable and, if so, the appropriate premium together with the terms and conditions of the cover. It may also include assessing the risk in the context of the other risks in the portfolio. The more individual the risk, the more detailed the consideration.
The term is also used to denote the acceptance of reinsurance and, by extension, the transacting of insurance business.
Underwriting factor
Any factor that is used to determine the premium, terms and conditions for a policy. It may be a rating factor or some other risk factor that is accounted for in subjective manner by the underwriter.
Zero claim
Another term for nil claim
