General Insurance Definitions Flashcards
Acquisition costs
Costs arising from the writing of insurance contracts such as commission
Adjustment premium
An additional premium payable at the end of a period of cover. This may result from the use of retrospective experience rating or from a situation where the exposure cannot be adequately determined at the start of the period of cover.
Agents’ balances
Moneys (typically premiums) that belong to an insurer but are held by an agent
All risks
Covers that are not restricted to specific perils. The cover is for loss, destruction or damage by any peril not specifically excluded (exclusions will often be inevitabilities like wear and tear).
Allocated loss adjustment expenses (ALAE)
The expenses incurred in handling and settling a claim. ALAE differs from ULAE because they can be allocated to a specific claim (e.g. legal fees for settling a claim).
Bancassurance
An arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base.
Binding authorities
Contractual agreements setting out the scope of delegated authority, allowing cover holders to enter into contracts of insurance and to issue insurance documents on behalf of Lloyd’s managing agents
Bonus-malus
A rating system in which the base premium can be discounted or loaded in response to the policyholder’s claims experience
Broker
An intermediary between the seller and buyer of a particular insurance contract who is not tied to either party
Business interruption insurance
Insurance cover for financial loss arising following damage (e.g. fire) to business premises. It is also referred to as consequential loss insurance, loss of profits and BI insurance.
Cancellation
A mid-term cessation of a policy, which may involve a partial return of premium
Captive
An insurer wholly owned by an industrial or commercial enterprise and set up with the primary purpose of insuring the parent or associated group companies and retaining premiums and risk within the enterprise
Casualty insurance
Specifically, the term is used in the US, and to a lesser extent the UK, as an alternative to liability insurance. In a wider context, casualty insurance may be used as a phrase to cover non-life insurance.
Central funds (Lloyds’)
This is a contingency reserve built up from contributions by Lloyd’s Names and held by Lloyd’s as a layer of protection to policyholders. It is used to demonstrate overall solvency to the regulator. This capital is in addition to members’ capital resources held as Funds at Lloyd’s (FAL).
Claims handling expenses (CHE)
The expenses incurred in handling and settling claims (ALAE & ULAE)
Claims made policy
A policy that covers all claims reported to an insurer within the policy period irrespective of when the incident occurred. The policy will usually only cover claims that took place after a specified retroactive date, typically the date that the policy was first taken out. The type of cover provided by such a policy is known as claims made cover.
Claims occurring policy
A policy that covers all claims that occur within the policy period irrespective of when the claim is made
Commercial lines
Classes of insurance for commercial and business policyholders
Committee of Lloyd’s
A committee that is responsible for administrative matters within Lloyd’s under delegation from the Council of Lloyd’s.
Council of Lloyd’s
The governing body responsible for the overall direction of Lloyd’s. It was established as a result of the Lloyd’s Act 1982 and consists of six working members.
Composite insurer
A single insurance company that writes both life and non-life business
Cover note
A note issued by an insurance company to confirm the existence of insurance cover pending the issue of the formal policy documentation.
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.
Deposit premium
This occurs in cases where all relevant exposure or rating information is not known at the start of the period of cover (adjustment premium follows at the end of the term)
Direct business
Two meanings:
1) business acquired without the intervention of an intermediary
2) the cover provided by an insurer to an original policyholder, as opposed to any reinsurance cover provided for the insurer
Discovery period
A time limit, usually defined in the policy wording, placed on the period within which claims must be reported.
Endorsement
Some change to the policy wording, usually followed by a change in the risk covered, which takes effect during the original period of insurance and is usually accompanied by an alteration in the original premium
Escalation clause
A policy clause that permits the insurer to raise automatically the level of benefits or sum insured (and therefore the premium) in line with some form of inflation index
Excess and surplus lines insurance
A segment of the insurance market that allows consumers to buy property and casualty insurance through the state regulated insurance market, where policyholders, agents, brokers and insurance companies all have the ability to design specific insurance coverages and negotiate pricing based on the risks to be secured.
Experience rating
A system by which the premium of each individual risk depends, at least in part, on the actual claims experience of that risk (either past of during the current term). In the London Market context, it is a rating based purely on experience of the historical risk presented.
Exposure rating
A measure of calculating the premium that is based on external data or benchmarks.
First loss
A form of insurance cover in which it is agreed that the sum insured is less that the full value of the insured property, and average will not be applied
Franchise
A minimum percentage or amount of loss that must be attained before insurers are liable to meet a claim. Once it is attained, the insurers must pay the full amount of the loss (therefore different to deductible/excess).
Note that franchise is also a term to describe the permission given to syndicates to operate within the Lloyd’s market.
Funds at Lloyd’s (FAL)
Each member of Lloyd’s is required to provide capital as security to support their total Lloyd’s underwriting business. The level of FAL determines the amount of insurance business that a member can underwrite.
Hard premium rates
High, profitable premium rates
Principle of indemnity
The principle whereby the insured is restored to the same financial position after a loss as before the loss
Insurance cycle
The observed tendency of insurance prices and hence profitability to vary over a period of several years
Integrated Lloyd’s Vehicles (ILVs)
Syndicates on which the entire participation has been bought by insurance groups
Line slip
A facility under which underwriters delegate auhtority to accept predetermined share of certain co-insured risks on their companies’ behalf. The authority may be exercised by the leading underwriter on behalf of the following underwriters; or it may extend to the broker or some other agent authorised to act for all the underwriters.
Lloyd’s managing agent
A company appointed to manage the affairs of an underwriting syndicate, appoint an underwriter, and provide technical and administrative services.
