GLOSSARY
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.
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.
Blanket endorsement – Endorsements that cover a group of items, subjects or people.
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.
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.
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 defectiveness of the injuring product or service.
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.
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.
Hazard – A circumstance that increases the likelihood or potential severity of a loss.
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.
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.
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. 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).
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.
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.
Nonrenewal Letter – Normally issued by the carrier due to change in operations or carrier appetite and no longer meeting the underwriting guidelines. Normally is issued 45 days from expiration date.
Notice of Acceptance (NOA) – This is a letter from the loan company. This means the loan the new prospect applied for is approved by the loan company and an account number is provided. Can also be reference as: Notice of Premium Finance or Acceptance Validation Report.
Notice of Cancellation – If the client does not pay when the intent to cancel is issued, a Notice of Cancellation will be issued and the insured will have 10 days to pay before the policy cancels out.
Notice of Intent to Cancel – Issued by the finance company if a payment is not received within the time frame each month.
Notice of Reinstatement (NOR) – NOR is issued with a NOC has been issued however the payment or the the reason for the NOC was handled by the client.
No coverage bound letter – This letter is issued to the insured if the signed proposed effective date is no longer valid. Delays with payment, the carrier or binding requirements can cause for the effective date to change.
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.
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.
Quotation – An estimate of the cost of insurance based on the information supplied to the agent, broker, broker-agent, or the insurance company.
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.
Request to Bind – After a policy is purchased, the CSR will then request the coverage to be placed with the carrier, providing all of the binding documents.
Rewrite – To sell the customer the same type of policy when the previous one has been canceled and couldn’t be reinstated.
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.
Subjectivities / Contingencies – This is usually the list of items, documents, or actions that need to be completed or provided in order for the underwriter to bind the requested policy or policies. This list of items is usually included in the quote provided by the underwriter.
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.
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.
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.
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.
Accident – A sudden, continuous repeated exposure to the same conditions that results in bodily injury or property damage
Agent of Record – The individual or company authorized to represent an insured in the purchase, servicing, and maintenance of insurance
coverage with a designated insurer.
Assessment (aka ‘state’ or ‘mandatory surcharge’) – Additional charges for the policy as mandated by the state
Auto – A land motor vehicle, trailer, semi-trainer designed for travel on public roads
Average Weekly Wage – An employee’s pre-injury earning capacity based on earnings in the period directly preceding a work-related injury or illness. The formula for calculating AWW varies per state
Base Rate – A rate the insurance carrier has filed with the state for a class code that is the starting point for premium calculations. Note: Workers’ Comp base rates are multiplied against ‘per $100 of payroll
Carrier (aka insurer) – The company that holds the insurance policy. In addition, it is the company to which insurance payments are sent and the company that pays if a covered claim is filed
Claim – A formal request to an insurance company for coverage or compensation for a covered loss or policy
Claim Number – A unique identifier that attaches an insurance claim/loss to a specific worker
Claimant – The covered person making the claim or responsible for a loss
Claims-Made Policy – A policy providing coverage that is triggered when a claim is made against the insured during the policy period, regardless
of when the wrongful act that gave rise to the claim took place.
Class Code (aka classification code) – A 4 digit number used to classify a specific job definition to help identify different workplace exposures
Closed Claim – A claim that has been settled
Disability – A status for a claim where it was necessary for an injured employee to recuperate away from work
Estimated Modified Premium – estimated manual premium x experience modification rating
Expense (aka loss adjustment expense or LAE) – The cost of operating the insurance business exclusive of losses or claims
Expense Contact – A policy administration fee to cover the cost incurred by the insurance company
Experience Modifier (aka ‘X-Mod’ or EMR) – A rating factor used to compare an insured’s claim and payroll history against other employers with
similar operations. Used to adjust the premium for an applicant positively or negatively
Expiration Date – The end of an insurance policy
Exposure – The state of being at risk to a loss or claim
Governing Class Code – The classification code (other than a standard exception) that best describes the workers compensation exposure of
an employer’s business, as determined by majority of payroll
Inception Date (aka effective date) – The start of an insurance policy
Incurred Losses – paid losses + outstanding losses
Insured – A person or organization covered by insurance
Intentional Tort – When a person intends to perform a wrongful act which causes harm to someone else.
Interim Billing Rate – The rate after all credits and debits without factoring in the experience modifier.
Note: The term will only be found in quotes received by state fund insurance providers
Liability – The state of being legally responsible for bodily injury (BI) or property damage (PD) to a third party.
Litigated – The injured employee has hired an attorney to represent his/her interests on the workers’ comp claim
Loss – Any injury or damage that insured suffers because of a covered accident or misfortune
Loss Run Report – An insured’s reported claims history for a specific policy period
Manual Premium – class code base rate x remuneration / 100
Medical Provider Network (MPN) – A group of health care providers an insured’s insurance carrier has collected and approved with the Department of Workers’ Compensation’s administrative director to treat the covered employee. All medical needs for an injured or ill employee will be treated by doctors in the network.
Minimum Premium – The smallest acceptable premium for which an insurance company will write a policy
Net Rate (aka final billing rate) – The ultimate rate per class code after all debits and credits have been applied
Non-disability – A status for a claim where an injured employee required medical treatment but did not have to miss any work time
Occurrence – An accident, including continuous or repeated exposure to substantially the same general harmful conditions
Occurrence-Based Policy – A policy covering claims that arise out of damage or injury that occur during the policy period, regardless of when claims are made. Most commercial general liability (CGL) insurance is written on an occurrence form (aka on a per-occurrence ‘basis’)
Open Claim – A claim that has not been settled and/or which payments are still being made
Outstanding Losses – Losses reported to the insurer, but are still in the process of settlement
Overtime – Occurs when an employee works more than a 40-hour workweek. The additional hours work are paid at a rate of time and one-half the
employee’s regular rate of pay.
Paid Compensation (aka indemnity or indemnity payments) – Payments made for the employee’s lost wages for a claim
Paid Losses – Losses paid to claimant during the reported period
Paid Medical – Payments made for medical treatment of the injured employee
Payroll Reporting – The payment plan assigned to the insured for the policy term
Permanent Disability – A class of workers compensation disability in which the injured employee is incapable of ever working again at any
employment. Under most statutes, the employee will receive weekly wages for life
Premium – An amount to be paid for an insurance policy
Premium Discount – A percentage discount dependent on the insured’s Total Standard Premium. Only policies which have exceeded
state-standard minimum levels are eligible
Recovery (aka subrogation) – The amount paid by an insurance company to cover an insured individual that is actually owed by another
party. The insurance company will collect or recover the debt owed by the other party after the fact
Remuneration (aka payroll) – The total amount paid to employee for work performed
Scheduled Rating (aka rating plan) – Credit or debits an insurer may offer depending on the safety practices and claims history of an insured
Statute – A written law passed by a legislative body
Terrorism – Renumeration / 100 x state terrorism factor
Third-Party Liability Claims – Liability claims brought by persons allegedly injured or harmed by the insured. The insured is the first party, the insurance carrier is the second party, and the claimant is the third party
Tort – A wrongful act which causes someone harm to someone else
Underwriters – Trained insurance professionals with specialized knowledge in risk assessment and determines tasked with the decision to accept or deny
a policy application and to determine the correct premium
Underwriting – The process of evaluating the risk of insuring something or someone, to determine if it’s profitable for the insurance company to accept
the risks
Valuation Date – The cutoff date for adjustments made to paid claims and reserve estimates in a loss runs report
Vocational Rehab – Part of the rehabilitation process focuses on restoring a person’s physical and/or mental work performance capacity
Waiver of Subrogation – A contractual provision where one party agrees to waive its right to pursue the other party in case of a loss. Note: Some states do not allow waivers of subrogation
