» INSURANCE GLOSSARY
This glossary explains in more detail many of the terms commonly used in commercial and liability insurance.
A
Additional premium - a premium payable by the insured as
a result of a change in policy cover or declaration adjustment to reflect
increased exposure or sums insured.
Adjuster - a person who investigates claims on behalf of
insurers (see loss adjuster).
Agent - one who introduces a business to an insurer for
commission, but can continue to act as an intermediary between the insurers
and the insured.
Aggregate limit of indemnity - the maximum amount an insurer
will pay under a policy in respect of all accumulated claims arising within
a specified period of insurance.
Arbitration - settlement of a dispute by an independent
person, whose decision is to be accepted by both parties. It is an alternative
to legal action.
Assurance - a term interchangeable with insurance but generally
used in connection with life cover as assurance implies the certainty of
an event and insurance the probability.
B
Broker - an intermediary who acts as an agent for insurers
and on behalf of the insured, and who is regulated by a professional body
and codes of practice.
C
Cancellation - termination of a policy before it is due
to expire.
Certificate of employers’ liability insurance - document
proving that you have a valid policy which must be displayed where employees
can read it easily and kept for at least 40 years.
Certificate of motor insurance - document proving that
compulsory third party insurance is in place in respect of use of the vehicle
covered by the policy.
Claim - injury or loss to a claimant against the insured
arising so as to cause liability under an arrangement policy.
Common law - ancient customs and precedents that have been
recognised by the courts and given the force of law. It is in itself a complex
system of both civil and criminal precedents, although it is greatly modified
and extended by statute law and equity. It is unwritten and has come down
over the centuries in the recorded judgments of courts.
Concealment - deliberate suppression by a proposer for
insurance of a material fact relating to the risk, usually making the contract
null and void.
Conditions - stipulations written in a policy, with which
a policyholder must comply. Failure to do so may result in insurers refusing
to pay a claim.
Contribution - when more than one policy covers the same
risk, each insurer contributes by paying its rateable proportion of any
loss.
Cover note - a document issued by the insurer or agent
confirming details of the insurance cover placed. In motor insurance, a
cover note acts as a temporary certificate of insurance and policy. See
certificate of motor insurance.
D
Days of grace - number of days for which insurance cover
continues beyond the actual expiry date of a renewable policy. If the renewal
premium is not paid within this period, the policy lapses.
Declaration - a signed statement by the insured, usually
at the foot of a proposal or claim form, certifying that the information
given is accurate.
Declaration adjustment - sometimes the premium is calculated
based on estimates of wageroll or turnover provided by the insured. In this
case, the insured is required to maintain records to enable a declaration
of actual wageroll or turnover to be made. The insurer may then adjust the
premium for that period by making an additional or return premium.
Deductible - the specified amount which the insured will
contribute to any claim, also called excess or Insured's Contribution. As
the insurer is dealing with the claim on the insured's behalf, they may
require payment of the deductible prior to settlement with the claimant.
Deferred premium - the part of a premium which, following
agreement with the insurer, is payable by monthly, quarterly or half-yearly
instalments.
Directors’ and officers’ liability insurance - insurance that indemnifies
against any claims for compensation and legal fees for any actions on the
part of the company directors or officers which is outside of their duties,
responsibilities or powers.
Duty of disclosure - obligation placed on someone taking
out insurance, to inform insurers of anything that could influence either
their judgment on whether the risk is acceptable, or the terms to be offered.
E
Employers' liability insurance - insurance for employers
in respect of their liability to employees for injury or disease arising
out of and in the course of their employment. With some exemptions this
insurance is compulsory in England, Scotland, Wales and Northern Ireland
and can only be provided by an authorised insurer.
Endorsement - an amendment or alteration to a policy, which
becomes an integral part of that policy.
Ex gratia - payment made "as a favour" by an
insurer, when there is no obligation under the policy terms.
Excess (or deductible) - specified initial amount of a
claim that the insured has to contribute. If a claim is less than the excess
stated in the policy, no payment is made by the insurers. Excesses do not
apply to Employers' Liability Compulsory Insurance, as the insurer is responsible
for any payments due to the employee.
Exclusion (or exception) - an event or circumstances specifically
excluded from the terms of a policy.
Extension - an addition to an existing policy to provide
cover not previously considered or included, either temporarily or permanently.
G
Gross premium - a term normally applied to gross written
premiums before deduction of brokerage fees or commission and expenses.
I
Inception date - the date from which, under the terms of a policy,
an insurer is deemed to be at risk.
Indemnity - insurance principle by which a policyholder
is placed in the same financial position after a loss, as they were immediately
before it.
Insurable interest - the principle that the insured must
have an interest, usually financial, in the risk for which the policy is
to be issued.
Insurance broker/agent - an insurance intermediary who
advises their clients and arranges their insurances. Although they act as
an agent for their client, they will normally be remunerated by a commission
(brokerage) from the insurer. An insurance broker is a full-time specialist
in handling insurance business who belongs to a professional body and complies
with their code of practice.
Insurance Ombudsman - official body, financed by participating insurers,
to whom unresolved complaints can be referred.
Insurance premium tax - the Finance Act 1994 introduced
this new tax on most general insurance risks located in the UK. All amounts
stated on documentation should make clear the amount of tax payable. Insurance
premium tax is currently 5%.
Insured - the person, firm or company insured under the
policy.
Insurer - an insurance company or Lloyd's underwriter who,
in return for a premium, agrees to provide indemnity in the event of a specified
loss suffered by the person paying the premium as a result of some accident
or occurrence.
L
Lapse - the non-renewal of a policy for any reason.
Latent (gradually developing) disease - an illness that
lies dormant for some years before manifesting itself.
Liability - legal responsibility for injury to other persons
or damage to their property.
Limit of indemnity - maximum sum an insurer can be expected
to pay under a policy or section of a policy. May be expressed as "per
accident", "per event", "per occurrence", "per
annum", etc.
Lloyd's (of London) - a society, incorporated under Act
of Parliament of 1871 and known as the Corporation of Lloyd's, which provides
the premises for a wide variety of services, administrative staff and other
facilities to enable the Lloyds market to carry on insurance business efficiently.
Loss adjuster - an independent professional claims expert,
who is engaged by insurers to impartially check and arrange settlement of
claims in accordance with policy terms.
Loss assessor - person specialising in compiling and negotiating
settlement of claims on behalf of the insured, by whom they are paid.
Loss - another term for a claim.
M
Material fact - any fact that could influence an underwriter
in their acceptance of the risk, or calculating the premium.
N
Name - an underwriting member of Lloyd's.
Negligence - a form of tort or breach of a legal duty of
care where the victim is entitled to some form of compensation, e.g. damages
for harm suffered.
Net premiums - a term variously used to mean gross premiums
net of expenses, commission taxes, or any combination of these.
Non-disclosure - the failure by the insured or their agent
to disclose a material fact or circumstance to the insurer before acceptance
or renewal of the risk.
P
Period of risk/insurance - the period during which the
insurer can incur liability under the terms of the policy.
Policyholder - the person in whose name the policy is issued.
See also insured.
Policy - a document detailing the terms and conditions
applicable to an insurance contract and constituting legal evidence of the
agreement to insure. It is issued by an insurer or their representatives
for the first period of risk. On renewal a new policy may not be issued
although the same conditions would apply, and the current wording would
be evidence by the renewal receipt.
Premium - the consideration paid for a contract of insurance,
often paid monthly, quarterly or annually.
Premium tax - see Insurance premium tax.
Product liability insurance - insurance that covers against
any claims for compensation for injury or damage caused by your products.
Professional indemnity insurance - insurance that indemnifies
a professional against their legal liability towards third parties for loss
arising from their professional negligence or that of their employees.
Proposal form - document completed by a prospective insured,
giving details required by insurers to enable them to decide whether to
accept the risk and on what premium terms and conditions. Once agreed by
both parties, it forms the basis of the insurance contract.
Pro-rata premium - charge for a number of days a risk is
covered, calculated as a precise fraction of the annual premium.
Public liability insurance – insurance that indemnifies
against any claims for injury or damage by members of the public to their
property by you or your business.
Q
Quote - a statement by an insurer of the premium terms and conditions
they will require for a particular insurance.
R
Renewal - continuation of a policy for a further term,
on payment of a fresh premium.
Return premium - a premium payable back to the insured
as a result of a change in policy cover or declaration adjustment to reflect
reduced exposure or sums insured.
Risk management - the identification, measurement and economic
control of risks that threaten the assets of a business or other enterprise.
Risk - in insurance, this is the probability of an insured
loss occurring.
S
Schedule - policy section setting out the main details
of the insured, their business activities, the period of cover the application
of any special terms or restrictions, together with other details specific
to the particular insurance and premium.
Statute law - otherwise known as Acts of Parliament, which
may create entirely new law, over-rule, modify, or extend existing principles
of common law or repeal or modify existing statute law.
Subject to survey - phrase used by an insurer to signify
provisional acceptance of a risk pending inspection by a surveyor whose
report is then part of the assessment of that risk. The insurer reserves
the right to vary or withdraw any offer as a result of the survey. The insurer
may also impose specific requirements or make recommendations for risk improvement.
Subrogation - insurer's right to pursue action in the insured's
name against the party considered legally liable for the loss or damage.
T
Third party liability - liability of the insured to a person
or persons who are not directly involved in the insurance contract.
Third party - person who is injured or whose property is
damaged by the policyholder (the first party). The second party is the insurer.
U
Underwriter - a person who accepts business on behalf of
an insurer.
Utmost good faith - duty placed on both parties to an insurance
contract. The insured has to disclose material facts while insurers have
to act reasonably and communicate clearly.
W
Warranty - a condition which goes with a policy and must
be strictly complied with for a claim to be paid under the policy for example,
use of a hot work permit.