Insurance Glossary R-Ztravis
Insurance Glossary [R to Z]
When insurers and loss adjusters quote those mysterious words and sadly shake their heads, you can sense there is a problem on that claim – if only you could understand what it was! Here is a glossary of some commonly used insurance terms but if you really need help with those problematic claims contact Trafalgar.
Better still, contact us now and avoid those problems altogether.
The premium expressed as a percentage of the sum insured or limit of indemnity.
The restoration of cover following its exhaustion as a result of a loss by payment of an additional (reinstatement) premium. Many reinsurances provide for one or more automatic reinstatement of covers.
A contract under which a reinsurer agrees to pay specified types and amounts of underwriting loss incurred by an insurer or another reinsurer in return for a premium. Reinsurance serves to ‘lay-off’ risk. Reinsurance may be proportional or non-proportional and may take the form of a cover in respect of an individual risk exposure (see facultative reinsurance) or cover in respect of multiple risk exposures (see treaty).
A reinsurance which closes a year of account by transferring the responsibility for discharging all the liabilities that attach to that year of account (and any year of account closed into that year) plus the right to any income due to the closing year of account into an open year of account of the same or a different syndicate in return for a premium. Where a reinsurance to close is effected between members of the same syndicate the reserves of the closing year of account constitute the premium for a reinsurance to close. This premium must be equitable as between the members of the two years of account concerned which means that neither the reinsured nor the reinsuring members should expect to profit from the transaction at the time it is concluded. Where a reinsurance to close is effected between members of different syndicates the managing agent of the reinsuring members will want to make a profit from the transaction for those members and will set the reinsurance to close premium accordingly. This usually involves a loading on the reserves of the closing year of account.
An underwriter of reinsurance. The reinsurance will normally be shared by one or more insurance companies or sydicates in the case of Lloyd’s. Some reinsurances may be underwritten by both syndicates and insurance companies.
Where an insurer agrees to replace irreparably damaged or stolen goods with goods of a similar type and quality under a contract of indemnity instead of paying a cash sum to the insured.
A statement of fact or expectation. Representations made as to material facts at the time of the negotiation of the placement, amendment or renewal of cover must be true whereas representations as to a matter of expectation must be made in good faith.
The amount of money that has been set aside by an insurer or reinsurer to meet outstanding claims, incurred but not reported losses and any associated expenses.
The amount of any loss or combination of losses that would otherwise be payable under an insurance/reinsurance contract which the insured/reassured must bear itself before the insurer or reinsurer becomes liable to make any payment under that contract. Compare deductible and excess. An insured or reassured may be able to insure its retention with another insurer/reinsurer.
A reinsurer that is reinsured under a retrocession.
A reinsurance of a reinsurer by another reinsurer. It serves to ‘lay-off’ risk.
The reinsurer under a retrocession.
This term may variously refer to -the possibility of some event occurring which causes injury or loss; or the subject-matter of an insurance or reinsurance contract; or an insured peril.
The determination of a member’s capital requirement according to the spread of syndicates in which he participates and the nature of business that those syndicates underwrite.
This can refer to a property that is rescued from danger on land or at sea; or an award paid to someone for voluntarily rescuing property at sea from a marine peril.
The estimated cash amount that would be received if damaged property were to be sold.
When an insurance contract is terminated prior to its expiry date by the insured any return premium that is payable will usually be calculated on a time on risk basis. The result is that the insured will receive less return premium than would be the case if the return premium was calculated on a pro rata basis (see pro rata cancellation).
A type of insurance where claims are usually made during the term of the policy or shortly after the policy has expired. Property insurance is an example of short tail business. The opposite of short tail business is long tail business.
This refers to the amount of a given risk that an underwriter has agreed to accept. It may be the same as the underwriter’s written line or, if there is signing down, a lower amount.
Where a risk is oversubscribed, which is to say that the underwriters’ written lines exceed 100% then, absent some contrary instruction, those lines will be proportionally reduced (‘signed down’) by the broker until they total 100%. An underwriter may insist on preserving his written line in which event the written lines of the other underwriters will be proportionally reduced until they total 100% when added to the preserved written line of the other underwriter.
There are two types of underwriting slip: a placing slip and a signing slip. A placing slip is a document created by a broker that contains a summary of the terms of a proposed insurance or reinsurance contract which is then presented by the broker to selected underwriters for their consideration. Underwriters may delete, amend or add terms on a slip as they consider appropriate for the purpose of providing an indication or a quotation. A signing slip is a document that is created by a Lloyd’s broker after a quotation has been accepted for the purpose of processing premiums under the contract that is evidenced by the placing slip. It is a cleaned up version of the final placing slip and shows underwriters’ stamps, signed lines and underwriting references, these details being inserted by each underwriter at the request of the broker. Provided that it shows the underwriters’ stamps, signed lines and underwriting references a placing slip may be used as a signing slip.
A signed slip which is agreed to be a policy where the insured or the reassured does not require a separate policy.
When the availability of some or all classes of insurance or reinsurances is high relative to demand for such insurance or reinsurance. Competition amongst insurers and reinsurers leads to downward pressure on premiums and to the availability of more extensive coverage terms.
Also known as excess of loss ratio reinsurance. This is a form of excess of loss reinsurance which provides that the reinsurer will pay some or all of the reassured’s losses in excess of a stated percentage of the reassured’s premium income in respect of its whole account or a specified account, subject (usually) to an overall limit of liability which may be expressed as a percentage of the relevant premium income or an amount.
The right of an insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim. The insurer’s subrogation rights may be qualified in the policy. In the context of insurance subrogation is a feature of the principle of indemnity and therefore only applies to contracts of indemnity so that it does not apply to life assurance or personal accident policies. It is intended to prevent an insured recovering more than the indemnity he receives under his insurance (where that represents the full amount of his loss) and enables his insurer to recover or reduce its loss.
The maximum amount that an insurer will pay under a contract of insurance. The expression is usually used in the context of property and life insurance where the insured determines the amount of cover to be purchased.
A clause that provides retroactive cover in respect of losses occurring before the inception of a (re) insurance contract.
A clause which restricts cover to claims notified during the period from the inception of a (re) insurance contract to a specified date after the expiry of that contract.
The termination of a life insurance policy while the life assured is still alive in return for a cash sum.
A life insurance policy that pays the sum insured only if the life assured dies within the period of the policy which is for a fixed period.
Someone other than the insured or his insurer who has suffered injury or loss.
The liability that an insured has to a third party.
Where the subject matter of an insurance is lost, destroyed or damaged beyond repair.
Latin for utmost good faith.
Where the sum insured does not represent the true value of the property insured. See average for an explanation of the consequences of under insurance.
This term may refer to the process of evaluating, defining and pricing insurance and reinsurance risks including where appropriate the rejection of such risks. It also refers to the acceptance of the obligation to pay or indemnify the insured or reassured under a contract of insurance or reinsurance.
This refers to the individual who is responsible for underwriting a particular insurance or reinsurance contract and who is either an employee of a managing agent, an insurance company or reinsurance company or an employee of a coverholder or any similar underwriting agent.
Depending on the context this term may refer to: (a) a member’s allocated capacity (b) syndicate allocated capacity, with or without the addition of cover from qualifying quota share reinsurance; (c) the total underwriting capacity of all syndicates combined, with or without the addition of cover from qualifying quota share reinsurance; or (d) the underwriting capacity of an insurance company or a reinsurance company. Underwriting stamp The stamp that is applied to a slip by an underwriter to signify his acceptance of a risk. It shows the number and pseudonym of the syndicate or the name of the (re)insurance company for whom the underwriter acts and has a space for his underwriting reference to be inserted. The underwriter will insert his line on a slip next to his underwriting stamp.
The proportion of premium that relates to the unused period of cover.
Contracts of insurance and reinsurance are contracts of utmost good faith. In the event that either party fails to observe utmost good faith towards the other in regard to the negotiation of cover then the other party may avoid the contract. The duty of utmost good faith requires each party to inform the other all material facts during the negotiation of the placement, renewal or alteration of cover. An insured has a separate duty of good faith when making a claim under an insurance policy.
A contract which has no legal effect and is therefore unenforceable in a court of law. For example, an insurance contract where the policyholder does not have an insurable interest.
A contract which may be considered voide at the option of either party. For example, an insurer may avoid a policy from inception for the misrepresentation or non-disclosure of material facts during the negotiation of the placement, renewal or alteration of cover. The insurer may also avoid a policy from the date of the presentation of a fraudulent claim.
An agreement between Lloyd’s underwriters and non-marine insurance companies that they will not cover certain war and civil war risks on land.
A marine market agreement whereby underwriters will only cover goods against war risks whilst they are on the vessel subject to a time limit after arrival at the port of destination. There is reduced cover for offloading and transhipment at the port of destination.
Where an insured or reassured promises that something will or will not be done during the period of cover or that a particular state of affairs exists or does not exist at the inception of cover. If the promise is untrue or is not kept then the insurer/reinsurer may disclaim all liability under the policy from the date of the breach, regardless as to whether the false declaration was material to the underwriting of the contract or causative of any loss.
The amount deducted from a claims payment in recognition of the depreciation of the property insured through usage of it over time. No deduction is made where the cover is provided on a ‘new for old basis’.
The amount of a risk that an underwriter is willing to accept on behalf of the members of the syndicate or company for which he underwrites. This is commonly expressed as a percentage of the sum insured which is written on the broker’s placing slip. If, on completion of the broking exercise, the written lines exceed 100% then, absent some contrary instruction, they will be signed down by the broker, which is to say they will be reduced proportionately so that they total 100%.