Underwriting - CIP ALL KEY TERMS

Insurance

A contract for monetary consideration in which the insurer agrees to reimburse (indemnify) the insured in the face of loss

Underwriter

(1) insurance company or a group that underwrites/insures a risk

(2) An individual within an insurance company whose responsibility it is to accept or reject business

Risk

A chance of loss

Direct writer

An insurance company selling insurance directly to the public not through independent agents or brokers

Broker

A licensed independent person who acts on behalf of an insured; placing business with insurance companies

MGA (Managing General Agent)

An independent business operation given authority by a number of insurers to solicit business on behalf of such insurance companies

Line guide

A listing of the max. amounts of exposure an insurance company is prepared to accept

Schedule of insurance

A list of items individually covered by a policy (eg a fleet)

Cyber risk

Any risk, damage or loss to an organizations reputation due to a failure of it's IT systems

Reinsurance

insurance for insurance companies

Facultative Reinsurance

Reinsurance of risks on an individual case-by-case basis

Treaty Reinsurance

An agreement to accept a portion of the insurance company's liability for a specified class/ classes of business

Book of business

Refers to when a smaller brokerage owns its own book of business and enters into a partnership with a larger organization (smaller broker retains the right to repurchase full ownership)

Physical Hazard

A physical condition or characteristics of the object that is insured. It increases the frequency or severity of loss

Moral Hazard

A hazard arising from the character, habits, and lack of integrity of the insured

Speculative risk

A chance of loss or gain

Pure risk

A chance of only loss

Insurer

The insurance company that undertakes indemnifying the insured for loss

Contract of Adhesion

A type of contract that is effectively non-negotiable, this is because the policy offers standard wording

Contra Proferentem

A legal term that provides that any ambiguity in a contract must be interpreted against the person who drew the contract because that person had the opportunity to make it clear.

Replacement Cost Clause

A provision to provide a substitute of the damaged or loss property with something similar (without extra cost to the insured)

Actual Cash Value (ACV)

The fair market value of property, taking into account factors that might augment or reduce the value of the property in question.

Actual cash value (ACV) is usually calculated in one of three ways:

(1) cost to repair or replace less depreciation;

(2) fair market value; or

(3) consideration of all relevant evidence of the value of the damaged property.

Statutory Conditions

Special prescribed and standardized conditions that the provincial and territorial insurance acts require to be included in insurance policies.

Contract

A legally enforceable agreement/promise between two or more parties

Consideration

The value received to bind a contract

Insurable Interest

An interest that the insured must have in the subject matter of the insurance purchased so that if the event insured against occurs, the insured will suffer a pecuniary loss.

Indemnity

To place someone in the same financial situation they were in immediately prior to the loss

Utmost Good Faith

A legal principle calling for the highest standards of integrity on the part of the insured and the insurer.

Telematics

An interdisciplinary field with telecommunications, vehicular technologies, road transportation, road safety, electrical engineering (sensors, instrumentation, wireless communications), and computer science (multimedia, Internet, GPS)

Declarations

Statements included in a policy that are agreed to by the insured and form the basis of the contract of insurance.

Policy Conditions

Provisions that state the rights and duties of the insured or insurer.

Subscription Policy

A single policy covering a risk that is divided among a number of insurers; the policy is issued by the "lead" company (usually the one with the largest percentage) and signed by all participating companies.

Application

A request by an insured for insurance. Can be done verbally, in writing, or online

Named Insured

The person or party designated in the policy as the insured.

Homeowners Policy

A multi-peril insurance policy for dwelling risks.

Personal-Lines Insurance

Insurance for individuals and families such as private passenger auto insurance and homeowners policies

Business Insurance

A broad name for different coverage available to a business owner to protect against losses and to insure the continuing operation of the business.

Business insurance includes business property, life, accident, and sickness including that for key employee(s), liability, and fleet of automobile.

Additional Insured

A person or party who is added to the named insured's policy by an endorsement

Additional Named Insured

Any party, other than the original named insured, identified as an insured in the policy declarations. An additional named insured has more rights under the policy than does an additional insured but also more responsibilities.

Back-Dated Policy

A policy that will become effective retroactively after the applicant applies for it.

Morale Hazard

A hazard that is based on the insured's attitude towards their belongings. This hazard exists when the insured no longer cares about their possessions because they are insured

Accommodation Sharing

An arrangement set up by means of a website or mobile app in which a property primarily occupied by its owner is rented for a short time period to a third party.

Subrogation

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.

Hazard

(1) A risk or probability that the event insured against might occur. (2) A condition that increases the chances of loss

Common Hazard

A hazard that is generally found in most occupancies. Heating, lighting, and housekeeping are examples of hazards common to most occupancies.

Special Hazards

Foreseen hazards/ risks common to certain types of businesses that are not covered in an ordinary policy. E.g. woodworking plants and paint shops

Automatic Sprinkler

A device to protect property from damage by fire in which water is piped to devices called "sprinkler heads" that melt with heat and release water to extinguish a fire.

Liability Insurance

Insurance that agrees to indemnify the insured by paying third party damages for bodily injury or damage to property

Statute Law

A law set down in a government act and passed by legislature.

Tort

A legal wrong arising from a duty fixed by law

Negligence

Failure to use the degree of care expected from a reasonable and prudent person

Duty of Care

The obligation that a person has to exercise reasonable care with respect to the interests of others, including protecting them from harm.

Private Nuisance

An unlawful interference of a person's enjoyment and use of his or her land

Public Nuisance

An action or a thing that interferes with the general public. It interferes with the public as a class, not merely with one person or a group of citizens.

Nuisance

A class of wrong that arises out of unreasonable, unwarranted, or unlawful use of his or her own property; producing an annoyance, inconvenience, discomfort or hurt to others or their property.

Occupancy

The act of holding possession of a property or premises.

Trespasser

A person who wrongfully enters onto someone else's land with neither the right nor permission to be there.

Licensee

A person who has permission to enter onto another's property for his or her own purposes.

Contractual Entrant

A person who enters onto a premises under a contract with the occupier; for example, a hotel guest or a theatre-goer.

Invitee

A person who is expressly or impliedly invited onto the premises for some purpose involving economic or potential economic benefit to the occupier of the premises. For example, a customer entering a store for the purpose of making a purchase.

Hold-Harmless Agreement

An agreement that allows one party to protect another party against any future losses or claims that may result from a particular activity. Also known as an indemnity agreement.

Indemnity Agreement

A written contract entered into between indemnitor and surety in which the indemnitor secures surety against loss the surety may sustain as a result of having issued a bond for a third party (usually a company owed by the indemnitor) or for the indemnitor.

Employers Liability Insurance

Coverage for the legal liability imposed on an employer to pay damages to an employee injured by the employer's negligence. This is not workers' compensation insurance, where special acts of legislation set out specifically the relationship between the employer and employees in certain circumstances and the formula by which awards in each case are computed.

Contributory Negligence

Many accidents are the partial fault of both parties who are involved in the accident. The plaintiff who sues another party for damages may also be guilty of some negligence, which is a concurrent cause of the damage, and is therefore guilty of contributory negligence.

Umbrella Policy

A special form of liability policy designed to protect the insured for certain unknown contingencies over and above other coverages and to provide excess insurance

Facility Association

An entity established by the Canadian automobile insurance industry to ensure that automobile insurance is available to all owners and licensed drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the voluntary insurance market.

Risk Sharing Plan

A self-insurance method of managing or reducing exposure to risk by spreading the burden of loss among several units of an enterprise or business syndicate. Risk retention pools formed with the contributions of participants are often utilized as a way to self-insure risks among multiple entities.

Lessor

One that conveys property by lease

Lessee

One that holds real or personal property under a lease, e.g., a tenant of rented premises.

Lienholder

One who holds a registered claim (referred to as a "lien") against a given property as security or collateral against a loan or workmanship performed in relation to that property. The financial commitment associated with a registered lien must be fully discharged and satisfied before the property in question may be liquidated, sold, or transferred to another party.

Non-Owned Automobile Insurance

A policy that protects the insured against third-party claims arising out of some other person using his own vehicle in the business of the insured.

Other Automobile

A non-owned automobile; that is, not owned by anyone in the household and does not have insurance coverage.

Canadian Loss Experience Automobile Rating (CLEAR)

A method for classifying different models of cars for insurance purposes by using historical claims data, including collision, comprehensive, direct compensation-property damage, and accident benefits coverages.

Manufacturer's Suggested Retail Price (MSRP)

The price for a product as recommended by the manufacturer of that product.

Pure Premium

Portion of the total premium that is needed to pay expected losses. It does not take into account money needed for company expenses.

Premium

The price for insurance protection.

Acquisition Cost

The cost of putting a business on the books and acquiring the premium. The items involved are not standard with all insurers, but generally may include such items as agents'/brokers' commissions, field representatives' costs, premium tax, and perhaps some of the relevant head office acquisition costs of operation.

Comission

Compensation based upon the amount of production; the percentage varies with different lines of insurance.

Underwriting Profit

The amount of money an insurance company gains as a result of its insurance operations. Excess of earned premiums collected over loss payments and expenses.

Underwriting Loss

The amount of money that an insurance company loses as a result of its insurance operations. It excludes investment transactions and income taxes.

Actuary

One who specializes in the mathematics of insurance, mortality rates, and the like.

Ratemaking

The process of compiling and analyzing data to establish rates that accurately reflect the level of risk. Usually performed by actuaries.

Rate

Amount charged to an insured that reflects the expectation of loss for a covered risk (cost of insurance per unit).

Loss Ratio

The ratio of total losses paid out in claims plus adjustment expenses divided by the total earned premiums.

Losses paid out in claims + Adjustment Expenses / Total Earned Premiums

Automobile Statistical Plan (ASP)

A collection of statistical information that all automobile insurers who write business in Canada must record and file as prescribed by the Superintendent of Insurance. Commonly known as the Green Book.

Law of Large Numbers

The mathematical premise that states that the degree of uncertainty is reduced as the number of events increases.

Class Rating

A rating approach that uses rates that reflect the average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties.

Schedule Rating

A method of rating risks by measuring them against fixed standards of construction and protection. Risks below standards earn a charge that increases the rate; risks above earn a credit that reduces the rate.

Loading

An additional charge included in an insurance rate to reflect a hazard not contemplated in the basic rate for the class.

Risk Management

Analyzing a risk to quantify the potential for losses in a specific investment and to decide what is the appropriate action to take (or whether not to take action)

Loss Reserve

An amount carried as a liability in an insurer's balance sheet representing, in respect of each claim, an amount equal to the estimated final settlement cost less any amounts already paid.

Warranty

Statement, stipulation, or promise in an insurance contract, the breach of which may nullify the contract.

Product Recall Insurance

Insurance that indemnifies the insured for the cost of recalling products known or suspected to be defective.

Errors and Omission's (E&O) Insurance

An insurance form that protects the insured against liability for committing an error or omission in the performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury or property damage.

Directors and Officers (D&O) Liability Insurance

Protection for officers and directors of a corporation against damages resulting from negligent/ wrongful acts in the course of their duties. Also covers the corporation for expenses incurred in defending lawsuits arising from alleged wrongful acts o officers/ directors. These policies always require the insured to retain part of the risk uninsured.