Life and Health Insurance
Actuarial Department: This is the department that calculates policy rates, reserves, and dividends.
Adjuster: This is the person who investigates claims and arranges for them to be settled or denied.
Alien Insurer: In the United States, this is an insurer whose principal office and domicile location is outside this country.
Admitted Insurer: This is an insurer who has received a certificate of authority from a state’s department of insurance which authorizes them to conduct insurance business in that state.
Agent: This is an individual or organization that’s authorized to solicit, sell, and transact (bind) coverage for specific insurance providers under the terms of one or more agent contracts.
Authorized Insurer: This is an admitted insurer.
Broker: This is a person who represents himself and the insured (i.e., the client or customer). A broker cannot bind coverage on behalf of an insurance carrier because a broker is not appointed as an agent.
Captive Insurer: This is an insurer that’s established and owned by a parent firm for the purpose of insuring the parent firm’s loss exposure.
Certificate of Authority: This is a license that’s issued to an insurer by an insurance department (or equivalent state agency) that authorizes that company to conduct insurance business in that particular state.
Claims Department: This is the department that’s responsible for processing, investigating, and paying claims.
Divisible Surplus: This is the amount of earnings that are paid to policy owners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.
Domestic Insurer: This is an insurer with its principal or home office in the state in which it’s authorized.
Foreign Insurer: This is an insurer whose principal office or domicile location is in a state that’s different from the state in which it’s transacting insurance business.
Fraternal Benefit Society: This is a non-profit benevolent organization that provides insurance to its members.
Independent Insurance Agency: This is an agency that any number of insurance companies through contractual agreements.
Insurance: This is the transfer of risk through the pooling or accumulation of funds.
Insured: This is the customer who receives insurance protection under an insurance policy.
Insurer: This is an insurance company.
Lloyds of London: This is NOT an insurer but a group of individuals and companies that underwrite unusual insurance policies.
Marketing Division: This is the division that’s responsible for acquiring prospective applicants through various advertising media.
Monoline Insurer: This is an insurance carrier that only sells one line of insurance.
Multi-Line Insurer: This is an insurance company or independent agent that provides a “one-stop-shop” for businesses or individuals who are seeking coverage for all of their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.
Mutual Insurance Company: This is an insurance company that’s characterized by having no capital stock, being owned by their policy owners, and typically issuing participating insurance.
Non-Admitted (Unauthorized) Insurer: This is an insurer that has not received a certificate of authority from a state’s department of insurance which authorizes it to conduct insurance business in that state.
Nonparticipating Policy: This is a policy that’s typically issued by stock companies. This type of policy doesn’t allow policy owners to participate in dividends or to elect the board of directors.
Participating Policy: This is an insurance policy that pays policy dividends to policy owners. By receiving dividends, policy owners share in the company’s divisible surplus and also elect the company’s board of directors.
Personal Producing General Agency (PPGA): This is an agency that represents one or more specific insurers. A PPGA is a similar agency system, but PPGAs don’t recruit, train, or supervise career agents.
Policy owner: This is the person who’s responsible for the payment of premiums and who possesses all ownership rights of the contract. Typically, the policy owner is also the insured.
Private (Commercial) Insurer: This is an insurer that’s owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.
Producer: This is an individual who’s licensed by one or more states to sell, solicit, or transact insurance in a given state.
Proposed Insured: This is the person whose life will be covered by an insurance policy. (See also: Insured).
Public Adjuster: This person acts on behalf of a consumer who’s settling an insurance claim.
Reciprocal Insurer: This is an unincorporated organization in which all members insure one another. An attorney-in-fact manages it.
Reinsurance: This is the acceptance by one or more insurers (referred to as reinsurers) of a portion of the risk being underwritten by another insurer that has contracted with a consumer to cover the entire risk.
Reinsurer: This is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to cover on their own and make it possible for insurers to obtain more business than they would otherwise be able to obtain.
Risk Retention Group: This is a group-owned liability insurer that assumes and spreads product liability and other forms of commercial liability risks among its members.
Sales Department: This department acquires clients through one-on-one meetings in which consumers complete applications.
Self-Insurer: This is a company that establishes a self-funded plan to cover potential losses rather than transferring the risk to an insurance company.
Service Representatives: These are customer service employees. Service representatives are not required to obtain a license because they neither sell nor solicit coverage, and they don’t bind coverage.
Solicitors: These are the individuals who solicit and schedule sales meetings between consumers and the producers for whom they work. Some states separately license these individuals.
Stock Insurance Company: This is an insurance company that’s owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.
Surplus Lines Insurance: This is non-traditional insurance that’s only available from a surplus lines insurer. This type of insurance provides coverage for substandard or unusual risks and is not available through private or commercial carriers.
Unauthorized Insurer: This is a non-admitted insurer.
Underwriting Department: This is the department within an insurance company that’s responsible for reviewing applications, approving or declining applications, and assigning risk classifications.
Agents – Agents represent one or more insurers under the terms of their appointment contract.
Brokers – Brokers represent themselves and the insured (i.e., the client or customer).
Solicitors – A solicitor is not licensed to sell insurance. Instead, a solicitor represents a producer and solicits prospective applicants to meet and discuss their insurance needs with that producer on their behalf.
Service Representatives – Service representatives are insurance company employees who do not engage in sales activities that pay commissions. These individuals are not required to be licensed unless they receive commissions, solicit, countersign policies, or collect premiums from policy owners.
Adverse Selection: This is broadly defined as selection against the company or the tendency of people with higher risks to seek/continue insurance to a greater extent than those with little or less risk. In other words, adverse selection occurs when the percentage of poor risks among those covered by issued policies exceeds the ratio predicted by the actuaries when they designed the policies. This also consists of the tendency of policy owners to take advantage of favorable options in insurance contracts.
Hazard: This is any factor, condition, or situation that creates an increased possibility that a peril (a cause of a loss) will actually occur.
Homogeneous Exposure Units: These are similar “objects of insurance” that are exposed to the same group of perils. An “object of insurance” can be a person, a business, or a piece of property. Each “unit” represents one of many similar risks that are undertaken to be insured by an insurance company.
Indemnify: This is the act of restoring insureds to the financial condition that existed prior to a loss.
Indemnity: This is the amount needed to restore an individual to the financial condition he was in before he suffered a loss. An indemnity can be a reimbursement or a fixed dollar amount.
Indemnity Contract: This is a contract that attempts to return the insured to her original financial position.
Law of Large Numbers: This is a fundamental principle of insurance. The larger the number of individual risks that are combined into a group, the more certainty there is in predicting the degree or amount of loss that will be incurred in any given period.
Loss: The insurance industry defines the word “loss” as the unintentional decrease in the monetary value of an asset due to a peril.
Loss Exposure: This is the risk of a possible loss.
Loss Exposure Unit: This refers to each individual, organization, or asset that’s exposed to the potential of financial loss due to a defined peril. When loss exposure units are aggregated together, the maximum potential loss expresses the overall loss exposure.
Moral Hazard: This is the type of hazard that exists because of the effect of an insured’s personal reputation, character, associates, personal living habits, or degree of financial responsibility. This also includes criminal activity.
Morale Hazard: This is a hazard that arises from an insured’s indifference to loss because of the existence of insurance. Morale hazards are often associated with having a careless attitude.
Peril: A peril is the immediate, specific event that causes loss and gives rise to risk.
Physical Hazard: This is a physical or tangible condition that exists in a manner which makes a loss more likely to occur.
Primary Insurance Company: This phrase has the following meanings:
When more than one policy covers the same claim, the term “primary insurance company” refers to the first policy to pay.
As it relates to reinsurance, the primary insurance company writes a policy to cover a risk in the marketplace. This primary insurer then surrenders a portion of the risk to a reinsurer and the reinsurer assumes the excess risk for a reinsurance premium.
Pure Risk: This is a type of risk that involves the chance of loss only; there’s no opportunity for gain. Pure risks are the only form of insurable risks.
Reinsurance: This is the acceptance by one or more insurers—referred to as reinsurers—of a portion of the risk underwritten by another insurer that has contracted with an insured to provide coverage for the total value of a loss exposure.
Reinsurer: This is an insurance company that assumes a portion of the risk underwritten by a primary insurance company.
Risk: This is the uncertainty regarding loss. Risk is the probability of a loss occurring for an insured or prospect.
Risk Avoidance: This occurs when individuals evade risk entirely. It’s the act of NOT participating in an activity that could possibly cause a loss.
Risk Management: This is the process of analyzing exposures that create risk and then designing programs to address them.
Risk Reduction: This is the risk management strategy that focuses on taking actions which decrease the chances of a loss occurring. It also refers to action taken to lessen the severity of a loss if one occurs.
Risk Retention: This is the act of analyzing the loss exposure presented by a risk and determining that the potential loss is acceptable. Risk retention is often associated with self-insurance.
Risk Selection: This is not a risk management technique that’s used by consumers. Instead, “risk selection” describes the insurance company’s process for determining whether to cover a new loss exposure. If done correctly, the ratio of losses to premium should reflect what actuaries predicted when they created the product, established the price, and set the underwriting criteria.
Risk Sharing (Risk Pooling or Loss Sharing): This is the risk management technique that manages an individual’s risk by sharing the possibility of loss with others and spreading the cost over a large number of individuals. This technique transfers risk from an individual to a group.
Risk Transfer: This is the act of exchanging the responsibility for a significant potential loss (risk) to another party in exchange for a smaller, preset cost or premium.
Self-Insurance: This is a risk retention process. A self-insuring individual or organization maintains monetary reserves to cover potential costs in the event of a financial loss occurring.
Speculative Risk: This is a type of risk that involves the chance of both loss and gain; it’s not insurable.