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Acceleration Clause — The part of a contract that says when a loan may be declared due and payable.

Accidental Death Benefit — In a life insurance policy, benefit in addition to the death benefit paid to the beneficiary, should death occur due to an accident. There can be certain exclusions as well as time and age limits.

Active Participant — Person whose absence from a planned event would trigger a benefit if the event needs to be canceled or postponed.

Actual Cash Value (refers to auto and homeowner insurance) — The cost to replace damaged or lost property with comparable or like property, minus depreciation.

Actuary — An insurance professional who analyzes, calculates rates and reserves, and evaluates and manages statistical information.

Actuarial — These are statistical calculations insurance companies use to decide insurance rates and premiums. They are based on usage projections and costs for a defined risk in a specific insurance market.

Admitted Assets — Assets permitted by state law to be included in an insurance company's annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.

Adjuster — Someone who is paid by the insurance company or the insured person to investigate or negotiate insurance claims on their behalf.

Administrative Costs — Costs associated with running an insurance business, such as utilization review, marketing, medical underwriting, agents’ commissions, premium collection, claims processing, insurer profit, quality assurance programs, and risk management.

Administrative Services Only (ASO) (refers to health insurance) — When a Third-Party Administrator (see term “Third-Party Administrator”) provides services such as processing and paying health insurance claims for an employer.

Admitted Company — An insurance company the Office of the Insurance Commissioner authorizes and licenses to do business in Washington state.

Adverse Selection — This term is used for people who have an above average risk for loss. They have a tendency to buy more insurance coverage than those who are at a lower risk. For example, people with terminal illnesses will often try to buy large amounts of life insurance.

Agent — A person who sells and services insurance policies. In Washington state, all insurance agents must obtain an agent license from the Office of the Insurance Commissioner.

Amortized Value — The value of bonds purchased by an insurance company which are eligible for amortization. For example, if a 10-year bond were purchased at $50 more than its face value, that $50 would be "amortized" or spread over the 10-year period. Each year the bonds would be valued at $5 less than the year before.

Annuity (refers to life insurance) — This is a series of income payments made to a customer at regular intervals by an insurance company in return for a premium or premiums the customer paid. There are many types of annuities, which offer various benefits.

Application (APP) — An insurance form a potential customer fills out. Based on the form, the insurance company decides whether or not to insure the customer, modify the coverage offered, or decline to cover the customer. An application without premium payment is a request for an offer. With a premium payment, it is an actual offer, unless the insurance company declines to issue a policy to the customer.

Apportionment — Dividing a loss proportionately among two or more insurers to cover the same loss. For example, assume someone insures their property for $10,000 with one insurance company, and they also insure it for $5,000 with a second insurance company. If a loss occurs, the first company pays two-thirds of the loss and the second company pays one-third.

Assigned Risk (refers to auto insurance) — This is a state-based program Washington uses to issue insurance coverage for people who cannot buy auto insurance. The Western Association of Automobile Insurance Plans administers the assigned risk plan in Washington state. The Plan assigns these drivers to insurance companies that do business in Washington based on how much auto insurance the company sells.

Attorney-In-Fact — The individual who manages a reciprocal insurance exchange and to whom each subscriber gives authority to exchange insurance for him with other subscribers. See also Reciprocal Insurance Exchange. 

Automatic Cover — Coverage given automatically by a policy, usually for a specified period and limited amount, to cover increasing values and newly acquired and changing interests.

Avoidance of Risk — Taking steps to remove a hazard, engage in an alternative activity, or otherwise end a specific exposure. One of the four major risk management techniques. See Risk Management. 

Balance Sheet — An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.

Basic Health Plan (BHP) (refers to health insurance) — BHP is a subsidized health insurance plan offered by the Washington State Health Care Authority to low –income Washington state residents.

Beneficiary — A person eligible to receive benefits under an insurance policy.

Binder (Binding Receipt) (refers to auto, homeowner and life insurance) — A binder is proof of coverage for a specified time period prior to the company issuing someone the actual policy or requiring a premium payment. However, if the consumers pays the premium with the application, the insurance company will issue a binder or “binding receipt.”

Book of Business — A term insurance agents use to describe the various policies they write in the state.

Bordereau — A written report of individual cessions, usually detailed to show such items as reinsurance premiums or reinsurance losses with respect to specific risks. (2) A memorandum containing information concerning documents that accompany it. Used extensively in passing reinsurance from one insurer to another under a reinsurance agreement and by Property and Liability agents for passing information to various insurers on coverages written.

Borderline Risk — An insurance prospect of doubtful quality from an underwriting point of view.

Boycott — An unfair trade practice which occurs when someone in the insurance business refuses to have business dealings with another until he or she complies with certain conditions or concessions.

Broker — A broker is different than an agent. Brokers do not represent a particular company. They receive a commission or fee for finding you coverage or renewing your policy. In Washington state, all insurance brokers must obtain a broker license from the Office of the Insurance Commissioner.

Burning Ratio — The ratio of losses suffered to the amount of insurance in effect.

Business Interruption Insurance (refers to business insurance) — A policy that pays for the loss of earnings when business operations are reduced or stopped due to a property loss, such as water damage, theft, or fire.

Cancelable — An insurance contract that an insurance company or an insured person can cancel at any time. Most insurance is cancelable. Exceptions include certain life insurance policies and health insurance.

Cancellation — This is when an insurance company or an insured person voluntarily ends an insurance policy according to contract provisions or by mutual agreement.

Capitation (refers to health insurance) — A payment method insurance companies use, such as Health Maintenance Organizations (HMOs), for health care services. The HMO pays the provider a fixed amount for each patient, regardless of the required treatment.

Captive Insurer — A legally recognized insurance company organized and owned by a corporation or firm whose purpose is to use the captive to write its own insurance at rates lower than those of other insurers. Usually it is a nonadmitted insurer that has the right, under special circumstances, to reinsure with an admitted insurer.

Carrier — A company that sells insurance (also called an insurer).

Carve-Out (refers to health insurance) — Services separately designed and contracted to an exclusive, independent provider by a managed care plan.

Case Management (refers to health insurance) — Coordinating patient care to ensure cost-effective treatment.

Cash Surrender Value (refers to life insurance) — The amount of cash due to the insured person who requests the insurance company cancel their life insurance policy.

Caveat Emptor — Let the buyer beware.

Centers for Medicare and Medicaid Services (CMS) (refers to health insurance) — The U.S. federal agency that administers federal health financing and related regulatory programs, mainly Medicare, Medicaid, and Peer Review Organization programs. It is also the contracting agency for Health Maintenance Organizations (HMOs) that provide Medicare managed care plans.

Chartered Life Underwriter (CLU) — A title given by the American College of Life Underwriters to insurance industry professionals after they successfully complete required exams and experience requirements.

Chartered Property and Casualty Underwriter (CPCU) — A title given to an insurance professional by the American Institute for Property and Liability Underwriters after they successfully complete a series of insurance-related exams and experience requirements.

Claim — A demand made by an insured person for payment of benefits as described in their insurance policy.

Claimant — The person making a demand for payment of benefits.

Claims Reserve — Amounts set aside to meet costs of claims incurred but not yet finally settled. An example might be a Workers Compensation case where benefits are payable for several years. At any given point in time, the reserve would be the funds kept based on the estimate of what the claim will cost when finally settled.

Clause — This identifies a specific part of a policy or endorsement.

Closed Formulary (refers to health insurance) — In some health plans, doctors must order only patient prescription drugs listed on the health plan’s formulary (also see term “drug formulary”).

Coercion — An unfair trade practice which occurs when someone in the insurance business applies a physical or mental force to persuade another to transact insurance.

Co-Insurance (refers to health and homeowner insurance) — In health insurance, it means the insured person and the insurance company share losses in agreed proportion. Also known as “percentage participation.” In managed health care, it refers to the portion of the cost of care for which the insured person is responsible. This often applies after the insured person meets a specified deductible. In homeowner insurance, the insured person shares proportionally in losses when the amount of insurance is less than a specified percentage of the property insured.

Collision Coverage (refers to auto and business insurance) — This covers the physical damage to the insured person’s vehicle due to a collision with another object, such as another vehicle, a fence, building, etc.

Collusion — An agreement, usually secret, between two or more persons to defraud or deprive another or others of their property or rights.

Combined Ratio — The sum of an expense ratio and a loss ratio. An underwriting profit occurs when the combined ratio is under 100% and an underwriting loss occurs when the combined ratio is over 100%.

Commingling — An illegal practice which occurs when an agent mixes personal funds with the insured's or insurer's funds.

Commission — This is the portion of the premium the agent or broker keeps as compensation for sales, service, and distribution of insurance policies.

Community Rating (refers to health insurance) — A method state insurance regulators use to establish premiums for health insurance. There are two types of community rating. Pure community rating uses one average for all subscribers. Semicommunity rating allows other limited factors to help determine rates, such as age, family size, and geographical location.

Composite Rate (refers to health insurance) — A health insurance premium that applies to all of those eligible in a subscriber group, regardless of the number of claimed dependents. This is common among plans purchased by large employer groups.

Comprehensive Coverage (refers to auto insurance) — This covers damage to an insured person’s car — except by collision. For example, this covers their car if a tree falls on it or someone vandalizes it.

Comprehensive Health Insurance (refers to health insurance) — Also called Comprehensive Major Medical. This is a form of health insurance that provides coverage for most types of medical expenses. Most employer health plans are comprehensive. A health plan that covers only hospital inpatient charges is not comprehensive.

Comprehensive Personal Liability Policy (CPL) (refers to homeowner insurance) — This is a personal liability contract individuals may buy. A CPL provides liability insurance coverage for individual and family needs that may arise due to personal activities and situations, such as residential property ownership, pet ownership, sports activities, and many other everyday activities.

Concurrent Review (refers to health insurance) — This is the usage review conducted by an insurance company during a patient’s hospital stay or treatment.

Conditional Receipt (refers to life insurance) — An insurance premium receipt that specifies conditions the applicant must first satisfy before the insurance company will accept the applicant for coverage. If the applicant meets the conditions, the coverage becomes effective as of the date on the receipt.

Contingent Fund — A reserve to cover possible liabilities resulting from an unusual happening.

Contractor’s Bond (refers to business insurance) — Guarantees the performance of a contract and the payment of all related labor and material bills between a contractor and subcontractors, up to the stated bond amount. In situations where two bonds are required, contractors can obtain a performance bond (covers performance) and a payment bond (covers payment of labor and material).

Coordination of Benefits (COB) (refers to health insurance) — This determines the amount payable by each insurer when the insured person is covered under two or more group health plans. Total reimbursement should not exceed 100 percent of the cost of care.

Copayment (refers to health insurance) — A copayment is a patient’s share of a health care bill. It usually is a small amount, such as $5 or $10 per office visit.

Cost Sharing (refers to health insurance) — When the consumer must pay out-ofpocket to receive health care. This also can occur when an insured person pays a portion of the monthly premium for his or her health insurance.

Cost Shifting (refers to health insurance) — When an insurer charges one group of health care buyers more to make up for the underpayment of others.

Countersignature — The signature of a licensed agent or representative on a policy.

Court Bond — Any bond required of a litigant to enable him to pursue a remedy in court.

Coverage — The scope of protection provided to the insured person under an insurance contract.

Cover Note — Similar to a binder, but binders are usually issued by companies and delivered to agents. A Cover Note is usually written by an agent, and it informs the insured that coverage is in effect. See also Binder. In reinsurance, a Cover Note is a statement issued by an intermediary or broker indicating that coverage has been effected.

Credentialing (refers to health insurance) — A process health insurance companies use to examine and verify the medical qualifications of health care providers who want to participate in a Preferred Provider Organization (PPO) or Health Maintenance Organization (HMO) network.

Credit Insurance (refers to auto, business and homeowner insurance) — An insurance policy that pays debts should the borrower lose his or her job, die, or become disabled (usually called “credit life” policy).

Corporate owned life insurance — Life or disability insurance to cover a key employee whose death or disability would cause the employer financial loss. The policy is owned by and payable to the employer.

Cut Rate — This term generally applies to insurance companies who charge premiums below a normal or average rate.

Declaration Page (Dec Sheet) (refers to auto, business, and homeowner insurance) — The portion of an insurance policy that contains information about risk. It identifies the parties in the contract and the subject of coverage.

Declination — Rejection of an application for insurance by the insurer.

Decreasing Term Policy (refers to life insurance) — Generally, this is a rider attached to cash value policies or other term policies. The protection decreases each year or month in accordance with a schedule. It is also sold as a Mortgage Protection policy.

Deductible — This is the part of the insured person’s expenses or loss they must pay before their insurance coverage begins.

Deferred Annuity (refers to life insurance) — An annuity in which the benefits begin at some designated future date.

Deficit — Any excess of debits over credits at the end of a given accounting period.

Deflation — An economic period characterized by falling prices, high unemployment and a generally sluggish or slow economy.

Dependent property (refers to business insurance) — This is property not owned, operated or controlled by the business owner; however, he or she depends upon it for normal business operations. Dependent property protects the business owner from financial losses caused by problems that occur elsewhere, such as with another vendor or supplier who suffers a loss.

Depreciation — A decrease in the value of any type of tangible property over a period of time resulting from use, wear and tear, or obsolescence.

Destroyed or damaged records coverage (refers to business insurance) — If a covered loss destroys or damages business records, this insurance compensates the owner for his or her inability to collect income, and the cost to reproduce the records.

Deviated Rate — Companies that adhere to rates promulgated by a bureau sometimes offer lower rates than those recommended in certain areas. The company is said to have "deviated" from the bureau rate for that area.

Deviation — A rate that varies from the manual rate.

Diagnosis-Related Groups (DRG) (refers to health insurance) — A classification system used by Medicare to group patients according to diagnosis, type of treatment, age, and other relevant criteria. Under the payment system, Medicare pays hospitals a set fee for treating patients in a single DRG category, no matter what the actual cost of care for the person.

Direct Access (refers to health insurance) — Under a 1995 Washington state law, health insurance companies must cover women’s direct access to female-related health care services, such as mammograms, general exams, and preventative care.

Direct Writer — An insurance company that sells its policies through salaried employees (licensed agents) who represent it exclusively.

Disability Income Insurance (refers to disability insurance) — An insurance that provides periodic payments to replace income lost to an insured person when they cannot work due to sickness or injury.

Disclosure Authorization Form — A form authorizing the disclosure of personal information obtained in connection with an insurance transaction. Insurers are required to give applicants advance notice of their information practices. Among other things, the form must state the kind of information collected and to whom information may be disclosed.

Divided Cover — The placing of insurance on a given subject or object with more than one insurer.

Dividend — The return of part of the premium paid for a policy issued on a participating basis by either a mutual or a stock insurer.

Drug Formulary (refers to health insurance) — A list of selected prescription drugs and their proper doses that a health plan covers.

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Earned Income — The money individuals earn as a result of working at some job or occupation for which they are paid a salary.

Earned Premium — The portion of an insurance premium that applies to the expired part of the policy term. Even though customers pay their premiums in advance, the insurance company does not fully earn the premium until their customers’ policy term expires.

Earthquake Coverage (refers to business and homeowner insurance) — Insurance companies offer earthquake coverage as additional coverage to standard commercial property and casualty policies. Earthquake coverage is available in Washington state. It is expensive for masonry structures and business operations with high-risk inventory or equipment.

Effective Date — The date on which the protection of an insurance policy or bond goes into effect.

Elimination Period (refers to disability and long-term care insurance) — A term that refers to the “waiting period” or “probationary period” in long-term care and disability insurance policies. For example, for long-term care policies, this is the number of days a person must spend in a nursing home before the insurance company will start paying benefits.

Employee Retirement Income Security Act (ERISA) (refers to health insurance) — This law, which deals primarily with pensions and retirement plans, includes a section exempting self-funded employer and union health plans from state regulation.

Employment Practices Coverage (refers to business insurance) — This type of coverage helps business owners defend against employment-related claims, such as sexual harassment, age discrimination, or wrongful termination. Some policies offer legal assistance. Other policies may pay both legal costs and damages.

Endorsement — A written form attached to the policy that changes the terms of the policy to fit special circumstances.

Endowment Insurance (refers to life insurance) — A form of life insurance payable to the insured person if they are living at the end of the endowment period, or to a beneficiary if the insured person dies before the endowment date.

Equity — The money value of an insurance company that is over and above its liabilities. Liabilities include almost all of its reserves.

Estimated Premium — A provisional premium which is adjusted at the end of the year. For example, in Workers Compensation Insurance an estimated premium is based on estimated payrolls for the coming year. At the end of the year, final payrolls are determined and the final premium is computed.

Exclusions (refers to auto, business, health, and homeowner insurance) — Clauses in a health insurance contract that deny coverage for certain conditions, treatments, supplies or risks, such as cosmetic surgery. In home and auto contracts, exclusions from coverage may also include certain events or circumstances, such as drag racing, renting an insured vehicle to others, or flood or earthquake coverages.

Evidence Clause — A clause in a policy which requires the insured to cooperate in the investigation of a claim by producing records and submitting to examinations. This is required to help an adjuster establish the validity of a claim. An Evidence Clause in a Health policy requires the insured to submit to physical examinations.

Ex Gratia Payment — Latin for "from favor." A payment by an insurer to an insured for which there is no liability under the contract. In some cases an insurer may feel there has been a mistake or a misunderstanding, and he may pay a claim even though he does not appear to be liable.

Excess Insurance — A coverage designed to be in excess over one or more primary coverages, and which does not pay a loss until the loss amount exceeds a certain sum. Contrast with Primary Coverage.

Excess Line Broker — A person licensed to place insurance not available in his state through insurers not licensed to do business in the state. A person licensed to deal with nonadmitted insurers.

Exclusion — A contractual provision that denies coverage for certain perils, persons, property, or locations.

Exclusions — Specific situations, conditions, or circumstances that are listed in the contract as being not covered.

Exclusive Agency System — An insurance distribution system within which agents sell and service insurance contracts that limit representation to one insurer and which reserve to the insurer the ownership, use, and control of policy records and expiration date. See also Captive Agent and Direct Writer, and contrast with Independent Agency System.

Experience — The loss record of an insured person, a class of coverage (such as auto or homeowner insurance), or an insurance company’s loss experience (the total number of claims).

Experience Rating — A method insurers use to decide the amount of premium to charge customers based on the actual usage of large groups with like risks.

Expense Allowance — A compensation paid to an insurance agent in excess of prescribed commissions.

Exposure — The possibility of loss.

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Face — The first page of a policy.

Face Amount (refers to life insurance) — This is the death benefit stated on the first page of a life insurance policy.

Federal Estate Tax — The federal tax which is imposed on the deceased's estate which includes the total assets comprising a person's estate at death.

Federally Qualified HMOs (refers to health insurance) — These are health maintenance organizations (HMOs) that meet certain federal requirements designed to protect consumers. To qualify, HMOs must provide a broad range of basic health services, and meet standards of financial solvency and quality of care. The U.S. Department of Health and Human Services (DHHS) administers the qualification process.

Fee — A charge or price for professional services.

Fee Disclosure (refers to health insurance) — This is when doctors and caregivers discuss their charges with patients prior to treatment.

Fee-for-Service (refers to health insurance) — This is the traditional payment method in U.S. health care. The health care provider charges the patient according to a fee schedule they set for each service and procedure they provide.

Field Force — The agents and supervisory personnel of insurers who operate away from the home office in the branch offices and agencies of the company.

Fiduciary (refers to health insurance) — Someone who is responsible for the administration of a group health insurance plan or an Employee Retirement Income Security Act (ERISA) plan or someone who has discretionary authority over plan assets and claim payments. The federal ERISA law imposes various duties on fiduciaries about the use of their powers. For example, the plan fiduciary must protect plan assets, and administer claims for the exclusive purpose of providing benefits to plan participants.

Financial Statement — The disclosure of the financial results of a firm's operations. It involves the balance sheet, profit and loss statement, and associated information.

Fine Print — A reference to imaginary small type in a policy contract supposedly containing exclusions, reductions, exemptions, and limitations of coverage. Most state laws include specifications for the minimum type size that can be used in a policy, and they also provide that exclusions cannot be printed in type smaller than that used to print the benefits.

Fire Mark — An insignia, generally metal, once placed on buildings insured by the insurer represented by the mark. Since the insurers had their own fire brigades, they had to check the mark on a burning building to determine whether or not they should extinguish the fire.

Fiscal Intermediary (refers to health insurance) — A private company that has a contract with Medicare to pay Part A and some Part B bills for Medicare clients.

Flat — Without interest or service charges.

Flat Cancellation — A policy which is cancelled upon its effective date. Usually under a flat cancellation no premium charge is made.

Flat Commission — A standard scale commission paid to an agent regardless of the type of exposure or the type of policy. Contrast with Graded Commission.

Fleet Coverage (refers to business insurance) — This multi-vehicle coverage applies to businesses that rely on a number of vehicles and need to insure them collectively.

Foreign-Product Liability Coverage (refers to business insurance) — This business-related coverage applies to losses that occur due to difficulties with providing or obtaining items that foreign suppliers manufacture.

Form — This is an insurance policy, or the riders and endorsements attached to it.

Fraternal — An insurance company organized under a special section of the state insurance code, characterized by a lodge or social system, such as an Elks or Moose Lodge. It only issues insurance to members.

Gain and Loss Exhibit — The portion of the convention blank which represents an analysis of gains, losses, and surplus during an accounting period.

GAP Coverage (refers to auto insurance) — If an auto is totaled by an insurance company, this pays the difference between the current market value of the owner’s car and the amount they still owe the lender.

Gatekeeper (refers to health insurance) — A primary care doctor who is responsible for overseeing and coordinating all aspects of a patient’s medical care in managed care plans. The main goal is to reduce health care usage and costs. Managed care patients cannot receive referrals to specialty care or hospital admission without preauthorization from a gatekeeper. However, patients can obtain emergency room service when they believe an emergency exists.

Gatekeeper Provision (refers to long-term care insurance) — This is a condition the applicant must first meet to qualify for the benefits of a long-term care policy. For example, a gatekeeper provision could require a doctor to certify that a person is unable to perform certain daily living activities.

General Agent — An insurance company representative who supervises the company’s business within a specific territory. He or she may appoint local agents. A general agent is also an independent contractor compensated on a commission basis.

General Liability and Property Coverage (refers to business insurance) — Liability insurance protects businesses when they are legally liable for someone’s injury or property damage. The insurer pays the damages, and funds and handles the business’ legal defense. Property insurance covers a business’ physical assets, such as buildings, equipment, furnishings, fixtures, inventory, etc.

Grace Period (refers to disability, health, life, and long-term care insurance) — A period of time (commonly 10 to 31 days depending on the type of contract) after the premium due date. During this time, the policy remains in force without penalty even though the policyholder has not yet paid the premium.

Graded Commission — A compensation scale for agents which provides for varying commission rates depending upon the class, type, or volume of insurance written. Contract with Flat Commission.

Gross Line — The total limit accepted by an insurer on an individual risk, including the amount to be reinsured.

Gross Premium — The net premium plus operating expenses, commissions and other expenses.

Group Contract — An insurance contract between an insurance company and an employer or other entity to cover employees or other group members. A group contract may include life insurance, health insurance, or an annuity, and sometimes property liability. Eligibility for coverage of group members is defined in the contract. For example, an eligible employee might be defined as “employees working over 30 hours per week for the employer.”

Group Insurance (refers to health insurance) — A heath insurance policy or a health care services contract (HCSC) that covers a group of employees and often their dependents. Health care coverage occurs under a master policy issued to the employer or other group.

Guaranty Funds — Funds created by state law from contributions by insurance companies operating in the state which are used to make good any unpaid claims or otherwise to make money available to insolvent companies. Each state which has a fund has a different plan. See Insurance Guaranty Act. Same as Insolvency Funds.

Guaranteed Insurability Rider (GIR) (refers to life insurance) — A contract provision a life insurance policy owner buys from an insurance company. It gives the policy owner the right to buy an additional amount of life insurance at one or more specified “option dates,” without providing new evidence of insurability at that time. For example, a person could buy a $100,000 life insurance policy with a Guaranteed Insurability Rider (GIR). The GIR would allow the person to buy $50,000 of additional insurance on the fifth and tenth year policy anniversary without providing medical information.

Guaranteed Renewable (refers to auto, disability, health, and life insurance)— An insurance policy the insurance company is required to renew as long as the insured person makes premium payments. Disability and life insurance policies usually have an age limit while health insurance policies do not. The insurance company may also increase premium rates on a statewide basis.

Hazard — A specific situation that increases the probability of the occurrence of loss arising from a peril, or that may influence the extent of the loss. For example, accident, sickness, fire, flood, liability, burglary, and explosion are perils. Slippery floors, unsanitary conditions, shingled roofs, congested traffic, unguarded premises, and uninspected boilers are also hazards.

Health Care Service Contractor (HCSC) (refers to health insurance) — Any corporation, cooperative group, or association that is sponsored by or connected with a health care provider or group of providers. They may engage in the limited insurance-like business to accept prepayment for health care services from individuals and groups. For example, Blue Cross and Blue Shield companies usually hold a HCSC license.

Health Insurance — A policy or product that provides coverage for someone for doctor, hospital, and other medical expenses that result from illness or injury.

Health Maintenance Organization (HMO) (refers to health insurance) —This health insurance plan requires subscribers to get all their care from a list of providers (except for some emergency care). The plan may require the subscriber’s primary care doctor to provide them with a referral before they can see a specialist or go to the hospital.

Health Plan — A generic term that refers to a specific health benefits package offered by an insurer.

High Risk Pool (refers to health insurance) — In Washington state, this is a nonprofit organization called the Washington State Health Insurance Pool. It provides access to health insurance to all Washington state residents who are unable to buy individual or group health insurance in the regular market.

“Hold Harmless” Clause (refers to health insurance) — State law and regulations require contracted health care providers to not hold patients accountable for claim amounts that a health insurance company owes on a contract.

Homeowner Policy — An insurance policy to cover a homeowner’s house and other structures on their property, and personal contents against losses caused by such things as windstorms, fire, or theft. This type of policy also includes liability coverage.

Hospital Benefits (refers to health insurance) — Benefits an insurance company pays when an insured person is hospitalized. They include reimbursement for both inpatient and outpatient medical care expenses. Inpatient benefits include charges for room and board, necessary services, and supplies. Outpatient benefits include surgical procedures, radiology services, and rehabilitation therapy.

Impaired Insurer — An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.

Impairment of Capital — A condition in which the surplus account of a stock insurer has been exhausted so that it must invade the capital account (amounts contributed by stockholders) to meet liabilities. Some jurisdictions allow a percentage invasion of capital; some do not.

Implied Authority — Authority of an agent that the public may reasonably believe the agent to have. If the authority to collect and remit premiums is not expressly granted in the agency contract, but the agent does so on a regular basis and the insurer accepts, the agent has implied authority to do so.

Incurred But Not Reported (IBNR) (refers to business and health insurance) — Claim costs the insured person does not file with the insurance company, the Health Maintenance Organization (HMO), or the Health Care Service Contractor (HCSC) within the contractual period.

Incurred Expense — Expenses not yet paid. Can also include paid expenses in some accounting systems.

Incurred Loss Ratio — The percentage of losses incurred to premiums earned.

Incurred Losses — The losses occurring within a fixed period, whether or not adjusted or paid during the same period. As an example, in Workers Compensation claims losses occur during a given policy period, but benefits may continue to be paid for many years. The estimated value of the total claim would be an "incurred loss" for the policy period during which the loss occurred.

Indemnify — This provides payment, repair, or replacement to a victim of loss. Independent Practice Association/Organization (IPA/IPO) (refers to health insurance) — This is when a health insurance company contracts with a doctor organization. The doctor organization then contracts with individual doctors to provide health services to the insurance company’s members. IPA doctors practice in their own offices, and also see fee-for-service patients. The health insurance company reimburses the IPA on a capitated basis. The IPA may reimburse its doctors on a capitated or modified fee-for-service basis when doctors charge agreed-upon rates to the covered patients and then bill the IPA.

Individual Market (refers to health insurance) — This market consists of individuals and their dependents who buy health insurance coverage directly from an insurer - approximately 5 percent of the entire health insurance market. People usually buy their own coverage because they are not eligible for government (such as Medicare or Medicaid) or employee-sponsored coverage.

Initial Premium — An amount paid at the inception of an insurance contract, usually subject to adjustment at the end of the policy period.

Insolvent Insurer — An insurer which is unable to meet its financial obligations.

Insurable Interest — Any interest a person has in a possible subject of insurance, such as a car or home, of such a nature that a certain happening might cause him financial loss.

Installment Refund Annuity (refers to life insurance) — A type of annuity policy that guarantees if a policyholder dies before receiving payments equal to the amount they paid to establish the annuity, the insurer will refund the difference to the beneficiary in equal installments.

Insurability — Acceptability to the insurer of an applicant for insurance.

Insurable Interest (refers to homeowner and life insurance) — For homeowner insurance, this is when a person has a legal financial interest in the property that is the subject of the insurance. For life insurance, this is the financial interest one person (the beneficiary) has in the person covered by the life insurance policy.

Insurable Risk — A risk which meets most of the following requisites: (1) The loss insured against must be capable of being defined. (2) It must be accidental. (3) It must be large enough to cause a hardship to the insured. (4) It must belong to a homogeneous group of risks large enough to make losses predictable. (5) It must not be subject to the same loss at the same time as a large number of other risks. (6) The insurance company must be able to determine a reasonable cost for the insurance. (7) The insurance company must be able to calculate the chance of loss.

Insurance — A contract to transfer risk from individuals to an insurance company. In exchange for a premium, the insurance company agrees to pay for losses covered under the terms of the policy.

Insurance Commissioner — The elected state official who is authorized to enforce the state’s insurance law, and to make reasonable rules and regulations to implement provisions of the law. The Insurance Commissioner also conducts investigations, examinations, and hearings related to those enforcement activities.

Insurance Policy — This is the entire written insurance contract.

Insured — The individual or party who the insurance company agrees to cover for losses, or provide benefits or service.

Insurer — The party to an insurance arrangement who undertakes to indemnify for losses, provide pecuniary benefits, or render services. It is desirable to use the word "insurer" in preference to "carrier" or "company" since it is a functional word applicable without ambiguity to all types of individuals or organizations performing the insurance function. The word insurer is generally used in statutory law.

Insuring Agreement  — That portion of an insurance contract which states the perils insured against, the persons and/or property covered, their locations, and the period of the contract.

Interest Rate Risk   —  A risk faced by investors who invest in bonds characterized by an individual being locked into a lower interest rate when interest rates are generally increasing in the economy.

Joint Life Policy (refers to life insurance) — A life insurance policy that insures two or more people. Some of these policies pay a death benefit on the first person to die. Some pay on the last person to die.

Joint Venture — This expression is applied most often to construction ventures where several contractors agrees to combine together on a construction project rather than to act as separate contractors. Under the joint venture agreement, they share profits and losses in some agreed-upon proportion.

Kenney Ratio — A rule proposed by Roger Kenney which suggests that to insure solvency, Property and Liability insurers should not write insurance premiums equal to more than twice their capital and surplus.

Key Man Insurance Policy (refers to disability and life insurance) — Life or disability insurance to cover a key employee whose death or disability would cause the employer financial loss. The policy is owned by and payable to the employer.

Kidnap-Ransom Insurance — This insurance is written primarily for financial institutions and covers named employees for individual or aggregate amounts paid as ransom, with deductible requiring the insured to participate in about 10% of any loss. There are few markets for this coverage and no standardization of rates. See also Extortion Insurance.

LLL

Lapse — When an insurance company ends a policy because the insured person fails to pay the premium.

Latent Defect — A defect which is not immediately apparent.

Leasehold — An agreement which gives a person the right to use and occupy property.

Legislated Coverages — Coverages provided through creation of facilities legislated into existence by federal or state law. FAIR Plans, the Flood Insurance Program and the assigned risk pools are examples.

Legislative Risk — A risk faced by investors whereby changes in tax laws can result in adverse effects on the individual's investment results.

Level Commission System — A system of commissions in which the first year and all renewal commissions are the same percentage of the premium.

Level Premium Insurance (refers to life insurance) — A life insurance premium that remains at the same dollar amount throughout the life of the policy.

Liability Insurance (refers to auto, business, and homeowner insurance) — Coverage that pays for any loss if the insured person is legally liable for bodily injury to others or damage to someone’s property.

Liability Limits (refers to auto, business, and homeowner insurance) — The dollar amount beyond which a liability insurance company does not protect the insured on a particular policy.

Life Insurance — A contract between a person and a life insurance company that provides coverage in the event the person dies. Life insurance policies may include endowment benefits, additional benefits in the event the insured person loses an arm or leg due to an accident, or in the event of a disability. Life insurance policies also may offer annuities.

Limit of Liability — The maximum dollar amount an insurance company agrees to pay the insured person in case of loss.

Limitations — These are exclusions, exceptions, or reductions of coverage in an insurance policy.

Limits — The maximum amount of benefit the insurance company will pay for a given situation or occurrence. Limits also include the ages below or above what an insurance company will not issue a new policy, or continue a policy.

Liquidation of Insurer — Action undertaken by a state Insurance Department to dissolve an impaired or insolvent insurer which cannot be restored to sound financial standing. Contrast with Rehabilitation of Insurer.

Liquidity — The ability of an insurer to convert its assets into cash to pay claims if necessary.

Long-Term Disability (refers to long-term care and disability insurance) — Typically, a disability is the limitation of normal physical, mental, and social activities that lasts longer than two years. Note: each individual insurance policy defines the terms “long-term” and “disability.”

Loss Ratio — The percentage of each premium dollar an insurance company spends on claims.

Lost Policy Release — A statement signed by an insured releasing the insurer from all liability for a lost or mislaid contract of insurance. It is usually signed after the company has issued a replacement policy.

MMM

Major Hospitalization Policy or Insurance (refers to health insurance) — Health insurance to cover medical expenses over and above that of a basic health insurance policy. This insurance only applies to expenses the patient incurs while they are hospitalized.

Major Medical Insurance (refers to health insurance) — Health insurance to cover medical expenses over and above that of a basic health insurance policy. Major medical policies pay expenses both in and out of the hospital.

Malicious Mischief — Similar to vandalism. Purposely damaging the rights or property of another.

Malinger — To feign a disability for the purpose of continuing to collect benefits longer than actually necessary.

Maloney Act — A 1938 amendment to the Securities Exchange Act of 1934. The Maloney Act established the National Association of Security Dealers (NASD) as a self regulatory organization (SRO) for those involved in the sale of securities.

Managed Care Plan (refers to health insurance) — A health plan that coordinates covered health care services for a covered person using a primary care provider and a network. Examples include Health Maintenance Organizations (HMOs) and Point-of- Service (POS) plans.

Managed Care Organization (MCO) (refers to health insurance) — Any type of organization that provides managed care, such as a Health Maintenance Organization (HMO) or a Health Care Service Contract (HCSC) that provides services through a Preferred Provider Organization (PPO).

Mandated Benefits (refers to health insurance) — Washington state law requires insurance companies to offer or include certain benefits in specific health plans. Mandates may include mammograms, automatic coverage of newborn or adopted children, and home and hospice treatment options.

Mandatory Valuation Reserve — A reserve required by a state law to offset any declines in the valuation of securities listed as admitted assets.

Market Risk — A risk experienced by those who invest in securities which is the risk of possible loss of investment since there are no guarantees associated with such investments.

Market Share — An insurance company’s portion or percentage of the total market for the product it sells.

Master Policy — The policy contract issued to an employer or other entity authorized by state law for a group insurance plan.

Maturity (refers to life insurance) — The date the face amount of a life insurance policy is due.

Maximum Allowable Charge (refers to health insurance) — The highest amount the insurance company will allow as a covered benefit for a particular medical service.

Medical Group Practice (refers to health insurance) — This is when at least three licensed doctors engage in a formally-organized and legally-recognized patient health care business. They share equipment, facilities, common records, and personnel involved in both patient care and business management.

Medical Loss Ratio (refers to health insurance) — The total cost of health care benefits divided by the total premium.

Medical Underwriting (refers to health insurance) — A process used by an insurer to screen health insurance applicants out of a plan based on health or a preexisting medical condition.

Medically Necessary (refers to health insurance) — Covered health care services required to maintain the health of a patient in line with the geographical area’s standards of medical practice.

Medicare Risk Contract (refers to health insurance) — A contract between a managed care plan and Medicare to provide services to Medicare clients for a fixed monthly payment.

Medicare Supplement (refers to health insurance) — Voluntary private insurance coverage Medicare enrollees buy to cover the cost of services not reimbursed by Medicare.

Member (refers to health insurance) — An enrollee, beneficiary, or insured. A member includes people who enroll or subscribe to a health insurance plan, and includes their eligible dependents.

Mental (or Emotional) Distress — Usually not covered if a claimant was a bystander to an accident, but usually covered if he was physically involved.

Merit Rating — A type of rating plan used in several forms of insurance but most commonly in Personal Auto. It is a method whereby the insured's premium will vary up or down depending on his own past loss record.

Morbidity-Sickness Table (refers to disability and health insurance) — A table that shows the number of people exposed to the risk of illness and disease at each age, and the actual number of people who became ill or diseased at each age.

Morbidity Rate (refers to health insurance) — An actuarial term for the likelihood that medical expenses will occur.

Mortality-Death Table (refers to life insurance) — A table that shows the number of people who died at each age.

Multi-Specialty Group (refers to health insurance) — A group of doctors who represent various medical specialties and who work together.

Mutual Fund — An investment company that raises money by selling its own stock to the public. It then invests the proceeds in other securities. and the value of its own stock fluctuates with its experience with the securities in its portfolio.

Mutual Insurer — An incorporated insurer without incorporated capital owned by its policyholders. Although mutual insurers do distribute their earnings to their policyholders in the form of dividends, the term should not be used in a sense that makes it synonymous with participating. In most jurisdictions, a mutual insurer is free to issue nonparticipating insurance if it chooses and a stock insurer is free to issue participating insurance.

Mutualization — The process of converting a stock insurer to a mutual insurer, accomplished by having the insurer buy stock and retire it.

NNN

National Association of Insurance Commissioners (NAIC) — A National association of state insurance commissioners, who discuss regulatory problems, and who form and recommend uniform insurance practices and legislation.

National Association of Life Underwriters (NALU) — A national organization of life insurance agents.

National Flood Insurance Program (NFIP) (refers to business and homeowner insurance) —A program offered by the U.S. government’s Federal Emergency Management Administration that pools policy premiums throughout the United States. It is backed by the federal government and offers reasonable rates to the public for flood damage coverage.

National Committee for Quality Assurance (NCQA) (refers to health insurance) — A non-profit organization created to improve patient care and health plan performance in partnership with managed care plans, purchasers, consumers, and the public sector.

Negligence — Failure to use that degree of care which an ordinary person of reasonable prudence would use under the given or similar circumstances. A person may be negligent by acts of omission or commission or both.

Net Interest Earned — The average interest earned by an insurer on its investments after investment expense but before federal income taxes.

Net Loss — The amount of loss sustained by an insurer after giving effect to all applicable reinsurance, salvage, and subrogation recoveries.

Net Premium — The premium necessary to cover only anticipated losses, before loading to cover other expenses.

Net Retention — The amount of insurance that a ceding company keeps for its own account and does not reinsure.

Network Model HMO (refers to health insurance) — A Health Maintenance Organization (HMO) that contracts with two or more independent group practices to provide health services. Solo practices may be included, but it is mainly organized around groups. Health Care Service Contractors (HCSCs) commonly use this HMO model.

Non-Forfeiture Values (refers to life and long-term care insurance) — Those values in a life or long-term care insurance policy that the policy owner does not forfeit – even if he or she stops paying premiums.

Nonrenewal — Termination of insurance coverage at an expiration date or anniversary date. This action may be taken by an insurer who refuses to renew, or by an insured who rejects a renewal offer.

Non-Standard Market (refers to auto insurance) — This auto insurance market includes young drivers with less experience, drivers with multiple tickets or accidents, and drivers with reckless or drunk driving histories.

Nuisance Value — An amount that an insurance company will pay to settle a claim not because it is a valid claim but because the company considers it worth that amount to dispose of it.

OOO

Offer — The terms of a contract proposed by one party to another. In Property and Casualty Insurance, submitting an application to the company is usually considered an offer. In Life Insurance, the application plus the initial premium constitutes an offer.

Offeree — One to whom an offer is made.

Offeror — One who makes an offer.

Omnibus Clause — An agreement in most Automobile Liability policies and some others that, by its definition of insured, extends the protection of the policy to others within the definition without the necessity of specifically naming them in the policy. An example would be a policy which covers the named insured and "those residing with him."

Open Enrollment (refers to health insurance) — A period when eligible members may enroll in, or transfer between available health care plans. Federal Health Maintenance Organization (HMO) regulations require that HMOs, which meet certain criteria, conduct annual open enrollment periods of no less than 30 days.

Open Rating — A system whereby a state allows an insurer to use rates without prior approval.

Open Panel (refers to health insurance) — An HMO contracts with private doctors to provide care to HMO patients.

Ordinary Life (refers to life insurance) — A whole life insurance policy in which the insured person pays the premiums continuously as long as they live. It’s also called Straight Life.

Outcomes Management (refers to health insurance) — An outcome is the positive or negative result of a medical or surgical treatment. Managed care organizations use outcomes management to closely monitor and measure patient treatment results. This information provides caregivers with a better understanding of which treatments result in better outcomes for patients.

Outlier (refers to health insurance) — In a Health Maintenance Organization’s (HMO’s) usage review, this is an insured person who does not fall within the norm. They either use too many or too few services. This term is also used to describe a patient who varies significantly from other patients, such as a longer or shorter length of stay, leaving against medical advice, etc.

Out-of-Area Benefits (refers to health insurance) — Coverage that a managed care plan allows its members for emergency situations should they temporarily be outside of their Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO) prescribed service area.

Out-of-Area Services (refers to health insurance) — Health care services provided to an insurance plan member while they are outside their plan’s established geographic service area. These services are usually not covered or are covered at a lower amount, unless delaying treatment would adversely affect the member’s health.

Outpatient Services (refers to health insurance) — Health care services provided to a patient in or out of a hospital facility, when medical or surgical care does not include an overnight hospital stay.

Overinsured — A term used to describe the condition that exists when an insured has purchased coverage for more than the actual cash value or replacement cost of a subject of insurance. It is also used to describe a situation where so much insurance is in force as to constitute a moral or morale hazard, such as having so much Disability Income Insurance in force that it becomes profitable to be disabled.

Overlapping Insurance — Coverage from two or more policies or insurers which duplicates coverage of certain risks. See also Concurrent Insurance.

PPP

Paid-For — Insurance on which the premium has been paid.

Paid Losses — The amount actually paid in losses during a specified period of time, not including estimates of amounts that will be paid in the future for losses that occurred then.

Paid-Up (refers to life insurance) — This is a life insurance term, in which the policy owner paid all required premiums, but the policy has not yet matured (by  death or endowment). For example, in a 10-year payment policy, after the policy owner completes the 10-year premium-paying period, the policy will continue to cover the insured person for the rest of his or her life.

Par. — Abbreviation for participating.

Partial Loss — A loss covered by an insurance policy which does not completely destroy or render worthless the insured property.

Participating Provider (refers to health insurance) — A provider who contracts with a health insurance plan to provide health care. The provider agrees to provide health care services to covered individuals for payment (other than coinsurance, copayments, or deductibles) from the health insurance plan.

Peer Review (refers to health insurance) — Evaluation of a doctor’s performance by other doctors, usually within the same geographic area and medical specialty.

Performance Standards (refers to health insurance) — These are standards an individual health care provider is expected to meet to achieve the desired quality of care. Volume of care also may be included, such as office hours, office visits per week or month, on-call days, surgical procedures per year, etc.

Per Member Per Month (PMPM) (refers to health insurance) — This refers to the cost or revenue a health insurance plan receives from each plan member for a month. It includes revenue, expenses, or services use.

Persistency — The tendency or likelihood of insurance business not lapsing or being replaced by another insurer's product; an important underwriting factor.

Personal Assets — Wealth and things of value accumulated and owned by an individual. These would include real estate, cash, investments and other items of value.

Personal Injury Protection (PIP) (refers to auto insurance) — This is insurance coverage for medical and other expenses, such as wage loss and funeral expenses that result from an auto accident – no matter who is at fault. Auto insurance companies must offer PIP to consumers. If consumers do not want it, they must reject it in writing.

Pilferage — Petty theft, particularly theft of articles in less than package lots. This term is associated with the insuring of cargo under an Inland Marine Insurance form.

Point-of-Service Plan (POS) (refers to health insurance) — This plan includes the features of both Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). POS plans encourage but do not require members to choose a primary care doctor. Members may visit non-network providers, but they will pay higher deductibles and copayments.

Policy Dividend — Most common in life insurance policies, this is a partial return of the premium. It represents the difference between the premium charged and the company’s actual cost of coverage during the term of the insurance policy.

Policyholder — The person who has possession of the policy.

Policy Owner — The person who may exercise the rights and privileges in the insurance policy. This person may or may not be the insured.

Pooling — Grouping of a large number of similar risks together to spread the risk and make insurance more affordable. For example, auto insurers pool all the drivers with similar risks, such as age and driving record together.

Practice Parameters (refers to health insurance) — These are strategies doctors use for patient management to help them with clinical decision-making. Practice parameters are also called practice options, practice guidelines, practice policies, or practice standards.

Preauthorization (refers to health insurance) — This is a procedure managed care plans use to control plan members’ use of health care services through review and pre approval. See also term “prior authorization.”

Preadmission Review (refers to health insurance) — Requires an insured person or their doctor to obtain prior authorization from the health care plan before any nonemergency hospitalization occurs.

Pre-Existing Condition (refers to health insurance) — A health problem someone has before the date their new health insurance plan starts. Coverage for a preexisting condition depends on the health insurance plan.

Preferred Market (refers to auto insurance) — This auto insurance market features the lowest premiums. It is available to low-risk drivers with exceptional driving records.

Preferred Provider Organization (PPO) (refers to health insurance) — This is a network of health care providers who contract with health insurance plans. A health insurance plan often pays more if members get their care from doctors or hospitals that contract with a PPO. The providers and hospitals are called “network” providers. Members pay more if they go to a doctor or hospital not listed in the plan’s network.

Preferred Risk (refers to auto insurance) — This typically refers to drivers who statistically have fewer accidents than average. Insurance companies take into account factors such as age, gender, or a clean driving record. These drivers are usually eligible for a reduced rate.
Premium — The dollar amount an insured person pays to the insurance company to cover the cost of insurance.

Preliminary Term — The period of a short-term insurance issued to cover a risk to a date which the policy owner wishes to establish as the anniversary date for future premiums.

Premises — The particular location of property or a portion thereof as designated in a policy.

Premium — The price of insurance protection for a specified risk for a specified period of time.

Prescription Benefit Managers (PBMs) (refers to health insurance) — The person who monitors prescription claims for managed care organizations. They track the drugs and their volumes that are prescribed by the plan’s participating doctors.

Primary Care (refers to health insurance) — Primary care is the first care a patient receives, often through a family doctor. However, the patient may also receive primary care from a nurse, a paramedic, or other type of health-care provider, depending on the situation. Managed care systems try to resolve as many health problems as possible at this level.

Prior Authorization (refers to health insurance) — This is a managed care procedure to control plan members’ use of health care services through review and pre–approval. See also preauthorization.

Pro Rata — Dividing the premium proportionately between the insured person and the insurance company based on how long the insurance policy was in force.

Producer — A term applied to an agent, solicitor, or other person who sells insurance.

Progressive Rates (refers to health insurance) — A method health plans use to implement new monthly, quarterly or semi-annual rates. New or renewing subscribers, or groups with anniversaries falling within such periods, are automatically subject to prevailing rates in effect during those periods. Insurers generally guarantee these rates for the full 12-month benefit year.

Promulgate —  To develop, publish and put into effect insurance rates or forms.

Proof of Loss — A formal statement made by the insured person to the insurance company about a loss. The purpose is to provide the company with sufficient information about the loss to help it decide its liability under the policy.

Providers (refers to health insurance) — Institutions and individuals licensed to provide health care services, such as hospitals, doctors, naturopaths, medical health clinicians, pharmacists, etc.

Provisions — Statements contained in an insurance policy which explain the benefits, conditions and other features of the insurance contract.

Quality Assurance (refers to health insurance) — An internal peer review process managed care organizations use to audit the quality of care given by providers. It also involves educating providers on how to prevent and correct errors, and how to improve the quality of care.

Quid Pro Quo — Latin for "this for that," or "one thing for another." In insurance it could refer to the consideration in an insurance contract which calls for the exchange of values by both parties to the contract in order for it to be a valid contract.

RRR

Rating Bands — These limit the difference between the lowest and highest health insurance premium rates companies may charge to a pool of groups or individuals. For example, on individual health insurance contracts, the insurance company’s highest permitted rate for any age group cannot be more than 375 percent of the lowest rate for all age groups.

Rating Bureau — A private organization that classifies and shares rates with consumers. In some cases, a rating bureau may compile data and measure hazards of individual risks in terms of rates for a given territory.

Rebate — When an insurance agent gives a policy owner a part of his or her commission (or something of value) as an incentive to buy insurance. This is illegal.

Reinsurance — A risk management tool for insurance companies. It transfers risk from one insurance company to another. For example, a primary insurance company will agree to insure an airline’s fleet of planes for $10 billion. Through separate reinsurance contracts, the primary insurance company will pay premiums to nine other insurance companies to accept $1 billion of the risk. If a $10 billion loss occurs, each company will pay $1 billion.

Renewal — The reestablishment of the in-force status of a policy, the term of which has expired or will expire unless it is renewed.

Replacement Cost (refers to business and homeowner insurance) — The cost to replace property without deducting depreciation.

Reserves (refers to health, homeowner, and auto insurance) — Funds that an insurance company sets aside to pay claims and claim expenses.

Rescission — Repudiation of a contract. A party whose consent to a contract was induced by fraud, misrepresentation or duress may repudiate it. A contract may also be repudiated for failure to perform a duty.

Return Commission — A commission which is paid back by the agent if a policy is cancelled before its normal expiration date. This situation arises because the commission was based on the full annual premium, and if the policy is cancelled before it is earned, a pro rata portion of the commission must be returned.

Return Premium — A portion of the premium returned to a policy owner as a result of cancellation, rate adjustment, or a calculation that an advance premium was in excess of the actual premium. See also Pro Rate and Short Rate.

Rider — An attachment to a policy that modifies the conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage.

Risk — The chance that a loss will occur.

Risk Sharing (refers to health insurance) — A financial arrangement between a managed care organization and a contracted health care provider to allocate the risk and rewards of providing health care services. Risk sharing motivates the provider to operate more efficiently.

SSS

Schedule (refers to health and homeowner insurance) — For health insurance, it’s a list of specific items a policy covers, such as surgical procedures, therapy, or additional expenses. For property-related insurance, it’s a list of items covered under one policy, such as various buildings, animals, and other property.

Self-insurance (refers to health insurance) — When an employer or organization assumes responsibility for the covered health care expenses of its employees. Usually the employer sets up and contributes money to an account solely to pay claims. Often an independent organization, such as a third-party administrator, processes employee claims and makes claim payments out of the employer’s self-funded plan account.

Shock Loss — A catastrophic loss so large that it has a material effect on the underwriting results of a company.

SHIBA HelpLine (refers to health insurance) — A free counseling service, the Statewide Health Insurance Benefits Advisors (SHIBA) HelpLine uses about 400-trained volunteers to assist health insurance consumers statewide. Volunteers assist consumers with health insurance options, and help them find access to health care and prescription drug programs. The SHIBA HelpLine is a service of the Office of the InsuranceCommissioner and is sponsored by local community-based organizations.

Short Rate Cancellation — A cancellation procedure in which the premium returned to the insured is not in direct proportion to the number of days remaining in the policy period. In effect, the insured has paid more for each day of coverage than if the policy had remained in force for the full term. Contrast with Pro Rata Cancellation.

Short Rate Premium — The premium required for issuing a policy for a period less than its normal term.

Single Payer Plan (refers to health insurance) — A system of health care coverage, financed by taxes that enrolls everyone in a government-run program. For example, Medicare is a single payer plan for people in the U.S. over age 65.

Solicitor — An individual appointed and authorized by an agent to solicit and receive applications for insurance as his representative. Solicitors are not usually given the power to bind coverage but are required to be licensed.

Solvency — With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.

Special Limits (refers to homeowner insurance) — The limitation in a homeowner’s policy about losses for specific items, such as gold and silver bullion, currency, securities, letters of credit, manuscripts, passports, tickets, stamps, boats, trailers, firearms, and silver and goldware. To cover these items, the homeowner must buy additional coverage.

Speculative Risk — Uncertainty as to whether a gain or loss will occur. An example would be a business enterprise where there is a chance that the business will make money or lose it. Speculative risks are not normally insurable. Contrast with Pure Risk.

Split Limit — Any insurance coverage which is expressed in different amounts for different types of losses. For example, automobile liability of 50/100/50 means bodily injury limits of $50,000 per person, $100,000 per accident, and a property damage limit of $50,000 per accident. Contrast with Single Limit.

Staff Model HMO (refers to health insurance) — A group of doctors who provide health care services. They are either staff employees of a professional group practice, which is an integral part of the Health Maintenance Organization (HMO) plan, or they are direct employees of the HMO itself.

Standard Market (refers to auto insurance) — This auto insurance market refers to the average driver who uses family-type cars and has a reasonably good driving record.

Stop Loss — A provision in an insurance policy created to cut off an insurer’s losses at a certain point.

Statutory — Required by or having to do with law or statute.

Sublimit — Any limit of insurance which exists within another limit. For example, special classes of property may be subject to a specified dollar limit per occurrence, even though the policy has a higher overall limit; a health insurance policy may limit certain benefits to fixed dollar amounts or maximum amounts per day, even though the overall coverage limit is higher.

Subrogation — This allows the insurance company to recover the payment it made to the person it insures from the person responsible for the damages or their insurance company.

Surplus Line — Coverage a consumer buys from an unlicensed insurance company because it’s unavailable from an insurance company licensed in the state.

Syndicate — A group of insurers or underwriters who join to insure property that may be of such total value or high hazard that it can be covered more safely or efficiently on a cooperative basis.

Tabular — Of or pertaining to a table. Tabular cost is the cost of mortality, morbidity, or other claims, according to the valuation tables and assumptions used by the insurer.

Tabular Plan — A retrospective rating plan, which uses tables to furnish the various values for the rating formula.

Target Risk — Certain high-value bridges, tunnels, and fine art collections that are excluded from an automatic reinsurance contract to permit specific handling of the capacity problem and to release the reinsurer from the potential heavy accumulation of liability on any one risk.

Term — The period of time that an insurance policy is issued.

Third-Party Administrator (TPA) (health, homeowner, and auto insurance) — For health insurance, it’s a person or company hired by an employer to manage health care claims processing, pay providers, develop and coordinate self-insurance programs, and help locate stop-loss insurance. They also may analyze the effectiveness of the plan and its usage. For homeowner and auto insurance, it’s a person or company hired to investigate and process claims. In either case, the TPA is not the policyholder or the insurer.

Tickler — A reminder system used to call an individual's attention to actions that must be taken at a future point in time.

Total Loss — A loss of sufficient size so that it can be said there is nothing left of value. The complete destruction of the property. The term is also used to mean a loss requiring the maximum amount a policy will pay.

Transacting Insurance — The solicitation, inducement, and preliminary negotiations effecting a contract of insurance and the subsequent carrying on of business pertaining to it. The exact definition will vary somewhat according to the state laws regulating insurance.

Ultimate Net Loss — The total sum that the insured or any company as its insurer, or both, become legally obligated to pay either through adjudication or compromise, including among others, legal, medical, and investigative costs.

Umpire — For Property coverage, if a company and a claimant fail to agree on the amount of loss, each may appoint an appraiser, and these in turn select an umpire. A decision by any two of the three is binding.

Unallocated Claim (or Loss) Expense — Expenses of loss adjustment that cannot be charged specifically to any claim. Examples would be Claim Department salaries and office overhead.

Underwriter — A person trained to evaluate risks, and determine rates and coverages for insurance companies.

Underwriting Loss — When the cost to pay insurance claims, plus overhead, exceeds premium income.

Unearned Premium — This is the part of an advance insurance premium payment that has not yet been used for coverage written. For example, if an insured person has an annual premium, at the end of the first month of the premium period, 11 months of his or her premium would still be “unearned.”

Uninsured/Underinsured Motorist (UIM) (refers to auto insurance) — This coverage protects an insured driver from losses due to another driver, who doesn’t have auto insurance, or who is not fully covered. Auto insurance companies must offer UIM as part of an auto insurance policy. Consumers who do not want the coverage must sign a waiver.

Unreported Claims — A reserve, based on estimates, to set up claims that have occurred but have not yet been reported to the insurer as of the time when either the policy has expired or the insurer is preparing its annual statement.

Usual, Customary and Reasonable (UCR) (refers to health and auto insurance) — A health provider’s usual charge for a health care service that is consistent with the going rate or charge in a certain geographical area for identical or similar services. Note: For auto insurance, this relates to Personal Injury Protection claims.

Utilization (refers to health insurance) — A numerical measure of use of a single service or type of service, such as hospital care, prescription drugs, or doctor services, by a given population group over a given period of time.

Utilization Review (UR) (refers to health insurance) — A health insurance company’s review to determine if the health care services a provider or facility gives to a member or group of members is necessary and appropriate.

VVV

Valuation — Estimation of the value of an item, usually by appraisal.

Vendee — A person who purchases property.

Vendor — A person who sells property.

Vested Commissions — Commissions on renewal business which are paid to the agent whether or not he or she still works for the insurance company with which the business is placed.

Vis Major — An accident for which no one is responsible, an act of God.

Voidable — A policy contract that can be made void at the option of one or more of the parties to it. An example would be a Property Insurance policy which is voidable by the insurer if the insured commits certain acts.

Voluntary Reserve — An allocation of surplus not required by law. Such reserves are often accumulated by insurers in order to strengthen their financial structure.

Waiver — A rider waiving (excluding) liability for a stated cause of injury or sickness.

Will Ride — Coverage that remains in effect regardless of the geographical location in which a loss occurs.

Waiting Period (refers to disability and health insurance) — For disability insurance, it is a period of time between the start of a disability and the date benefits begin. For health insurance, it is the time a person must wait from the date of their employment until the date their health care coverage starts. This term may also refer to the total time a person must be covered on a health plan before the plan will cover preexisting conditions.

Waiver — A waiver is a rider that excludes liability for a stated cause of an accident or sickness. It can be a provision that agrees to waive the insurance premium payment during a period of disability. It can also mean the company could waive its right to have the insured person examined by a doctor it chooses. An agent, adjuster, or insurance company may give a waiver of rights to the insured person orally or in writing.

Whole Life (refers to life insurance) — A life insurance policy that runs for the whole life of the person covered under the policy until death. Policyholders may pay premiums for a whole life policy for their entire life or for a limited period at a higher premium.

Withhold (refers to health insurance) — The portion of the fee or monthly capitation payment to the health care provider that is held back by the Managed Care Organization (MCO) until it determines the cost of the provider’s total annual referrals for hospital services. A provider who exceeds utilization norms set by the MCO does not receive the withheld amount.

Workers’ Compensation (refers to health insurance) — Most employers in Washington state are required by law to provide workers’ compensation insurance through the state’s Department of Labor and Industries (L&I). Workers’ compensation pays employees’ medical expenses and provides some income replacement when they are injured on the job.

Write — In the insurance industry, this means to insure. It also means to underwrite or to sell insurance policies.

Written Premiums — The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Contrast with Earned Premium.