Glossary

A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation. (See REPLACEMENT COST)

An insurance professional skilled in the analysis, evaluation and management of statistical information. Evaluates insurance firm's reserves, determines rates and rating methods, and determines other business and financial risks.

Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.

An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.

Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets. (See ASSETS).

The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders

Selling insurance through groups such as professional and business associations.

Companies that market and sell products via independent agents.

Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.

A contract in which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act upon the occurrence of an uncertain event. Insurance contracts are aleatory because the policy owner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. Contrast with commutative contract.

An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company which does business in states outside its own.

Set amount that is applied to all covered losses other than hurricane losses. The second deductible applies only to hurricane losses. Both deductibles apply to Coverage's A, B, C and D.

Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage and vandalism coverage.

An alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of and independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.

Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance and self-insurance, are also included.

Laws that prohibit companies form working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

A survey to determine a property’s insurable value, or the amount of loss.

Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.

The deliberate setting of a fire.

Property owned, in this case by the insurance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companied from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances and accounts receivable that are more than 90 days past due. (See ADMITTED ASSETS)

Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market. (See RESIDUAL MARKET)

An agreement under which one party – the assignor – transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party – the assignee.

Building Code Effectiveness Grading. The BCEG scale is a Florida statute designed to evaluate a community's building code and the enforcement of that code. All Florida communities are required to adopt the statute and you may receive a credit based on your community's grade. Each community receives a grade of 1-10, with a 1 being the best. Refer to your policy documents for your community's grade. For questions regarding your community's grade, you should contact your community's Building Department.

Provides a snapshot of a company’s financial condition at one point in time. It shows assets, including investments and reinsurance, and liabilities, such as loss reserves to pay claims in the future, as of a certain date. It also states a company’s equity, known as policyholder surplus. Changes in that surplus are one indicator of an insurer’s financial standing.

A company that owns or controls one or more banks. The Federal Reserve has responsibility for regulating and supervising bank holding company activities, such as approving acquisitions and mergers and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the FDIC.

0.01 percent of the yield of a mortgage, bond or note. The smallest measure used.

The person or legal entity the owner of an insurance policy names to receive the policy benefit if the event insured against occurs.

Temporary authorization of coverage issued prior to the actual insurance policy.

Total amount of insurance on an insurer’s books at a particular point in time.

An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate to their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to see variable annuities, which are similar to stock market-based investments.

Insurance for the loss of property due to burglary, robbery or larceny. It is provided in a standard homeowners policy and in a business multiple peril policy.

The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency. A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity, usually because of high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.

A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company. (See EXCLUSIVE AGENT)

Insurers that are created and wholly owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.

Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million.

A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.

Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.

Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.

Catastrophic Ground Cover Collapse offers protection if the insured property experiences all of the following: Geological activity that results in the abrupt collapse of the ground cover A depression in the ground cover clearly visible to the naked eye Structural damage to the building, including the foundation The insured structure being condemned and ordered to be vacated by the governmental agency Structural damage consisting merely of the settling or cracking of a foundation, structure or building does not constitute a loss resulting from a catastrophic ground cover collapse.

Citizens is responsible for paying hurricane and other covered claims to its policyholders. If Citizens funds are depleted after a catastrophic event, resulting in a deficit, assessments are levied according to Florida law. This ability to levy assessments provides Citizens with resources to pay claims after an event. Below is a summary of the Emergency Assessment. A broad base of property and casualty policyholders, including Citizens policyholders, is assessed directly by their insurer at renewal. For each of the 3 Citizens accounts, this assessment may not be more than 10 percent of the policy premium or 10 percent of the remaining deficit, whichever is greater. That means that assessable policyholders could be assessed a maximum of 30 percent of assessable premium if there is a deficit in each of the 3 Citizens accounts. The Emergency Assessment can be spread over multiple years, which could reduce the burden on Florida policyholders.

Citizens is responsible for paying hurricane and other covered claims to its policyholders. If Citizens funds are depleted after a catastrophic event, resulting in a deficit, assessments are levied according to Florida law. This ability to levy assessments provides Citizens with resources to pay claims after an event. Below is a summary of the Regular Assessment. A broad base of licensed Florida property and casualty insurance companies, including property and automobile insurers are assessed if a deficit remains. These companies are required to remit their share of the Regular Assessment to Citizens within 30 days of the levy and are permitted to recoup this amount by passing it on their policyholders at renewal. Insureds who purchase coverage from surplus lines insurers are also subject to the regular assessment. This assessment can be up to 6 percent per account of assessable premium. That means that assessable insurers, and thus their policyholders, could be assessed a maximum of 18 percent of assessable premium if there is a deficit in all 3 of Citizens' accounts. This assessment is a one-time assessment. Citizens policyholders are not charged this assessment. If the Citizens Policyholder Surcharge and the Regular Assessment do not cure a deficit for any account, the Emergency Assessment is levied.

Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.

Synonym for insurance.

The dwelling on the "residence premises" shown in the Declarations, including structures attached to the dwelling; and Materials and supplies located on or next to the "residence premises" used to construct, alter or repair the dwelling or other structures on the "residence premises." This coverage does not apply to land, including land on which the dwelling is located.

Other structures on the "residence premises" set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection. This coverage does not apply to land, including land on which the other structures are located.

Personal property owned or used by an "insured" while it is anywhere in the world. By will cover personal property owned by: Others while the property is on the part of the "residence premises" occupied by an "insured"; A guest or a "residence employee," while the property is in any residence occupied by an "insured."

Coverage D or Loss of Use pays out in the event that you are unable to live in your primary home due to a covered loss.

Medical Payments for a set amount of time payable towards injuries sustained by someone that is not the insured or regular resident of the property.

Term referring to property coverages for the perils of burglary, theft and robbery.

The first part of the contract, and contains information derived from the insurance application, which provides the information for rating risk. All declarations contain the name of the insured, the insurer, and the property or activity to be insured, the period covered, the policy number, and the amount of the premium. Property insurance also lists the location of the property, and the size of deductible.

The amount of loss paid by the policyholder. Either a specified dollar amount, a percentage of the claim amount, or a specified amount of time that must elapse before benefits are paid. The bigger the deductible, the lower the premium charged for the same coverage.

Property/casualty premiums collected by the insurer from policyholders, before reinsurance premiums are deducted. Insurers share some direct premiums and the risk involved with their reinsurers.

Insurance companies that sell directly to the public using exclusive agents or their own employees, through the mail, by telephone or via the Internet. Large insurers, whether predominately direct writers or agency companies, are increasingly using many different channels to sell insurance. In reinsurance, denotes reinsurers that deal directly with the insurance companies they reinsure without using a broker.

Term used by a state to refer to any company incorporated there.

The portion of premium that applies to the expired part of the policy period. Insurance premiums are payable in advance but the insurance company does not fully earn them until the policy period expires.

This is the amount your loss must exceed in order for your policy to begin paying for earthquake-related losses.

Established in 1993 by the Florida Legislature, the trust fund is funded by surcharges on certain insurance policies and the money is used to fund emergency management activities at both the state and local level. Each of Florida's 67 counties receives an equal share annually from these funds.

Amendment to the policy used to add or delete coverage. Sometimes referred to as a Floater or Rider.

Equipment Breakdown coverage is additional coverage available to policyholders which protects against an accidental direct physical loss to “covered property” located at the “residence premises” which is caused by an “equipment breakdown” to items such as; household appliances, computer equipment, electrical panel, pool equipment, solar electric systems, personal electronics, water heater, security systems, and more.

In investments, the ownership interest of shareholders. In a corporation, stocks as opposed to bonds.

A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.

Property/casualty coverage that isn’t available from insurers licensed by the state (called admitted insurers) and must be purchased from a non admitted carrier.

A provision in an insurance policy that eliminates coverage for certain risks, people, property classes, or locations.

A captive agent, or a person who represents only one insurance company and is restricted by agreement from submitting business to any other company unless it is first rejected by the agent’s company. (See CAPTIVE AGENT)

Percentage of each premium dollar that goes to insurers’ expenses including overhead, marketing and commissions.

Record of losses.

Possibility of loss.

An endorsement added to an insurance policy, or clause within a policy, that provides additional coverage for risks other than those in a basic policy.

A reinsurance policy that provides an insurer with coverage for specific individual risks that are unusual or so large that they aren’t covered in the insurance company’s reinsurance treaties. This can include policies for jumbo jets or oil rigs. Reinsurers have no obligation to take on facultative reinsurance, but can assess each risk individually. By contrast, under treaty reinsurance, the reinsurer agrees to assume a certain percentage of entire classes of business, such as various kinds of auto, up to preset limits.

Insurance pools that sell property insurance to people who can’t buy it in the voluntary market because of high risk over which they may have no control. FAIR Plans, which exist in 28 states and the District of Columbia, insure fire, vandalism, riot and windstorm losses, and some sell homeowners insurance which includes liability. Plans vary by state, but all require property insurers licensed in a state to participate in the pool and share in the profits and losses. (See RESIDUAL MARKET)

Seven member board that supervises the banking system by issuing regulations controlling bank holding companies and federal laws over the banking industry. It also controls and oversees the U.S. monetary system and credit supply.

Coverage protecting property against losses caused by a fire or lightning that is usually included in homeowners or commercial multiple peril policies.

A wall designed to contain or seal off fires in a building.

Coverage for the policyholder’s own property or person. In no-fault auto insurance it pays for the cost of injuries. In no-fault states with the broadest coverage, the personal injury protection (PIP) part of the policy pays for medical care, lost income, funeral expenses and, where the injured person is not able to provide services such as child care, for substitute services.

Attached to a homeowners policy, a floater insures movable property, covering losses wherever they may occur. Among the items often insured with a floater are expensive jewelry, musical instruments and furs. It provides broader coverage than a regular homeowners policy for these items

Coverage for flood damage is available from the federal government under the National Flood Insurance Program but is sold by licensed insurance agents. Flood coverage is excluded under homeowners policies and many commercial property policies. However, flood damage is covered under the comprehensive portion of an auto insurance policy. (See ADVERSE SELECTION)

The FBC provides premium credits for dwellings built with hurricane damage resistant construction methods. (See ROOF COVERING.)

Structured as a tax exempt state trust fund under the direction of the State Board of Administration. A nine member advisory council provides the SBA with information and advice.

Establishes and maintains a service-oriented operation for processing covered claims of insolvent members.

Intentional lying or concealment by policyholders to obtain payment of an insurance claim that would otherwise not be paid, or lying or misrepresentation by the insurance company managers, employees, agents and brokers for financial gain.

Number of times a loss occurs. One of the criteria used in calculating premium rates.

Agreement to buy a security for a set price at a certain date. Futures contracts usually involve commodities, indexes or financial futures.

Homeowners policy that pays the full cost of replacing or repairing a damaged or destroyed home, even if it is above the policy limit. (See EXTENDED COVERAGE)

HO-3 (aka Homeowners 3, Special Form) is the most commonly purchased policy, which is an open perils policy that covers any direct damage to the house or other structures on the property unless it is specifically excluded. However the coverage for personal property is for named perils only—the same perils listed in an HO-2 policy. Covered losses on realty are insured for full replacement value with no depreciation deduction, although certain restrictions apply.

The HO-4 (aka Contents Broad Form) is a modified HO-2 policy for renters of rooms, apartments, or houses. This named-perils policy not only covers personal property, both within the rented dwelling and outside, but also includes liability insurance of at least $100,000 for damage to the property or for injuries to other people in the rented dwelling. Coverage is also provided for any alterations to the structure by the renter, but is limited to 10% of the purchased coverage for personal property.

The HO-6 (aka Unit-Owners Form) is a modified HO-2 policy specifically designed for owners of condominiums or cooperatives. A condominium or cooperative consists of 2 components for insurance purposes—the building and common areas, and property specific to each unit owner. Thus, this named-perils policy covers certain semi-permanent structures, such as carpeting, wallpaper, built-in appliances, and kitchen cabinets, but it does not cover the structure itself or common areas, since this should be covered by insurance purchased by the condominium association or the cooperative. The policy does provide payment for a loss assessment charge by the condominium association or cooperative that is not covered by the insurance on the realty.

A seller’s market in which insurance is expensive and in short supply. (See PROPERTY/CASUALTY INSURANCE CYCLE)

The typical homeowners insurance policy covers the house, the garage and other structures on the property, as well as personal possessions inside the house such as furniture, appliances and clothing, against a wide variety of perils including windstorms, fire and theft. The extent of the perils covered depends on the type of policy. An all-risk policy offers the broadest coverage. This covers all perils except those specifically excluded in the policy. Homeowners insurance also covers additional living expenses. Known as Loss of Use, this provision in the policy reimburses the policyholder for the extra cost of living elsewhere while the house is being restored after a disaster. The liability portion of the policy covers the homeowner for accidental injuries caused to third parties and/or their property, such as a guest slipping and falling down improperly maintained stairs. Coverage for flood and earthquake damage is excluded and must be purchased separately.

Equal to 365 days of insured coverage for a single dwelling. It is the standard measurement for homeowners insurance.

A percentage or dollar amount added to a homeowner’s insurance policy to limit an insurer’s exposure to loss from a hurricane. Higher deductibles are instituted in higher risk areas, such as coastal regions. Specific details, such as the intensity of the storm for the deductible to be triggered and the extent of the high risk area, vary from insurer to insurer and state to state.

The date on which a policy begins.

Losses that are not filed with the insurer or reinsurer until years after the policy is sold. Some liability claims may be filed long after the event that caused the injury to occur. Asbestos-related diseases, for example, do not show up until decades after the exposure. IBNR also refers to estimates made about claims already reported but where the full extent of the injury is not yet known, such as a workers compensation claim where the degree to which work-related injuries prevents a worker from earning what he or she earned before the injury unfolds over time. Insurance companies regularly adjust reserves for such losses as new information becomes available.

Losses occurring within a fixed period, whether or not adjusted or paid during the same period.

Agent who is self-employed, is paid on commission, and represents several insurance companies. (See CAPTIVE AGENT)

Insurer’s inability to pay debts. Insurance insolvency standards and the regulatory actions taken vary from state to state. When regulators deem an insurance company is in danger of becoming insolvent, they can take one of three actions: place a company in conservatorship or rehabilitation if the company can be saved or liquidation if salvage is deemed impossible. The difference between the first two options is one of degree – regulators guide companies in conservatorship but direct those in rehabilitation. Typically the first sign of problems is inability to pass the financial tests regulators administer as a routine procedure. (See LIQUIDITY; RISK-BASED CAPITAL)

Risks for which it is relatively easy to get insurance and that meet certain criteria. These include being definable, accidental in nature, and part of a group of similar risks large enough to make losses predictable. The insurance company also must be able to come up with a reasonable price for the insurance.

A system to make large financial losses more affordable by pooling the risks of many individuals and business entities and transferring them to an insurance company or other large group in return for a premium.

A group of insurance companies that pool assets, enabling them to provide an amount of insurance substantially more than can be provided by individual companies to ensure large risks such as nuclear power stations. Pools may be formed voluntarily or mandated by the state to cover risks that can’t obtain coverage in the voluntary market such as coastal properties subject to hurricanes. (See FAIR ACCESS TO INSURANCE REQUIREMENTS PLANS/FAIR PLANS; JOINT UNDERWRITING ASSOCIATION/JUA

Uses financial ratios to measure insurers’ financial strength. Developed by the National Association of Insurance Commissioners. Each individual state insurance department chooses how to use IRIS.

Insurance scores are confidential rankings based on credit information. This includes whether the consumer has made timely payments on loans, the number of open credit card accounts and whether a bankruptcy filing has been made. An insurance score is a measure of how well consumers manage their financial affairs, not of their financial assets. It does not include information about income or race. Studies have shown that people who manage their money well tend also to manage their most important asset, their home, well. And people who manage their money responsibly also tend to handle driving a car responsibly. Some insurance companies use insurance scores as an insurance underwriting and rating tool.