Glossary

Insurance written in an amount approximating the value of the insured property.

The policyholder, the person(s) protected in case of a loss or claim.

An insurer that sells exclusively via the Internet.

Insurers which join together to provide coverage for a particular type of risk or size of exposure, when there are difficulties in obtaining coverage in the regular market, and which share in the profits and losses associated with the program. JUAs may be set up to provide auto and homeowners insurance and various commercial coverage's, such as medical malpractice. (See ASSIGNED RISK PLANS, RESIDUAL MARKET)

Portion of the policy that pays for injuries to another or damage to someone else’s property for which the policyholder is liable.

Maximum amount of insurance that can be paid for a covered loss.

Type or kind of insurance, such as personal lines.

The ability and speed with which a security can be converted into cash.

A marketplace where underwriting syndicates, or mini-insurers, gather to sell insurance policies and reinsurance. Each syndicate is managed by an underwriter who decides whether or not to accept the risk. The Lloyd’s market is a major player in the international reinsurance market as well as a primary market for marine insurance and large risks. Originally, Lloyd’s was a London coffee house in the 1600s patronized by ship owners who insured each other’s hulls and cargoes. As Lloyd’s developed, wealthy individuals, called “Names,” placed their personal assets behind insurance risks as a business venture. Increasingly since the 1990s, most of the capital comes from corporations.

Corporation formed to market services of a group of underwriters. Does not issue insurance policies or provide insurance protection. Insurance is written by individual underwriters, with each assuming a part of every risk. Has no connection to Lloyd’s of London, and is found primarily in Texas.

The portion of an insurance rate used to cover claims and the costs of adjusting claims. Insurance companies typically determine their rates by estimating their future loss costs and adding a provision for expenses, profit, and contingencies.

A reduction in the quality or value of a property, or a legal liability.

An insured's share of a loss assessment for property damage or liability, which is charged by a corporation or association of property owners. Homeowners policies provide some coverage for loss assessments charged against the insured as owner or tenant of a residence.

Percentage of each premium dollar an insurer spends on claims.

The company’s best estimate of what it will pay for claims, which is periodically readjusted. They represent a liability on the insurer’s balance sheet.

A provision in homeowners and renters insurance policies that reimburses policyholders for any extra living expenses due to having to live elsewhere while their home is being restored following a disaster.

A lender or creditor, typically a bank, who holds the mortgage, and lends money secured by the value of the mortgaged property.

States where insurance companies can set new rates without prior approval, although the state’s commissioner can disallow them if they are not reasonable and adequate or are discriminatory.

The protection of windows and glass doors from flying debris is one of the most basic and effective means of reducing losses in a windstorm. Class A (Hurricane Impact) – All exterior wall and roof openings in buildings (doors, windows, skylights and vents, other than roof ridge, gable, soffit and plumbing vents) must be fully protected with impact resistant coverings (e.g. shutters), impact resistant doors, and/or impact resistant glazing that meet the requirements of one of the following: SSTD12; ASTM E 1886 and ASTM E 1996(Missile Level C – 9 lb); Miami-Dade PA 201, 202, and 203; or Florida Building Code TAS 201, 202 and 203. 1 to 4 unit buildings only - Class B (Basic Impact) - All exterior wall and roof openings in buildings (doors, windows, skylights and vents, other than roof ridge, gable, soffit and plumbing vents) must be fully protected with impact resistant coverings (e.g. shutters), impact resistant doors, and/or impact resistant glazing that meet the requirements of ASTM E 1886 and ASTM E 1996 (Missile Level B – 4.5 lb). Class C (Ordinary Non-Impact) – All glazed openings (windows, skylights, sliding glass doors, doors with windows, etc) must by protected with shutter devices or wood structural panels that have the following characteristics. Corrugated storm panels made of Steel, Aluminum, or Polycarbonated in which individual panels are no wider than 14” and have a nominal profile of 2” of greater. Roll-Up shutters with aluminum slats. Accordion shutters with aluminum slats. Colonial or Bahama shutters with all the following features: Heavy gauge metal frames Extruded aluminum slats that are anchored to both sides of froma, or solid metal backing plate in place behind slats Structural hinges Mechanism to lock shutters closed during a storm Wood Structural Panels – (One of two story buildings) Plywood or OSB (oriented strand board) with a minimum thickness of 7/16 inches and maximum panel span of 8 feet. Panels must be pre-cut to cover the glazed openings with attachment hardware provided. For locations with design wind speed greater than 130 mph, attachments shall be designed to resist component and cladding loads of the FBC. For locations where design wind speed is 130 mph or less, panels must be fastened according to the Florida Building Code Table 1606.1.4.

Coverage for the additional loss caused by the enforcement of laws that regulate building repair or construction.

Generally detached structures, such as a garage or tool shed, sharing property with the insured dwelling.

A single insurance policy that combines several coverage's previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.

The cause of a possible loss; for example, fire, theft, or windstorm.

A written contract for insurance between an insurance company and policyholder stating details of coverage.

The amount of money remaining after an insurer’s liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.

The particular location of the property or a portion of it as designated in an insurance policy.

The amount of money an insurance company charges for insurance coverage. (See DIRECT PREMIUMS; EARNED PREMIUM)

A state tax on premiums paid by its residents and businesses and collected by insurers.

The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.

The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.

Market for new issue securities where the proceeds go directly to the issuer.

Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.

States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.

Documents showing the insurance company that a loss occurred.

Covers damage to or loss of policyholders’ property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.

The Public Protection Classification Service was created to gauge the capacity of the local fire department to respond if flames engulf an insured property. A rating of 1-10 is assigned based on information collected and analyzed using the Fire Suppression Rating Schedule. Class 1 represents the best public protection, and Class 10 indicates no recognized protection.

Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.

The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.

The process by which states monitor insurance companies’ rate changes, done either through prior approval or open competition models. (See OPEN COMPETITION STATES; PRIOR APPROVAL STATES)

Six major credit agencies determine insurers’ financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.

The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.

The amount of money withheld from your original payment for claimed damages recovered from your insurance carrier after a settled claim which can be claimed after proof of repairs and/or replacements are made.

Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid. (see TREATY REINSURANCE, FACULTATIVE REINSURANCE)

A form of insurance that covers a policyholder’s belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.

Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.

The cost to repair or replace an insured item. Some insurance only pays the actual cash or market value of the item at the time of the loss, not what it would cost to fix or replace it. If you have personal property replacement cost coverage, your insurance will pay the full cost to repair an item or buy a new one.

A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers don’t pay policyholder claims. Instead, they reimburse insurers for claims paid.

Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.

The amount of risk retained by an insurance company that is not reinsured.

The reinsurance bought by reinsurers to protect their financial stability.

A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.

An attachment to an insurance policy that alters the policy’s coverage or terms.

The likelihood of a loss.

Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.

The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.

The covering applied to the roof deck for weather resistance, fire classification or appearance Florida Building Code (FBC) Equivalent – Asphalt roof coverings installed in accordance ASTM D 3161 (modified for 110 mph) or Miami Dade County PA 107-95. Non- Florida Building Code (FBC) Equivalent – Asphalt roof shingles not meeting requirements listed above for FBC Equivalent and all other roof covering types. Reinforced Concrete Roof Deck - A roof structure composed of cast-in-place or pre-cast structural concrete designed to be self-supporting and integrally attached to wall/support system.

The material used to construct roof decks, and the methods used to attach the deck to the roof framing members can influence the likelihood of failure in high winds. •Attachment A – Plywood/OSB roof sheathing attached to roof trusses/rafters by 6 penny nails (2” x 0.131” diameter) or greater which are properly spaced at a maximum of 6” along the edge and 12” in the field on 24” truss/rafter spacing. OR Batten decking or Skipped decking (typically used on roof decks supporting wood shakes or wood shingles). OR Any system of screws, nails, adhesives, other roof deck fastening systems or truss/rafter spacing that has an equivalent mean uplift resistance of 55 pounds per square foot or more as evidenced by laboratory uplift tests on & full size sheets of plywood/OSB. •Attachment B – Plywood/OSB roof sheathing with a minimum thickness of 1/2" attached to roof trusses/rafters by 8 penny (2.5” x 0.131” diameter) nails or greater which are properly spaced at a maximum of 6” along the edge and 12” in the field on 24” truss/rafter spacing. OR Any system of screws, nails, adhesives, other roof deck fastening systems, or truss/rafter spacing that has an equivalent mean uplift resistance of 103 pounds per square foot or more as evidenced by laboratory uplift tests on full size sheets of plywood/OSB. •Attachment C – Plywood/OSB roof sheathing with a minimum thickness of 1/2" attached to roof trusses/rafters by 8d nails (2.5” x 0.131” diameter) which are properly spaced at a maximum of 6” along the edge and 6” in the field on 24” truss/rafter spacing. OR Dimensional Lumber or Tongue & Groove deck roof composed of ¾” thick boards with nominal widths of 4” or more. OR Any system of screws, nails, adhesives, other roof deck fastening systems, or truss/rafter spacing that has an equivalent mean uplift resistance of 182 pounds per square foot or more as evidenced by laboratory uplift tests on full size sheets of plywood/OSB.

Hip - Roof having sloping ends and sloping sides down to the eaves line. Gable - The portion of the roof above the eaves line of a double-sloped roof; the end section appears as an inverted V. Flat - A horizontal roof with a pitch less than 10 degrees.

Refers to how the roof framing (i.e. trusses) is anchored to the wall to resist the upward force that strong winds can sometimes exert on the roof. Following are the typical types of connections that will require. Toe-Nail – Rafter/truss anchored to top plate of wall using nails driven at an angle through the rafter/truss and attached to the top plate of the wall. Clips – Metal clips installed on each truss/rafter that attach to the side only of the truss/rafter member and to the wall frame. Metal clip should be free of severe corrosion, have a minimum of 3 nails into the truss/rafter and 3 nails into the wall. Single Wraps – Metal straps installed on each truss/rafter that wrap over the top of the truss/rafter and attach to the wall frame in one location. Metal strap should be free of severe corrosion, have a minimum of 3 nails into the truss/rafter and 3 nails into the wall. Double Wraps – Metal straps installed on each truss/rafter that wrap over the top of the truss/rafter and attach to the wall frame in two locations. Metal strap should be free of severe corrosion, have a minimum of 3 nails into the truss/rafter and 3 nails into the wall at each location.

Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.

A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.

The technique used to protect the interior of the building when the roof cover and underlayment blow off during a storm.

Service Line coverage is an additional coverage which may be added along with equipment breakdown coverage. This coverage provides protection from "service line failures" meaning breaks, leaks, tears, ruptures, collapses, or arching to a wide range of buried lines including: water lines, electrical lines, sewer lines, steam piping, fiber optic lines, drainage lines, ground loop piping, and phone lines. Only offered on homeowners (HO3) policies.

Size of a loss. One of the criteria used in calculating premiums rates.

A special form of earth movement, covered by some homeowner insurance, referring to the sudden collapse or sinking of land into empty, underground spaces eroded by water.

The sinkhole deductible applies to any loss covered by the Sinkhole Loss Coverage endorsement.

An environment where insurance is plentiful and sold at a lower cost, also known as a buyers’ market. (See PROPERTY/CASUALTY INSURANCE CYCLE)

Insurance companies’ ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure. (See SPREAD OF RISK)

The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See ADVERSE SELECTION)

The remainder after an insurer’s liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims.

Property/casualty insurance coverage that isn’t available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.

A form of life insurance that covers the insured person for a certain period of time, the “term” that is specified in the policy. It pays a benefit to a designated beneficiary only when the insured dies within that specified period which can be one, five, 10 or even 20 years. Term life policies are renewable but premiums increase with age.

Insurance that indemnifies the owner of real estate in the event that his or her clear ownership of property is challenged by the discovery of faults in the title.

The condition of an automobile or other property when damage is so extensive that repair costs would exceed the value of the vehicle or property.

A term used to explain the way information on financial matters, such as financial reports and actions of companies or markets, are communicated so that they are easily understood and frank.

A standing agreement between insurers and reinsurers. Under a treaty each party automatically accepts specific percentages of the insurer’s business.

Coverage for losses above the limit of an underlying policy or policies such as homeowners and auto insurance. While it applies to losses over the dollar amount in the underlying policies, terms of coverage are sometimes broader than those of underlying policies.

The result of the policyholder’s failure to buy sufficient insurance. An underinsured policyholder may only receive part of the cost of replacing or repairing damaged items covered in the policy.

The process of selection and classification of risk by the degree of insurability

Property without people occupying or living within it. As opposed to vacant property, unoccupied property may hold furnishings

The malicious and often random destruction or spoilage of another person’s property.

A separate, higher deductible provision that applies to loss caused by wind or hail. Often, the deductible is expressed as a percentage of the value of the property or, in a homeowners policy, as a percentage of the dwelling limit, rather than as a flat dollar amount. In some Atlantic and Gulf coast states, insurers have filed a variation of this deductible hat applies an even higher percentage deductible in the event of loss from a "named storm," such as a hurricane.

This exclusion removes coverage for wind and hail losses.

To insure, underwrite, or accept an application for insurance.

One-year term life insurance that is renewable at the end of the policy term. Also known as annually renewable term (ART) insurance. (See TERM LIFE INSURANCE)