-------- A --------

Aggregate Limit - Usually refers to liability insurance and indicates the amount of coverage that the insured has under the policy for a specific period of time, usually the policy period, regardless of how many separate accidents may occur.

All Other Allied Lines - Allied lines' perils other than extended coverage, vandalism and malicious mischief and sprinkler leakage.

All Risk Policy - An outdated term for "special form" coverage. (See: Special Form.)

Allied Lines - Forms of insurance allied with property insurance, covering such perils as sprinkler leakage, water damage and earthquakes.

American Agency System - A distribution system for insurance in which local agents are independent retailers representing several different insurers.

Americans with Disabilities Act (ADA) - The ADA is a statute designed to protect individuals with physical and mental disabilities. It concerns employment, government services, public accommodations and telecommunications. ADA applies to employers with 15 or more employees.

Amount of Insurance - The maximum dollar amount payable by the carrier under the conditions of the policy. In effect, amount of insurance is synonymous with “limits of liability.”

Annualization - A rating procedure whereby annual installments for deferred premium payment plan policies are determined by the rates in effect at the time the installment is due.

Appurtenant Structures - A structure pertaining or belonging to the insured structure, such as a tool shed. Appurtenant structures are covered in the homeowners policy and other dwelling forms.

Assigned Risk - A risk which is not ordinarily acceptable to insurers and which is, therefore, assigned to insurers participating in an assigned risk pool or plan. Each participating company agrees to accept its share of these risks.

Audit - A verification or determination of actual exposures, classes, locations, experience mods, named insured's, etc., for the purpose of computing actual premiums. An interim audit is an audit that occurs prior to the termination of the policy period. A final audit would occur after the end of the policy period.

Automatic Reinstatement - A clause providing for automatic reinstatement of the full value of the policy after payment of a loss.

Automobile Liability Insurance - Protection against loss arising out of the insured's legal liability when his/her car injures others or damages their property.

Automobile Physical Damage Insurance - Coverage for damages or loss to automobile of policyholder resulting from collision, fire, theft and other perils.

-------- B --------

Basic Form - For commercial property policies written under the basic form, covered causes of loss include the following: fire, lightning, explosion, windstorm or hail, smoke, aircraft or vehicles, riot or civil commotion, vandalism, sprinkler leakage, sinkhole collapse and volcanic action.

Basic Limits Coverage - The lowest liability limits of coverage ordinarily written; basic limits are those for which manual rates and minimum premiums are computed.

Bilateral Discovery - When an insurer allows the insured the option of purchasing an extended reporting period when the insurer cancels or when the insured cancels. A bilateral discovery does not exist when the insurer only allows the insured to purchase an ERP when the insurer cancels.

Blanket Average Rate - Rate established for blanket coverage. It is computed by multiplying the rate for each risk location by the value of that location declared by the insured, and then dividing the sum of the results by the total value. (See: Statement of Values).

Blanket Coverage - Coverage under a single amount of insurance for two or more properties or exposures; i.e., a single amount of insurance applies to two or more building risks, or a building and contents of one or more building risks.

Blanket Rated Risks - Those risks for which blanket coverage is provided. A single rate is calculated based on a statement of values, or by use of the highest rate applicable to any individual item.

Bodily Injury - Typically means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.

Boiler and Machinery Insurance (B&M) - Insurance against the sudden and accidental breakdown or explosion of boilers, machinery, electrical equipment and other pressure vessels. Now called "equipment breakdown."

Bond - An evidence of debt issued by corporations, municipalities and the federal government. Bonds represent the borrowing of money by a corporation or government. It is a legal obligation of the issuing company or government to repay principal in accordance with the terms and conditions of the bond.

Builder's Risk - A property form providing coverage for causes of loss specified in the insurance contract while a building is in the course of construction.

Burglary - Breaking and entering into the premises of another with felonious intent and with visible signs of forced entry.

Burglary and Theft Insurance - Protection for loss of property due to burglary, robbery or larceny.

Business Income Coverage - A time element coverage that pays for loss of earnings and for continuing expenses when operations are curtailed or suspended because of property damage due to a covered cause of loss.

Business Interruption Insurance - Covers fixed expenses and the loss of profit in the event physical property is damaged by a named peril; requires that the business be shut down in whole or in part as a direct result of the named peril.

Business Owners Policy (BOP) - Provides broad property and liability coverage in a single contract and is designed for small business.

-------- C --------

Cancellation - The termination of a policy before its normal expiration date. Cancellation may be flat, pro rata or short rate.

Cancellation (Flat) - Cancellation as of the inception date of the policy, with a return of all premiums received.

Cancellation (Pro Rata) - Cancellation whereby the premium returned to the insured is directly proportional to the unexpired portion of the policy period.

Cancellation (Short Rate) - Cancellation whereby the premium returned to the insured is calculated using the short rate factor in lieu of the pro rata factor. This factor will result in a lesser return premium serving as a penalty for mid-term cancellation of coverage — usually as a result of the insured changing insurance carriers.

Cash Flow Underwriting - Willingness to lose money on the underwriting side, which will be made up on the investment side.

Casualty Insurance - Insurance concerned primarily with the insured's legal liability for injuries to others or for damage to other person’s property.

Catastrophe - An incident or series of related incidents involving a substantial loss to property or persons.

Causes of Loss - The forces or circumstances (such as fire, theft, collision) that produce physical loss or damage. Covered causes of loss in commercial property policies are defined by one of four causes of loss forms: Basic and Broad (both involve named perils forms that list specific causes of loss); Special, formerly known as “all risk”, and applies to risks of direct physical loss other than those specifically excluded; and, Earthquake, includes only earthquake and volcanic eruption as covered causes of loss. In simplified language commercial property policies, the term “causes of loss” has replaced the older term “perils.”.

Cede - To buy or effect reinsurance. The transfer of all or a part of one insurer's liability to a reinsurer in consideration of payment of a premium.

Certificate of Insurance - A statement of coverage issued to an individual covered under an insurance contract, which outlines the insurance benefits and principal provisions applicable to the coverages indicated.

Chartered Property and Casualty Underwriter (CPCU) - A professional designation granted by the American Institute of Property and Liability Underwriters upon successful completion of a series of examinations.

Claims Made Coverage Form - Liability coverage that protects the insured only against claims made during the policy period and refers to occurrences taking place during the policy period. A retroactive date (date of entry into claims made program) is established as the earliest possible date of coverage for occurrences. Occurrences taking place prior to this date are excluded from claims made coverage.

Claims Made Coverage Tail - The claims made coverage tail is often referred to as an “extended reporting period.” It is a period of time after a policy expires in which a claim can be reported. The loss must take place after the retroactive date and before the end of the policy period. The claims made coverage tail DOES NOT extend the policy period.

Class Rate - A property rate that applies to all risks in a given category or classification. Not to be used when specific rates apply.

Classification - Various classes of risks are formulated and recognized by rate-making bodies for the purpose of establishing rates. The Commercial Statistical Plan (CSP) provides classification codes to categorize risks with similar exposures and loss experience for the purpose of rating.

Coinsurance - A property insurance provision under which the insured, for a reduced rate, agrees to carry a limit of insurance expressed as a percentage of the value of the property (commonly 80% of the value). The coinsurance provision stipulates that the insured will recover no more than the following if the limit of insurance is not adequate: The limit carried divided by the amount of insurance required (the value of the property on the date of loss multiplied by the coinsurance percentage) times the amount of the claim, less the deductible.

Commercial Multiple Peril Policy - A combination policy providing several different coverages. Usually refers to a policy providing both general liability and property insurance. (See: Multiple Line Contract.) Also called "package" or "CMP."

Common Carrier - An individual or corporation that offers its services to the public for the carrying of persons or property from one place to another for payment.

Composite Rating - A method of computing a single special rate using an exposure base that is different from the manual or “usual” exposure base for the class. A single rate is computed based on an exposure base specially selected for convenience (e.g., sales or payroll), and which serves as a representative substitute for the “true” exposure base of the risk. The exposure base chosen for rating, therefore, reasonably reflects variations in insurable hazards for the coverages provided. Composite rating allows for ease in handling and a lessening of administrative costs for the insured. Specific composite rate filing rules must be followed.

Consequential Loss - A loss not directly caused by a peril insured against, such as spoilage of frozen foods caused by fire damage to the refrigeration equipment. Often referred to as “indirect loss.”

Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) - Legislation providing for a continuation of group health care benefits under the group plan for a period of time when benefits would otherwise terminate. Coverage may be continued for up to 36 months in cases such as loss of dependent eligibility because of death of the enrolled person, divorce or attainment of the limiting age.

Construction Classes - A factor that affects property rates. Construction refers to the types of materials with which the building is made. There are six construction classes: frame, joisted masonry, non-combustible, masonry non-combustible, modified fire resistive and fire resistive.

Contents Risk - Individuals and businesses seeking financial protection against the direct loss of or damage to real, personal and/or business property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.

Contract Carrier - A transportation company that carries the goods of only certain customers and not the public in general, as in the case of a common carrier. Example: Trucking companies.

Contractual Liability - Specific coverage assumed under a written contract or agreement over and above the liability imposed by law and provided by the basic liability policy. Example: A builder or contractor may be required to assume responsibility for all liability of a municipality before being allowed to use city streets, sidewalks, or other public property or facilities in connection with his/her operations. Thus he/she assumes additional responsibility and therefore must contract additional coverage by means of contractual liability form.

Coverage Part - Comprises the declarations, forms and endorsements used for each commercial line.

-------- D --------

Declarations Page - The 'Dec page' or that part of the property or liability policy that includes the name and address of the insured, the property insured, its location and description, the policy period, the amount of coverage, applicable premium and supplemental information provided by the insured.

Deductible - An amount that a policyholder agrees to pay, per claim or per accident or per time period, toward the total amount of the insured loss.

Defense Outside Limits of Liability - Costs for defending a claim are paid in addition to the limits of liability.

Defense Within Limits of Liability - Costs for defending a claim reduce the limits of liability.

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

Difference in Conditions (DIC) - A contract that expands or supplements insurance on property written on a named peril basis so as to cover additional perils, subject to agreed upon exclusions. Often covers earthquake & flood.

Direct Writer - An insurer that sells its policies through salaried employees.

Directors and Officers (D&O) Liability Insurance - Insures corporate directors and officers against claims, most often brought by stockholders and employees, alleging financial loss arising from mismanagement. The policies contain two coverages: the first reimburses the insured organization when it is legally obligated (typically by corporate charter or state statute) to indemnify corporate directors and officers for their acts; the second provides direct coverage to directors and officers when the organization is not legally obligated to indemnify them. D&O forms are written on a claims-made basis, generally contain no explicit duty to defend the insureds, and typically exclude intentional/dishonest acts, bodily injury and property damage.

Discrimination - Unfair treatment of or denial of rights to persons on the basis of certain arbitrarily chosen attributes or characteristics, such as race, sex, religion or nationality.

Dividend - A return of part of the premium on participating insurance to reflect the difference between the premium charged and the combination of actual mortality, expense and investment experience. Such premiums are calculated to provide some margin over the anticipated cost of the insurance protection.

Dun and Bradstreet, Inc. (D&B) - A corporation that furnishes financial reports, reports which often assist in the underwriting of prospective policyholders.

Duty to Defend - Provision of a liability policy that gives the insurer the right and duty to defend claims against an insured. This right gives the insurer control over the choice of counsel used to defend the claims.

-------- E --------

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

Electronic Data Processing Coverage (EDP) - Specialized type of insurance designed to cover risks associated with computer equipment, data systems, information storage media and expenses or income loss related to EDP losses.

Employee Retirement Income Securities Act of 1974 (ERISA) - This act prescribes federal standards for funding, participation, vesting, termination, disclosure, fiduciary responsibility and tax treatment of private pension plans.

Employers Liability Coverage - A section of the Workers’ Compensation policy (part two of the policy) that provides coverage against the common law liability of an employer for injuries to employees, as distinguished from the liability imposed by a Workers’ Compensation law (part one of the policy).

Employment Practices Liability - A form of liability insurance covering wrongful acts arising from the employment process. The most frequent types of claims alleged under such policies include wrongful termination, discrimination and sexual harassment.

Endorsement - Any written change to a policy that cites certain terms and that, when attached to the original policy, becomes a legal part of that policy. (See: Mid-Term Endorsement).

Endorsement Premium - The change in premium that results from an endorsement. Such a change may be either a “return premium” or an “additional premium.”

Environmental Impairment Liability - Insurance coverage to pay claims arising out of negligent acts, errors or omissions of an insured, resulting in third party bodily injury or in property damages for losses caused by sudden and accidental or gradual pollution/contamination.

Equal Employment Opportunity Commission (EEOC) - The EEOC administers various federal anti-discrimination laws. The federal agency is empowered to receive, process and investigate charges of discrimination.

Equipment Breakdown - insurance against the sudden and accidental breakdown or explosion of boilers, machinery, electrical equipment and other pressure vessels.

Errors and Omissions (E&O) Insurance - An insurance form that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such policies are designed to cover financial losses rather than liability for bodily injury or property damage.

Excess Insurance Policy - A policy that (a) provides limits of liability over and above those of specified underlying primary policies, but which relies on the insuring agreements and conditions of such underlying policies as to definitions of coverage; or (b) provides limits of liability in excess of a self-insured retention (SIR) for agreed upon exposure.

Excess Limits Coverage - Coverage for damages over and above the basic limits. Increased limits factors are applied to the basic rate in order to determine the charge for this insurance. Excess limits coverage is often referred to as “increased limits coverage.”

Exclusion - An insurance policy provision that denies coverage for certain perils, persons, property or locations.

Exemplary Damages - Damages in excess of that amount needed to compensate for the plaintiff's injury, awarded in order to punish the defendant for malicious or wanton conduct; also called "punitive damages."

Expense Ratio - The cost of acquiring, writing and servicing business as a percentage of written premiums. The ratio is calculated as follows: Expense Ratio = Underwriting Expenses Incurred/Written Premiums.

Experience Rating - The process of charging premiums for certain types of coverages based in whole or in part on prior claims experience.

Expiration Date - The date indicated in an insurance policy as its termination date.

Exposure - Being at risk of loss because of some hazard or contingency. Also used as a measure of the rating units or the premium base of a risk. A condition that creates or increases the chance of loss.

Extended Coverage (EC) - A group of named perils originally offered as a package in property insurance policies including windstorm, hail, explosion, riot and civil commotion, aircraft, vehicles and smoke. These causes of loss are now included in both the Basic and the Broad Cause of Loss Form of the commercial property policy.

Extended Reporting Period - A period of time after a policy expires in which a claim can be reported. The loss must take place after the retroactive date and before the end of the policy period. The extended reporting period DOES NOT extend the policy period. (See: Claims Made Coverage Tail.)

Extra Expense Insurance - A form of time element insurance that provides reimbursement to the insured for the extra expense reasonably incurred to continue the operation of a business when the property has been damaged by a cause of loss covered by the policy. This insurance normally is used by businesses where continuity of operation—regardless of cost—is a necessity. For example, banks, hospitals or other businesses providing necessary services.

-------- F --------

Factory Mutual - A mutual insurer specializing in large property risks, with special emphasis on loss prevention.

Facultative Reinsurance - A form of reinsurance whereby each exposure a company wishes to cede to the reinsurer is contained in a single transaction. The ceding company negotiates an individual reinsurance agreement for every policy it will reinsure; however the reinsurer is not obligated to accept every or even any submission. (See: Treaty Reinsurance.)

Fair Labor Standards Act (FLSA) - Provides for minimum wages, regulates hours worked, overtime pay and equal pay for equal work.

FAIR Plans (Fair Access to Insurance Requirements) - A pooling plan reinsured by the United States government that makes insurance available to those who cannot obtain insurance through normal channels. Coverages for fire and allied perils are available.

Fidelity - A crime coverage that reimburses an employer under agreed terms and conditions for losses caused by dishonest or fraudulent acts of employees.

Financial Responsibility Laws (FR Laws) - Laws that serve to encourage all motorists to purchase liability coverage. FR laws allow the individual to register and operate a motor vehicle without his/her having to provide evidence of financial responsibility until after he/she has become involved in an accident causing specific injury or damage. Any motorist who already has insurance in an amount equal to or greater than the limits required by law at the time of an accident has satisfied the law.

First Party Insurance - Type of insurance policy under which an insured (the first party) is paid by his or her insurer (the second party) in the event of an accident, injury or loss whether caused by itself or someone else (the third party). Property insurance is an example of first party insurance, since the policy between the insurer and insured will pay the insured in the event of loss or damage to the insured's property.

Fleet Rating - A method of rating in automobile insurance when coverage is provided for a number of vehicles (five or more) for the same insured owners.

Frequency - Represents the number of insurance claims made in a time period.

-------- G --------

Garage Liability - Insurance covering the legal liability of automobile dealers, garages, vehicle repair shops and fuel/service stations for claims of bodily injury and property damage arising out of business operations. Damage to customers' vehicles is excluded from this coverage; however, garage keeper coverage can be written as a part of the garage policy to cover that exposure.

Garage Keeper Insurance - An insurance contract that protects a garage keeper against liability for damage to vehicles in his care, custody or control caused by specified perils.

General Agent - An individual appointed by a Life, Health, or Property and Casualty insurer to administer its business in a given territory.

General Liability - A form of insurance designed to protect owners and operators of businesses from liability exposures. These exposures may include liability arising out of accidents resulting from the premises or the operations of an insured, operations completed by the insured and contractual liability.

General Liability - Coverage for bodily injury or property damage losses for which the insured is legally liable as a result of negligence.

-------- H --------

Hazard – Any condition that creates or increases the chances of a loss arising from a peril. Examples of hazards include slippery floors, congested traffic, unguarded premises and uninspected boilers.

Highly Protected Risk (HPR) - Property that is judged to be subject to a much lower than normal probability of loss by virtue of low hazard occupancy or property type, superior construction, special fire protection equipment and procedures, and management commitment to loss prevention. Insurers that specialize in insuring HPR property are referred to as "HPR insurers."

-------- I --------

Increased Limits Factor - The factor used for increasing the rate when increased limits are purchased by the insured. The basic limits rate is multiplied by an increased limits factor.

Incurred but not Reported (IBNR) - The insurance company will establish a loss reserve for claims that have occurred but have not yet been reported to the company. (See: Loss Reserve).

Incurred Losses - Amount of money paid out for claims, and monies in reserve for known outstanding losses and incurred but not reported losses (IBNR).

Indemnity Loss - The amount payable by the carrier to the insured, or to some third party on behalf of the insured, for reimbursement of actual damages sustained. Such losses, therefore, do not include adjustment expenses.

Indication - An indication is not a firm quote. It infers what a firm quote could be if more information is obtained.

Injunctive Relief - Nonmonetary compensation for a loss, such as vacating certain premises or refraining from a specific act. Liability insurance policies typically exclude coverage for injunctive relief because it is often impossible for an insurer to compel either an insured or a third party to act or refrain from acting in a certain manner. Also referred to as “nonpecuniary relief.”

Inland Marine Insurance - A broad type of insurance covering articles in transit by use of all forms of land, water and air transportation as well as bridges and tunnels. It includes goods in transit (generally excepting trans-ocean) as well as "floater" policies such as those covering personal property, jewelry, furs and fine arts.

Installment Premium - A fraction of the total premium, based on the method of payment.

Insurable Interest - Any interest a person has in a possible subject of insurance, such as a business, such that loss or damage of that property could cause a financial loss.

Insurance Department - A governmental bureau in each state or territory charged with the administration of the insurance laws including licensing of agents and insurance companies and regulation and examination of them. In some jurisdictions, a division of some other state department or bureau.

Insurance Services Office (ISO) - An organization that provides data collection, actuarial services, policy design and regulatory filing services to member insurance companies.

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

Insuring Agreement - That part of an insurance policy or bond that states the agreement of the insurer to protect the insured against some form of loss or damage.

-------- J --------

Joint Underwriting Association (JUA) - An unincorporated association of insurance companies formed to provide a particular form of insurance to the members of the public who are unable to secure coverage in the voluntary market.

Judgment Rates - Rates established by the judgment of the underwriter with or without the application of a formal set of rules or a schedule. Also called "A" rates.

-------- K --------

No entries.

-------- L --------

Law of Large Numbers - Insurance principle that assumes that events which seemingly happen by chance actually follow a predictable pattern if enough events are observed. Loss sharing is made possible through this law.

Liability Insurance - Provides protection for the insured against loss on agreed upon terms and conditions arising out of his/her legal liability resulting from injuries to other persons or damage to their property.

Limits of Liability - The maximum amount for which an insurer is liable as set forth in the insurance contract.

Line of Business - A general classification of insurance industry business, e.g., fire, life, health, liability.

Livery Vehicle - An automobile that is used to transport people for a fee, e.g. limousines and taxis.

Lloyd's Groups - Groups of individuals called syndicates (not insurance companies) assuming liability through an underwriter. Each individual personally assumes a proportionate share of the risk accepted by the underwriter. Lloyd's of London is an example.

London Market - Consists of two distinct sources of insurance: Lloyd's of London and the company market. Each source handles about half the insurance business conducted in London. All of Lloyd's activities take place on the Underwriting Floor of the Lloyd's building. Activities for other insurance companies and underwriting agencies may be carried out in offices within and outside the United Kingdom.

Loss - Generally refers to (a) the amount of reduction in the value of an insured's property caused by an insured peril; (b) the amount sought through an insured's claim; or (c) the amount paid on behalf of an insured under an insured contract.

Loss Constant - A flat amount included in the premium for small workers’ compensation policies, for dwelling policies in some jurisdictions, and for some prescribed inland marine insurance lines. The purpose of the loss constant is to offset the greater-than-average loss experience that most small risks have when compared to all other risks in a given classification.

Loss Payable Clause - A provision in insurance contracts that authorizes payment to persons other than the insured, to the extent that they have an insurable interest in the property. This clause may be used when there is a lien or loan on the property being insured, and it protects the lien holder and/or the lender.

Loss Ratio - The ratio of incurred losses to premiums earned by the insurer.

Loss Reserve - An insurer's estimated liability for unpaid insurance claims or losses that will have to be paid in the future. Such reserves refer to (a) claims, or (b) demands or requests for payments that have yet to be made. This last situation refers to IBNR (incurred but not reported) losses. (Also see: Occurrence Coverage Form).

-------- M --------

Managing General Agent (MGA) - The MGA will appoint any number of general agents or individual agents to sell business that they administer.

Manual Premium - That premium based on ISO rates. The ISO monoline manual premium is the premium that would result from the use of ISO rates and rules prior to the application of any rating modifications.

Manual Rate - That rate which appears in ISO manuals. It is the rate that exists prior to the application of any rating plan modifications. Manual rates do not exist for all classes of risks; such 'nonmanual' risks are subject to an 'A' or 'Judgement' rating.

Manufacturers and Contractors Liability (M&C) - A form of premises and operations liability insurance designed to cover manufacturing or contracting risks. Manufacturers and contractors—whose principal liability loss exposure derives from the business’s operations, products or complete operations—commonly purchase a manufacturers and contractors liability (M&C) policy.

Manufacturers' Output Policy (MOP) - A contract that provides coverage for personal property of the manufacturer on an all-risk basis while the property is away from the premises of the insured.

McCarran-Ferguson Act - This law provides that fair trade and antitrust laws would apply to the insurance business only “to the extent that such business is not regulated by state law.” This allowed the individual states to supervise and regulate the insurance business. It is also called Public Law 15.

Medical Payments Insurance - A liability coverage in which the insurer agrees to reimburse the insured and others, without regard for the insured's liability, for medical or funeral expenses incurred as the result of bodily injury or death by accident.

Mid-Term Endorsement - An endorsement whose effective date is subsequent to the policy inception date. (See: Endorsement Definition).

Minimum and Deposit Premium - Amount of premium required to initiate coverage. This amount is the minimum amount of premium the client must pay regardless of changes in conditions. Also called a provisional premium.

Mod Rate: (Also called a “mod”). A workers’ compensation experience modification factor is used to determine a company’s workers’ compensation premium; it is set by a state or independent rating bureau. The formula used to determine a company’s mod rate factors in employee classification, payroll, three-year history of workers’ compensation premiums paid and actual losses claimed, expected losses, and frequency and severity of claims. The company’s experience is then compared to that of others in the same job class code. If losses are lower than expected, a company’s experience mod should be less than 1.00, which would reduce the workers’ comp premium. A company with higher-than-expected losses for its industry will have an experience mod of greater than 1.00, and would be charged additional premium. Mod rates can be pieced apart and analyzed to determine specific types of injuries that contributed to higher rates so that safety programs can be adjusted and implemented.

Monopolistic States - States in which exclusive state funds are the sole writers of Workers’ Compensation insurance. The five states are North Dakota, Ohio, Washington, West Virginia and Wyoming.

Moral Hazard - A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Moral hazard is measured by the character of the insured and the circumstances surrounding the subject of the insurance, especially the extent of potential loss or gain to the insured in case of loss.

Morale Hazard - A term used to describe a subjective hazard that tends to increase the probable frequency or severity of loss due to an insured peril. Morale hazard, as contrasted with moral hazard, does not imply a propensity to cause a loss, but implies a certain indifference to loss simply because of the existence of insurance. For example, an insured's attitude may be indifferent if a loss occurs because he/she has insurance.

Motor Vehicle Report - An abstract of the record of an automobile driver's accidents, license/registration suspensions and reinstatements, and related police citations, convictions and penalties.

Multi-Claim Accident - An accident that involves more than one claimant.

Multiple Line Contract - A policy that combines coverage from different lines of insurance. (See: Commercial Multiple Peril Policy).

Multiple Location Premium and Dispersion Credit Plan (MLPDC Plan) - A rating plan for property coverages that provides credit for dispersal of risk (when several locations are insured in the same policy).

Mutual Insurance Company - An incorporated insurance company whose governing body is elected by policyholders. The policyholders are the shareholders, who share in the success and in the failure of the company.

-------- N --------

Named Insured - Any person, firm or organization (or any of its members), specifically designated by name as insured(s) in an insurance policy, as distinguished from others who, although unnamed, fall within the policy definition of an insured.

Named Perils - A property insurance term referring to policies that provide coverage only for loss caused by the perils specifically listed as covered. It contrasts with special form coverage, which applies to loss from all causes of loss not specifically excluded.

National Association of Insurance Commissioners (NAIC) - The association of state insurance commissioners formed to promote national uniformity in the regulation of insurance.

National Association of Surety Bond Producers (NASBP) – The trade association of professional surety bond producers and brokers, those who specialize in surety bonding performance and payment bonds for the construction industry. NASBP’s mission is to strengthen professionalism, expert innovation and promote surety use worldwide.

National Council on Compensation Insurance (NCCI) - An independent service organization of the insurance industry; it provides a wide range of advisory, rating, actuarial, statistical and other services relating to Workers’ Compensation Insurance.

National Labor Relations Act (NLRA) - Act passed by Congress that forbids any interference by employers with the formation and operation of labor unions.

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

Net Premium - The portion of the premium rate that is designed to cover benefits of the policy but not expenses, contingencies or profit. The term is also used to describe the portion of the premium remitted to the home office by an agent after deduction of the agent's commission.

No-Fault Insurance/Personal Injury Protection (PIP) - A law permitting the individual automobile victim to collect directly from his/her own insurance company for medical and hospital expenses, regardless of who was at fault in the accident. There are many variations in the laws of the states that have no-fault statutes. Most states do allow the individual to sue the negligent party if the amount of damages or injury sustained exceeds a stated limit or severity. (See: Personal Injury Protection).

Non-Admitted Insurance Company - An insurance company not licensed to do business in a certain state. Such insurers can write coverage, however, through an excess & surplus lines broker who is licensed within the jurisdiction.

Nonpecuniary Relief - Nonmonetary compensation for a loss, such as vacating certain premises or refraining from a specific act. Liability insurance policies typically exclude coverage for nonpecuniary relief because it is often impossible for an insurer to compel either an insured or a third party to act or refrain from acting in a certain manner. Also referred to as injunctive relief.

Nonstandard Auto – Automobile insurance policy covering risks that have been rejected or cancelled by a standard markets company due to motorist’s poor driving records or other factors. The premium is much higher than standard auto due to the additional risks.

Nose Coverage - A feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy's retroactive date would preclude coverage with respect to these "prior acts." This coverage is also referred to as "sunrise coverage" and/or "prior acts coverage."

-------- O --------

Occupancy - Refers to the activity or property of the insured, i.e., what the building is used for or the nature of its contents.

Occupational Safety and Health Act (OSHA) - A federal statute that establishes safety and health standards on a nationwide basis.

Occurrence - An event that results in an insured loss. In some lines of insurance, such as liability, it is distinguished from accident in that the occurrence loss does not have to be sudden and fortuitous and can result from continuous or repeated exposure that results in bodily injury or property damage neither expected nor intended by the insured.

Occurrence Coverage Form - Liability insurance written on an “occurrence” basis applies to bodily injury or property damage that occurs during the policy period, regardless of how far into the future such claims are filed or reported.

Ocean Marine - Coverage for seagoing vessels, including liabilities connected with them and their cargoes.

Other Insurance Clause - A provision found in both property and liability insurance policies establishing how loss is to be shared among insurers when more than one policy covers the same loss. Some policies provide no coverage when other insurance is in place, some pay a pro-rata share, and others apply in excess of other policies.

Owners, Landlord and Tenants (OL&T) - A now obsolete liability insurance coverage form (and term) designed for businesses whose liability loss exposure (other than auto and workers’ comp) derives principally from the business premises. This type of risk is now customarily insured under a commercial general liability (CGL) policy.

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Package Policy - A single insurance policy that includes several coverages. For example, a CMP includes both property and liability coverages.

Paid Losses - Loss payments that have been made on a claim at the same time of accounting or reporting.

Panel Counsel Firms - Pre-authorized law firms used for the defense of EPLI and D&O claims.

Peril - A property insurance term referring to a cause of loss; e.g., fire, windstorm, explosion, etc.

Personal Auto Policy - An automobile policy designed to insure private-passenger-type vehicles owned by individuals and families. The policy may be structured to provide a combination of liability, personal injury protection, medical payments, uninsured and underinsured motorists, and physical damage coverages.

Personal Injury - Injury other than bodily injury arising out of false arrest or detention, malicious prosecution, wrongful entry or eviction, libel or slander, or violation of a person's right to privacy.

Personal Injury Protection (PIP)/No Fault Insurance - A type of auto insurance coverage mandated by statute in some jurisdictions. The statutes typically require insurers to provide or offer to provide first-party benefits for medical expenses, loss of income, funeral expenses and similar expenses without regard to fault. Coverages, limits and each party's responsibilities vary from state to state, as provided by law. (See: No-Fault Insurance).

Physical Damage Coverage (PD) - Section III of the Business Auto Policy (BAP) covers the insured's own vehicles when damaged from such perils as fire, collision, hail, etc.

Portable Object (Boiler and Machinery) Insurance – Coverage for specific work-related items that are customarily moved from place to place, thereby making it impossible for the insured to specify that such an object will be operated only at a single location (for ex., a building crane, scaffolding, carpenter saws). A “portable object charge” is based on the individual “limit per accident” applicable for the object.

Premises and Operations Liability - Liability that arises out of the premises maintained by the insured business or out of the actual business operation itself.

Premium - The sum paid for an insurance policy.

Premium Discount Plan - A volume discount applied to premiums that acknowledges the administrative cost savings associated with larger premiums. Mostly used in workers’ compensation insurance, it is available in states where rates are approved and published (insurers in loss-cost states are already free to discount the expense factor of their premium). After experience rating, the premium discount is applied to premiums in excess of $5,000 on a graduated rate increasing with the premium. Premium discount is not available when a retrospective plan applies.

Premium Modification - A general term that refers to the change from the monoline manual premium to that charged by the carrier.

Premium Tax - A tax, imposed by each state, on gross income of insurers doing business in a state.

Prepaid Policy - A policy for which the premium is full term and is due in one lump sum at or near the policy inception date. A contrasting situation occurs with installment payments, deferred premium payments or when the initial premium is provisional.

Primary Insurance Policy - A policy that provides coverage up to limits of liability that underlies those of existing excess insurance policies.

Prior Acts Coverage - A feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy's retroactive date would preclude coverage with respect to these "prior acts." This coverage is also referred to as "sunrise coverage" and/or "nose coverage".

Probable Maximum Loss (PML) - The maximum amount of loss that one would expect under ordinary circumstances.

Product Liability Insurance - The liability for bodily injury or property damage incurred by a merchant or manufacturer as a consequence of some defect in the product sold or manufactured.

Professional Liability Insurance - Coverage designed to protect traditional professionals (e.g., physicians) and quasi-professionals (e.g., real estate brokers) against liability incurred as a result of errors and omissions in performing professional services.

Property Damage - As defined in a general liability policy, physical injury to tangible property including its loss of use.

Property Insurance - Provides financial protection against loss or damage to the insured's property caused by such perils as fire, windstorm, hail, explosion, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke.

Protection and Indemnity Insurance (P&I) - Coverage that provides protection for a ship owner against loss of life, illness or injury to the passengers or crew, plus property damages to the cargo, piers, docks, etc., caused by the insured's negligence.

Protection Classes - The 10 categories used by Insurance Services Office to rank cities and towns according to the availability of water (fire hydrants and water pressure) and the quality of firefighting (training and paid versus volunteer personnel). Protection Class 1 indicates the best available protection; class 10 indicates a rural area without fire hydrants for fire departments. Each location has a specifically assigned protection class.

Proximate Cause - The effective cause of loss or damage; an unbroken chain of cause and effect between the occurrence of an insured peril and damage to property; e.g., fire is the proximate cause of damage done by water used in extinguishing it.

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Quote - Once all necessary information is obtained, the underwriter provides a quote. The quote can be "subject to" additional requests. If any information changes or is inaccurate, the quote can change or be withdrawn.

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Rate - A unit of cost that is multiplied by an exposure base to determine an insurance premium.

Rate Departure Factor - A three-digit factor that reflects the relationship of the company monoline manual premium to the ISO monoline manual premium (SAA monoline manual premium for fidelity). This factor combines with the rating modification factor to provide ISO overall premium modification information.

Reciprocal Exchange - Unincorporated association with each insured insuring the other insureds within the association. Thus, each participant in the pool is both an insurer and an insured.

Reinsurance - A transaction in which one party, the "reinsurer," in consideration of a premium paid, agrees to indemnify another party, the "reinsured," for part or all of the liability the reinsured assumed under an insurance contract. The reinsured may also be referred to as the "ceding company."

Rental Value Insurance - A form of time element insurance that provides indemnity for the loss of rental value when the owner or tenant is deprived of the use of the property because it has been damaged by an insured cause of loss.

Replacement Cost - A valuation provision that pays the cost to replace damaged property without deduction for depreciation.

Reserve - (1) An amount representing actual or potential liabilities kept by an insurer to cover obligations to policyholders. (2) An amount allocated for a special purpose. Note that a reserve is usually a liability and not an extra fund. On occasion a reserve may be an asset, such as a reserve for taxes not yet due. (See: Unearned Premium).

Retroactive Date - A provision, found in many claims-made policies, that eliminates coverage for injuries or damages that occurred prior to a specified date even if the claim(s) is first made during the policy period.

Retrospective Rating - A method of experience rating whereby the final premium for coverage is determined at the end of the policy period and is based on the loss experience of the risk during that period. Minimum and maximum premium limitations are established prior to the policy inception date.

Rider - An attachment to a policy or bond that may add some extra benefit, right or feature to the policy. Sometimes used synonymously with the term endorsement, the term "rider" is especially associated with bonding lines.

Risk - (1) Uncertainty arising from the possible occurrence of given events. (2) The insured or the property to which an insurance policy relates.

Risk and Insurance Management Society (RIMS) - An industry association of risk managers that publishes several periodicals, lobbies, sponsors seminars and conducts an annual conference.

Risk Management - The practice of identifying and analyzing loss exposures other than business risks (e.g., loss by accidental means), and taking steps to minimize the financial impact of those risks.

Robbery - The felonious taking, either by force or by fear of force, of the personal property of another; commonly known as a “hold- up”.

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Salvage - The amount received by an insurer from the sale of property (usually damaged) on which the insurer has paid a total loss to the insured.

Schedule Rating - The schedule rating plan allows credits and debits for various good or bad features of a commercial risk. An example in automobile schedule rating would be allowing credits for driver training classes or fleet maintenance programs. Within established limits, modifications depend on the underwriter.

Self-Insured Retention (SIR) - A dollar amount specified in an insurance policy that must be paid by the insured before the insurance policy will respond to a loss. SIRs typically apply to both the amount of the loss and the related costs (e.g., defense costs), but some apply only to amounts payable in damages (e.g., settlements, awards, judgments). A SIR differs from a deductible in two ways. First, a liability policy limit stacks on top of a SIR; deductibles are subtracted from the policy limit. Second, the insurer is not obligated to pay the SIR amount and then seek reimbursement from the insured; the insured pays the SIR directly to the claimant.

Severability - A policy provision clarifying that, except with respect to the coverage limits, insurance applies to each insured as though a separate policy were issued to each. Thus, a policy containing such a clause will cover a claim made by one insured against another insured.

Severity - The amount of damage that is (or that may be) inflicted by a loss or catastrophe.

Sexual Harassment - Unwelcome sexual advances, requests for sexual favors or other verbal or physical conduct of a sexual nature that (1) are made a condition of employment, (2) are used as a basis for employment decisions, or (3) create a work environment that interferes with job performance.

Short Tail - A terminology referring to lines of property/casualty insurance business where the claim is resolved typically in a "short" period of time.

Special Extended Coverage - An allied lines endorsement that extends a fire policy to cover all risks of physical loss not otherwise excluded.

Special Form - Formerly known as "All Risk," it is a cause of loss form that indemnifies against all risks of direct physical loss unless otherwise specifically excluded or limited. This is in contrast to the Basic and Broad coverage forms which specifically name perils.

Special Multi-Peril Policy (SMP) - A particular type of CMP contract, which is characterized by being a multiple line package policy. Coverages included in the SMP policy are divided into four sections: Property, Liability, Crime, Boiler and Machinery.

Specific Rate - In fire and allied lines of insurance, it is a rate for an individual building or occupancy reflecting the individual characteristics as determined by an inspection and application of a rating schedule.

Specified Perils - The cause of loss form indemnifies only for losses caused by perils listed (aka Named Perils coverage), as opposed to "special form" comprehensive coverage.

Sprinkler Leakage Insurance - Insurance against damage done by the accidental discharge of water from an automatic sprinkler system, as contrasted with discharge because of heat from a fire.

State Fund – State owned and operated organizations that write workers’ compensation insurance. Some states have monopolistic funds, which are the only market for workers’ comp. insurance in those states. The monopolistic fund states are: North Dakota, Ohio, Washington, West Virginia and Wyoming. Other states have competitive funds that compete with insurers doing business in that state.

Statement of Values - A listing of values of buildings and contents that is used to compute a “Blanket Average Rate.”

Statutory Accounting - The rules of accounting mandated by state law for use by insurance companies. These rules focus on the balance sheet and solvency analysis, and differ from the generally accepted accounting principals (GAAP) used for other types of businesses.

Statutory Underwriting Profit or Loss - Premiums earned less losses and expenses.

Stop Gap - An endorsement that provides employers with liability coverage for work-related injuries arising out of incidental operations or exposures in monopolistic fund states (these funds’ workers’ compensation policies do not provide employers liability coverage). If the employer has operations in nonmonopolistic states, the endorsement is attached to the workers’ compensation policy providing coverage in those states. For employers operating exclusively in a monopolistic fund state, the endorsement is attached to the employer's general liability policy. (See: State Fund).

Subrogation - The right of an insurer to recover from a third party who is wholly or partially responsible for a loss paid by an insurer.

Subrogation Clause - A clause giving an insurer the right to pursue any course of action, in its name or the name of the policy owner, against a third party who is liable for a loss that has been paid by the insurer. One of its purposes is to make sure that an insured does not make any profit from his insurance. This clause prevents insureds from collecting from both the insurer and the third party.

Sunrise Coverage - A feature of claims-made policies that have either no retroactive date or a retroactive date earlier than the inception date of the policy. Such a policy covers claims during the policy period arising out of events that precede the policy period. Without such a feature, the policy's retroactive date would preclude coverage with respect to these "prior acts." This coverage is also referred to as "prior acts coverage" and/or "nose coverage".

Surety - A party that guarantees the contracted performance of another. The contract through which the guarantee is executed is called a surety bond.

Surety Bond - Contract surety bonds are three-party agreements by which the surety company guarantees to the project owner that the construction contractor will perform the contract (including paying all subcontractors and suppliers). The project owner specifies the bond requirement in the contract bid documents; the contractor must secure the bond before submitting a bid. The surety producer is a commercial insurance adviser with specialized expertise in construction surety. The surety producer works with and for the contractor to create and maintain a relationship with the appropriate surety company throughout the entire project process.

Surety bonds typically involve three bonds: A bid bond provides financial guarantees that the contractor’s bid is submitted in good faith and that the contractor intends to enter the contract at the price bid. If the contractor wins the bid but fails to enter into the contract, the surety may be required to pay the owner the difference between the awarded bid and the next lowest bid, or to pay the bond penalty.

A performance bond protects the owner from financial loss should the contractor default on the contract. If the contractor defaults, the surety will respond as according to the bond.

A payment bond guarantees that the contractor will pay certain laborers, subcontractors and suppliers. If the contractor fails to pay what is properly due, the surety will make the payments up to the penal amount of the bond.

Surety & Fidelity Association of America (SFAA) – Trade association whose members are in the business of surety bonding. SFAA represents its member companies in matters of common interest before federal, state and local government agencies.

Surety Information Office (SIO) - Backed by NASBP and SFAA, the SIO office is the industry’s information source on contract surety bonds in public and private construction.

Surplus - The amount by which an insurer's assets exceeds its liabilities. The ratio of an insurer's premiums written to its surplus is one of the key measures of its solvency.

Surplus Lines - (1) A risk or part of a risk for which there is no normal insurance market available. (2) Insurance written by nonadmitted insurance companies.

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Term - The length of a policy period. It also may refer to the length of time for which a specific coverage is provided, as in those situations where the term of the coverage is less than that of the entire policy.

Third Party Administrator (TPA) - A firm that handles various types of administrative responsibilities, on a fee-for-service basis, for organizations. These responsibilities typically include: claims administration, loss control, risk management information systems and risk management consulting.

Third Party Contract - Protection of the insured against liability for the bodily injury or property damage of others. The third party is the person injured or whose property is damaged; the other two parties being the insured and the insurance company.

Time Element Insurance - A property insurance term referring to coverage for loss resulting from the inability to promptly put damaged property to its normal use. Insurance coverages in this group are so named because the amount of loss depends on how long it takes to repair or replace the damaged property. The most common types of time element insurance are business interruption and extra expense coverage.

Tort - A wrongful act, resulting in injury or damage, on which a civil action may be based.

Treaty - An agreement between an insurer and a reinsurer stating the types or classes of businesses that the reinsurer will accept from the insurer.

Treaty Reinsurance - A form of reinsurance in which the ceding company (insurer) makes an agreement to cede certain classes of business to a reinsurer. The reinsurer, in turn, agrees to accept all business qualifying under the agreement, known as the "treaty".

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Umbrella Insurance Policy - A policy designed to provide protection against catastrophic losses. It generally is written over various primary liability policies, such as the business auto policy, commercial general liability policy, watercraft and aircraft liability policies, and employers liability coverage. The umbrella policy serves three purposes: it provides excess limits when the limits of underlying liability policies are exhausted by the payment of claims; it drops down and picks up where the underlying policy leaves off when the aggregate limit of underlying policy in question is exhausted by the payment of claims; and, it provides protection against some claims not covered by the underlying policies, subject to the assumption, by the named insured, of a self-insured retention.

Underinsured Motorist Coverage - Provides coverage for bodily injury, and in some states for property damage, incurred by an insured when an accident is caused by a motorist who is not sufficiently insured, e.g., when the limits of liability carried by the other motorist are lower than the uninsured motorists limits carried by the insured.

Underwriting Profit or Loss - The amount of money that an insurance company gains or loses as a result of its insurance operations. It excludes investment transactions and federal income taxes.

Unearned Premium - That portion of the policy premium that has not yet been earned by the company because the policy still has some time to run before expiration. A property or casualty insurer must carry all unearned premiums as a liability in its financial statement since, if the policy should be canceled, the insurer would have to pay back a certain part of the original premium.

Uninsured Motorist Coverage - Provides coverage for bodily injury, and in some states for property damage, caused by a motorist who is not insured. Uninsured motorists coverage allows an insured to collect from his/her own insurer. Also covers injuries caused by hit-and-run drivers.

Use and Occupancy Insurance - A term that was once used to refer to the coverages later known as “business interruption insurance” or “time element coverage” and are now called “business income coverage”.

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Vandalism - The malicious or ignorant, often random, destruction or spoilage of another person's property.

Vicarious Liability - The liability of a principal for the acts of its agents. Vicarious liability can result from the acts of independent agents, partners, independent contractors and employees.

Voluntary Compensation - Enables an employer to extend the benefits provided by the workers’ compensation law to employees who may not be entitled to benefits under the terms of the law, such as executive officers, partners, sole proprietors, farm workers, domestic employees or employees traveling overseas. If such an employee is injured in the course of employment, he or she may elect to accept the scale of benefits provided by the designated workers’ compensation law or pursue common law remedies.

Voluntary Risk - A risk for which specific coverage is “readily available”. In automobile insurance, if a risk is denied coverage by any three carriers, it then becomes eligible for that state's assigned risk plan or comparable facility that is in the “involuntary market”.

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Whistleblower - An employee who discloses or threatens to disclose to a superior or any governmental agency, or who gives testimony, information relating to any action by any insured that may be a violation of public policy as reflected in legislation, administrative rules, regulations or decisions, judicial decisions and professional codes of ethics.

Worker Adjustment and Retraining Notification Act (WARN Act) - WARN provides protection to workers, their families and communities by requiring employers to provide notification 60 calendar days in advance of plant closings and mass layoffs.

Workers’ Compensation Insurance - Insurance against liability imposed on certain employers to pay benefits and furnish care to employees injured — and to pay benefits to dependents of employees killed — in the course of or arising out of their employment. (See also: State Fund).

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