We hope that our extensive glossary of common (and some not-so-common)
insurance terms and phrases proves helpful to you! Simply start
below by choosing the first letter of the word or phrase you want to
learn more about.
A - B - C - D - E - F - G - H - I - J - K - L - M
N - O - P - Q - R - S - T - U - V - W
C-SHARE VARIABLE ANNUITIES - A form
of variable annuity contract where the contract holder pays no
sales up front or surrender charges. Owners can claim full liquidity
at any time.
CAPACITY - 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 a 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.
CAPITAL - Shareholder’s equity (for publicly-traded
insurance companies) and retained earnings (for mutual insurance
companies). There is no general measure of capital adequacy for
property/casualty insurers. Capital adequacy is linked to the riskiness
of an insurer’s business. A company underwriting medical
device manufacturers needs a larger cushion of capital than a company
writing Main Street business, for example. (See Risk-based
capital; Surplus; Solvency)
CAPITAL MARKETS - The markets in which equities
and debt are traded. (See Securitization
of insurance risk)
CAPTIVE AGENT - 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)
CAPTIVES - Insurers that are created and wholly-owned
by one or more non-insurers, to provide owners with coverage. A form of self-insurance.
CAR YEAR - Equal to 365 days of insured coverage
for a single vehicle. It is the standard measurement for automobile insurance.
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CASE MANAGEMENT - A system of coordinating medical
services to treat a patient, improve care, and reduce cost. A case manager
coordinates health care delivery for patients.
CATASTROPHE - 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.
CATASTROPHE BONDS - Risk-based securities that
pay high interest rates and provide insurance companies with a form of reinsurance
to pay losses from a catastrophe such as those caused by a major hurricane.
They allow insurance risk to be sold to institutional investors in the form
of bonds, thus spreading the risk. (See Securitization
of insurance risk)
CATASTROPHE DEDUCTIBLE - 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.
CATASTROPHE FACTOR - Probability of catastrophic
loss, based on the total number of catastrophes in a state over a 40-year period.
CATASTROPHE MODEL - 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.
CATASTROPHE REINSURANCE
- Reinsurance (insurance
for insurers) for catastrophic losses. The insurance industry is able to
absorb the multibillion dollar losses caused by natural and man-made disasters
such as hurricanes, earthquakes and terrorist attacks because losses are
spread among thousands of insurance companies including catastrophe reinsurers who
operate on a global basis. Insurers’ ability
and willingness to sell insurance fluctuates with the availability and cost
of catastrophe reinsurance.
After major disasters, such as Hurricane Andrew and
the World Trade Center terrorist attack, the availability of catastrophe
reinsurance becomes extremely limited. Claims deplete reinsurers’ capital
and, as a result, companies are more selective in the type
and amount of risks they assume. In addition, with available
supply limited, prices for reinsurance rise. This contributes
to an overall increase in prices for property insurance.
CELL PHONE INSURANCE - Separate
insurance provided to cover cell phones for damage or theft.
Policies are often sold with the cell phones themselves.
CHARTERED FINANCIAL CONSULTANT / ChFC -
A professional designation given by The American College to financial
services professionals who complete courses in financial planning.
CHARTERED LIFE UNDERWRITER / CLU - A professional
designation by The American College for those who pass business examinations
on insurance, investments, and taxation, and have life insurance planning experience.
CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU -
A professional designation given by the American Institute for Property and
Liability Underwriters. National examinations and three years of work experience
are required.
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CLAIMS-MADE POLICY - A form
of insurance that pays claims presented to the insurer during the
term of the policy or within a specific term after its expiration.
It limits liability insurers’ exposure
to unknown future liabilities. (See Occurrence
policy)
COBRA - Short for Consolidated Omnibus Budget
Reconciliation Act. A federal law under which group health plans sponsored
by employers with 20 or more employees must offer continuation of coverage
to employees who leave their jobs and their dependents. The employee must
pay the entire premium. Coverage can be extended up to 18 months. Surviving
dependents can receive longer coverage.
COINSURANCE - In property insurance, requires
the policyholder to carry insurance equal to a specified percentage of
the value of property to receive full payment on a loss. For health insurance,
it is a percentage of each claim above the deductible paid by the policyholder.
For a 20 percent health insurance coinsurance clause, the policyholder
pays for the deductible plus 20 percent of his covered losses. After paying
80 percent of losses up to a specified ceiling, the insurer starts paying
100 percent of losses.
COLLATERAL - Property that is offered to secure
a loan or other credit and that becomes subject to seizure on default.
(Also called security.)
COLLATERAL SOURCE RULE - Bars the introduction
of information that indicates a person has been compensated or reimbursed
by a source other than the defendant in civil actions related to negligence
or other liability.
COLLISION COVERAGE - Portion of an auto
insurance policy that covers the damage to the policyholder’s car
from a collision.
COMBINED RATIO - Percentage of each premium
dollar a property/casualty insurer spends on claims and expenses. A decrease
in the combined ratio means financial results are improving; an increase
means they are deteriorating.
COMMERCIAL GENERAL LIABILITY INSURANCE / CGL -
A broad commercial policy that covers all liability exposures of a business
that are not specifically excluded. Coverage includes product liability,
completed operations, premises and operations, and independent contractors.
COMMERCIAL LINES - Products designed for and
bought by businesses. Among the major coverages are boiler and machinery,
business interruption, commercial auto, comprehensive general liability,
directors and officers liability, fire and allied lines, inland marine,
medical malpractice liability, product liability, professional liability,
surety and fidelity, and workers compensation. Most of these commercial
coverages can be purchased separately except business interruption which
must be added to a fire insurance (property) policy. (See Commercial multiple
peril policy)
COMMERCIAL MULTIPLE PERIL POLICY - Package
policy that includes property, boiler and machinery, crime, and general
liability coverages.
COMMERCIAL PAPER - Short-term, unsecured,
and usually discounted promissory note issued by commercial firms and financial
companies often to finance current business. Commercial paper, which is
rated by debt rating agencies, is sold through dealers or directly placed
with an investor.
COMMISSION - Fee paid to an agent or insurance
salesperson as a percentage of the policy premium. The percentage varies
widely depending on coverage, the insurer, and the marketing methods.
COMMUNITY RATING LAWS - Enacted in several
states on health insurance policies. Insurers are required to accept
all applicants for coverage and charge all applicants the same premium
for the same coverage regardless of age or health. Premiums are based
on the rate determined by the geographic region’s
health and demographic profile.
COMPETITIVE REPLACEMENT PARTS - See Crash
parts; Generic auto parts
COMPETITIVE STATE FUND - A facility established
by a state to sell workers compensation in competition with private insurers.
COMPLAINT RATIO - A measure used by some state
insurance departments to track consumer complaints against insurance companies.
Generally, it is written as the number of complaints upheld against an
insurance company, as a percentage of premiums written. In some states,
complaints from medical providers over the promptness of payments may also
be included.
COMPLETED OPERATIONS COVERAGE - Pays for bodily
injury or property damage caused by a completed project or job. Protects
a business that sells a service against liability claims.
COMPREHENSIVE COVERAGE - Portion of an auto
insurance policy that covers damage to the policyholder’s car not
involving a collision with another car (including damage from fire, explosions,
earthquakes, floods, and riots), and theft.
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COMPULSORY AUTO INSURANCE - The minimum
amount of auto liability insurance that meets a state law. Financial
responsibility laws in every state require all automobile drivers to
show proof, after an accident, of their ability to pay damages up to
the state minimum. In compulsory liability states this proof, which
is usually in the form of an insurance policy, is required before you
can legally drive a car.
CONTINGENT LIABILITY - Liability of individuals,
corporations, or partnerships for accidents caused by people other
than employees for whose acts or omissions the corporations or partnerships
are responsible.
COVERAGE - Synonym for insurance.
CRASH PARTS - Sheet metal parts that are
most often damaged in a car crash. (See Generic
auto parts)
CREDIT - The promise to pay in the future
in order to buy or borrow in the present. The right to defer payment
of debt.
CREDIT DERIVATIVES - A contract that enables
a user, such as a bank, to better manage its credit risk. A way of
transferring credit risk to another party.
CREDIT ENHANCEMENT - A technique to
lower the interest payments on a bond by raising the issue’s
credit rating, often through insurance in the form of a financial
guarantee or with standby letters of credit issued by a bank.
CREDIT INSURANCE - Commercial coverage
against losses resulting from the failure of business debtors to pay
their obligation to the insured, usually due to insolvency. The coverage
is geared to manufacturers, wholesalers, and service providers who
may be dependent on a few accounts and therefore could lose significant
income in the event of an insolvency.
CREDIT LIFE INSURANCE - Life insurance
coverage on a borrower designed to repay the balance of a loan in the
event the borrower dies before the loan is repaid. It may also include
disablement and can be offered as an option in connection with credit
cards and auto loans.
CREDIT RATING - See Bond
rating
CREDIT SCORE
- The number produced by
an analysis of an individual’s
credit history. The use of credit information affects all consumers
in many ways, from getting a job, finding a place to live, securing
a loan, getting a telephone, and buying insurance. Credit history
is routinely reviewed by insurers before issuing a commercial policy
because businesses in poor financial condition tend to cut back on
safety which can lead to more accidents and more claims. Auto and
home insurers may use information in a credit history to produce
an insurance score. Insurance scores may be used in underwriting
and rating insurance policies. (See Insurance score.)
How Does Credit History Affect Car Insurance Rates?
CRIME INSURANCE - Term referring to property
coverages for the perils of burglary, theft and robbery.
CROP-HAIL INSURANCE
- Protection against
damage to growing crops from hail, fire, or lightning provided by the
private market. By contrast, multiple peril crop insurance covers a
wider range of yield-reducing conditions, such as drought and insect
infestation, and is subsidized by the federal government.
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