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
RATE - 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.
RATE REGULATION - 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)
RATING AGENCIES - 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.
RATING BUREAU
- The insurance business is based on the spread
of risk. The more widely risk is spread, the more accurately loss can be estimated.
Insurance companies 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.
REAL ESTATE INVESTMENTS - Investments generally owned by
life insurers that include commercial mortgage loans and real property.
RECEIVABLES - Amounts owed to a business for goods or services
provided.
REDLINING - Literally means to draw a red line on a map around
areas to receive special treatment. Refusal to issue insurance based solely on
where applicants live is illegal in all states. Denial of insurance must be risk-based.
REINSURANCE - 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.
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REPLACEMENT COST - 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.
REPURCHASE AGREEMENT /'REPO' - Agreement between
a buyer and seller where the seller agrees to repurchase the securities at
an agreed upon time and price. Repurchase agreements involving U.S. government
securities are utilized by the Federal Reserve to control the money supply.
RESERVES - A company’s best estimate of
what it will pay for claims.
RESIDUAL MARKET - 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.
RETENTION - The amount of risk retained by an
insurance company that is not reinsured.
RETROCESSION - The reinsurance bought by reinsurers
to protect their financial stability.
RETROSPECTIVE RATING - 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.
RETURN ON EQUITY - Net income divided by total
equity. Measures profitability by showing how efficiently invested capital
is being used.
RIDER - An attachment to an insurance policy
that alters the policy’s coverage or terms.
RISK - The chance of loss or the person or entity
that is insured.
RISK MANAGEMENT - 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.
RISK RETENTION GROUPS - Insurance companies that
band together as self-insurers and form an organization that is chartered and
licensed as an insurer in at least one state to handle liability insurance.
RISK-BASED CAPITAL
- 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.
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