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
SALVAGE - 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.
SCHEDULE - 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.
SECONDARY MARKET - Market for previously issued and outstanding
securities.
SECURITIES AND EXCHANGE COMMISSION / SEC - The organization
that oversees publicly-held insurance companies. Those companies make periodic
financial disclosures to the SEC, including an annual financial statement (or
10K), and a quarterly financial statement (or 10-Q). Companies must also disclose
any material events and other information about their stock.
SECURITIES OUTSTANDING - Stock held by shareholders.
SECURITIZATION OF INSURANCE RISK - Using the capital
markets to expand and diversify the assumption of insurance risk. The issuance
of bonds or notes to third-party investors directly or indirectly by an insurance
or reinsurance company or a pooling entity as a means of raising money to cover
risks. (See Catastrophe bonds)
SELF-INSURANCE - The concept of assuming a financial risk
oneself, instead of paying an insurance company to take it on. Every policyholder
is a self-insurer in terms of paying a deductible and co-payments. Large firms
often self-insure frequent, small losses such as damage to their fleet of vehicles
or minor workplace injuries. However, to protect injured employees state laws
set out requirements for the assumption of workers compensation programs. Self-insurance
also refers to employers who assume all or part of the responsibility for paying
the health insurance claims of their employees. Firms that self insure for health
claims are exempt from state insurance laws mandating the illnesses that group
health insurers must cover.
SEVERITY - Size of a loss. One of the criteria used in calculating
premiums rates.
SEWER BACK-UP COVERAGE - An optional part of homeowners insurancethat covers sewers.
SHARED MARKET - See Residual
market
SINGLE PREMIUM ANNUITY - An annuity that is paid in full
upon purchase.
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SOFT MARKET - An environment where
insurance is plentiful and sold at a lower cost, also known as
a buyers’ market. (See Property/casualty
insurance cycle)
SOLVENCY - 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.
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)
STACKING - Practice that increases the money available
to pay auto liability claims. In states where this practice is permitted by
law, courts may allow policyholders who have several cars insured under a single
policy, or multiple vehicles insured under different policies, to add up the
limit of liability available for each vehicle.
STATUTORY ACCOUNTING PRINCIPLES / SAP - More conservative
standards than under GAAP accounting rules, they are imposed by state laws
that emphasize the present solvency of insurance companies. SAP helps ensure
that the company will have sufficient funds readily available to meet all anticipated
insurance obligations by recognizing liabilities earlier or at a higher value
than GAAP and assets later or at a lower value. For example, SAP requires that
selling expenses be recorded immediately rather than amortized over the life
of the policy. (See GAAP accounting; Admitted
assets)
STOCK INSURANCE COMPANY - An insurance company
owned by its stockholders who share in profits through earnings distributions
and increases in stock value.
STRUCTURED SETTLEMENT - Legal agreement to pay
a designated person, usually someone who has been injured, a specified sum
of money in periodic payments, usually for his or her lifetime, instead of
in a single lump sum payment. (See Annuity)
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SUBROGATION - The legal process by which an
insurance company, after paying a loss, seeks to recover the amount of
the loss from another party who is legally liable for it.
SUPERFUND - A federal law enacted in 1980
to initiate cleanup of the nation’s abandoned hazardous waste dump
sites and to respond to accidents that release hazardous substances into
the environment. The law is officially called the Comprehensive Environmental
Response, Compensation, and Liability Act.
SURETY BOND - A contract guaranteeing the
performance of a specific obligation. Simply put, it is a three-party
agreement under which one party, the surety company, answers to a second
party, the owner, creditor or “obligee,” for a third party’s debts, default or nonperformance.
Contractors are often required to purchase surety bonds if they are working on
public projects. The surety company becomes responsible for carrying out the
work or paying for the loss up to the bond “penalty” if the
contractor fails to perform.
SURPLUS - The remainder after an insurer’s
liabilities are subtracted from its assets. The financial cushion that
protects policyholders in case of unexpectedly high claims. (See Capital;
Risk-based capital)
SURPLUS LINES - 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.
SURRENDER CHARGE - A charge for withdrawals
from an annuity contract before a designated surrender charge period, usually
from five to seven years.
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SWAPS
- The simultaneous buying, selling or
exchange of one security for another among investors to change maturities
in a bond portfolio, for example, or because investment goals have changed.
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