Insurance Definitions Simplified
Actuary-
An Actuary is a specialist that deals with statistics to determine the likelihood of risks and uncertainties for insurance premium costs. Actuaries work with insurance companies to assist them to create insurance cover and advise on the level of risk versus cost.
Adjuster/Assessor-
The terms adjuster and assessor are used somewhat interchangeably. Both terms refer to a representative of the insurer that verifies claims to check their validity and decide the extent of the insurer’s liability. They often consult the terms of policy and may investigate the claim thoroughly.
Aggrieved Party-
An aggrieved party is a person or group that has been wronged or has suffered. This includes financial loss, injury, and damage to property.
Aggregate-
The aggregate is a limit the insurance company is willing to compensate over the course of a set period. Typically the insurance company is only willing to reimburse the policyholder a set amount of money over the course of a year.
Aggregation of Claims-
An aggregation of claims is a clause that integrates two or more related claims to allow them to be used as a singular loss. This is in order to apply a Limit of Liability policy or deductible.
Agreed Value-
Agreed Value policies typically refer to motor vehicle insurance and pertain to the car’s value. The car’s value is determined by the make and model and age. Agreed value policies can differ in price to market value policies and deciding which is right for you may depend on your circumstances.
Automatic Reinstatement-
Automatic reinstatement, sometimes called the maximum aggregate limit of indemnity, will reinstate/restore an original policy limit once a claim is paid.
Arbitration-
This refers to legal disputes that are settled out of court between an insurance company and the insured party. They are typically settled by private tribunals.
Asset-
Asset is a term used to describe objects with economic or monetary value that can be covered by insurance, included but not limited to property, vehicles, machinery, cash, and inventory.
Asset Review- Sum Insured Review-
Regularly reviewing your assets is vital for insurance to ensure that your assets are accurately and adequately insured. An asset replacement survey is important as it provides a professional evaluation of the replacement value and ensures that you will not be underinsured. We recommend obtaining one every three years to keep everything up to date and correctly insured.
Audit and Investigation Insurance-
Every company, regardless of how big or small they are, can be tax audited. Tax audits can be expensive and time consuming, especially if the ATO requires you to defend your taxation position. This policy will cover any accountant or professional adviser fees that arise from such an external audit. Each policy only provides coverage and protection as per the policy wording and conditions.
Beneficiary-
This word refers to an individual who may be entitled to receive the contents or payout of a will, insurance policy, or contract.
Blanket Coverage-
This is a type of insurance cover for property or liability insurance that includes multiple people or properties at different locations. It works as an umbrella providing coverage in a number of different areas without specific notation.
Insurance Broker-
An insurance broker is a specialist that acts as an intermediary on behalf of someone applying for insurance and attempts to find the best policies available on the market. They are required to collect information and quotations along with negotiating with insurance companies on your behalf. They receive a commission from the insurer along with charging a broker fee for the service. The Broker provides advice as to potential exposures and available products that then in turn provide protection against such exposures. A good broker will provide coverage that they themselves would take or provide to their own family.
Burning Costs/ Burner-
An option obtained under a transport package or motor fleet policy burning cost or also known in the insurance industry as a burner policy can be defined as an alternative way for the insured to have their annual premium calculated and charged. The client has the option to take a minimum deposit premium which is cheaper than the conventionally charged premium. At the end of the insurance period, there will be an adjustment made based on the number of claims made during the insurance period. If the claims are below the threshold no adjustment will be made. If the claim amount incurred is above the predetermined threshold a calculation is made to the formula and the client will pay an adjustment that could be as high as the predetermined maximum adjustment premium.
Business Interruption Insurance-
Business interruptions can be caused by a number of insurable events, fire, theft, malicious damage etc This can not only be a huge inconvenience, but depending on the level of loss can be devastating to businesses to the point that they are unable to reopen the doors. Business interruption provides protection generally for the loss of gross profit to the business. There are variations to cover including coverage for the additional increase cost of working
Burglary (theft as a consequence of forced entry or threat of violence)-
Burglary in Short is theft. The act of a third party taking possession of an unowned asset belonging to another person or business.
Cancellation of insurance-
The nullification of an insurance policy post the expiry date or during the insured period. This can be due to the sale of an asset or business, non-disclosure of underwriting information, adverse claims history, change in underwriting appetite, or an insured requesting cancellation due to a change in underwriting appetite.
Claim-
A claim is a formal request and notification to an insurance company that the insured party has suffered a loss that is covered by their insurance policy. A claim means the insured party is requesting action and compensation from their insurer due to an insurable event under the policy terms and conditions.
Claims Made Wordings-
This specific kind of policy covers claims that are made within the insurance period, no matter when the event might have occurred (unless of course, it has been a known claim or circumstance prior to the policy’s inception). It does not rely on the occurrence of the event only when the allegation or claim is made. This kind of coverage is often found within professional indemnity and management liability type policies. Policies used by professionals providing advice or design for a fee.
A retroactive date will cover any claim subsequent to the retroactive date but the trigger for insurance is when the claim is made.
Claimant-
This is the insured party that has a right to claim under the insurance policy contract.
Closing-
A protection letter or document that confirms the contract between insurance underwriters and the broker requesting coverage on the client’s behalf.
Compensation-
Monetary payment awarded to someone as a result of a financial, property damage or injury loss due to a third parties involvement or contribution.
Compulsory Insurance-
A type of insurance that individuals or businesses are required to hold by law. Common examples include compulsory third-party car insurance and workers compensation insurance.
Contractual liability-
Refers to liability that is assumed on someone else’s behalf under a legally binding contract. A contractual Liability Extension protects the policyholder against liabilities that they assume by entering the aforementioned contract.
Continuous Cover-
This clause extends cover under a policy that was insured in unbroken consecutive periods generally held with the same insurer. This extension is required for Claims made wordings and provides protection for the policyholder should they fail to notify the insurance company of a known fact or circumstances occurring during the policy period. Coverage must be maintained for the claim to be picked up in the future should it remain undisclosed.
Contract Reviews-
Reviewing legally binding contracts is vital. You could be assuming Liabilities and entering hold harmless agreements that could render your insurance policy null and void. Having a legal professional to review any legally binding document before you enter into the agreement is always recommended. Reviewing A contract will enable you to better understand the terms and conditions contained within allowing you to recognise your contractual obligations. Again It is advisable to get assistance from a legal advisor and provide copies of any contracts to your insurance broker.
Contract Works Insurance-
This policy offers protection for loss or damage to construction. Contract works include construction and civil engineering projects for roads, bridges, fences; buildings, and electrical/mechanical installations. It is not limited to any specific construction. If you are replacing roofing or extending an existing building or structure Contract works and its extensions should be considered. The material damage coverage includes protection against, fire, storm, theft, accidental damage, malicious damage and others.
Contributory Negligence-
Contributory negligence refers to acts or behaviors of a policyholder that illustrates carelessness which led to an incident and caused increased loss or damage by the policyholder.
Cooling off-
This is a period of time following a policy agreement in which the consumer can cancel their policy for any reason. Most insurance companies allow a window of time for a change of mind and the consumer is entitled to a full refund.
Coverage-
Coverage is the terms of what is included within the insurance policy. Coverage is provided and limited by the schedule of insured assets, the wording, exclusions and conditions.
Civil Liability-
Civil liability is where a party owes a legal obligation to another party for a wrongful act, error or omission. Civil liability is a duty owed to a third party for damages caused. This can also be assumed by failing to meet contractual obligations. Civil Liability is generally not punishable for crime that definition falls under criminal liability.
Deductible-
Also known as the excess. It is a portion of a loss that is paid by a policyholder out of pocket before they are able to claim. A common example is for car insurance, so if a repair claim is $1000, and the deductible is $200, then the insurance company will cover $800 while you pay the remaining $200 excess.
Defined events-
A policy that outlines the events that the policyholder is covered for, including events like flood, fire, theft. Typically less coverage under a defined events policy as it specifies clearly the coverage and does not include covers such as accidental damage.
Depreciation-
This refers to a loss of value over time of any asset resulting from age, wear and tear, damage, or use.
Disclaimer-
Disclaimers are used to minimise a person or business’ degree of liability for events that may occur. It is also a legal statement that outlines the limits of an insurance company/agent’s responsibility when providing advice about policies.
Effective Date-
This is the date on which the insurance policy will apply and coverage begins.
Embargo-
An embargo is a restriction applied by an insurer in regard to accepting new or alternations to insurance policies in certain locations or for specific circumstances. For example, many embargos prevent coverage for events that are already having an impact or that are in play, like international pandemics or Floods
Employee Dishonesty Insurance-
Also known as Fidelity, This Insurance extension provides protection for your business in the event of employee theft, dishonesty, and fraudulence.
Employment Practices Liability-
This protects your business in the event that an employee brings legal action against you. This cover offers protection against potential costs for defending, settling, or paying for claims made by an employee. Common legal actions include alleged unfair dismissal, harassment or bullying, or discrimination.
Errors and Omissions-
This form of liability insurance was made to cover companies that offer advice or consultancy services. It protects them from potential lawsuits or insurance claims made by their customers and clients. Typically this includes lawyers, consultants, financial advisors, and insurance agents. An errors and omissions extension can be obtained under some Liability policies or a stand-alone professional indemnity policy will need to be taken.
Excess-
Refer to deductible.
Excess layer-
A type of insurance that can supply additional levels of coverage on top of a primary insurance policy. For example, the Primary insurer takes the first $10 million loss and the excess layer insurer will take the loss above the primary $10m up to the insured limit.
Exposure –
The risk itself is considered the exposure to both the insured and the insurer. This risk poses the potentials for future losses the policyholder may experience. Each policy will outline different limits for insured exposures.
First Party-
The first party is the person or people that are covered under the insurance contract. First party policies also known as the insured.
Fraud-
Fraud is a crime committed by deliberately misleading or dishonest behaviour in order to obtain financial gain.
General Insurance-
General insurance is distinct and different to life insurance. This coverage protects assets that could incur a financial loss due to an occurrence. General insurance is typically insurance classes such as Business package, ISR, Motor, Home & Contents, Landlords, professional indemnity insurance, Management Liability, Boat, Trade Credit and others.
Gross Premium –
The total premium paid for the insurance policy including Government charges, commissions, and all fees.
Hazard-
Circumstances or conditions that increase the likelihood of risk or chance that losses may occur. Hazards can include things like exposed wires, chemicals, water near electrical outlets, Bushland near property etc.
Indemnity-
Indemnity is a feature under insurance policies that ensure coverage and protection against injury, loss, and damage. Indemnity is the Limit of coverage.
Alternatively, the principle of indemnity is a legal principle that means an insured party should be compensated enough to reach the financial position they were in before a loss.
Inefficacy-
Also known as efficacy cover, Efficacy is a failure to produce or meet its desired or intended purpose.
More of an exclusion than a cover-efficacy is an exclusion commonly applied to manufacturing risks when people are selling critical components that will reduce coverage for claims due to failures of the products from meeting expectations of its function. For example smoke alarms have inefficacy cover. Failure of your product to perform its intended function.
Insurer-
Also known as the security, the insurer is the company retained that will compensate the insured party for their loss. They collect the premium, generally write the wording and underwrite the risk for which they then provide insurance coverage. The insurer is the party that ultimately compensates the insured for their loss due to an event defined within the policy.
Intermediary-
Someone, typically a broker, acts as a bridge between insurance companies and customers. They offer assistance and advice to their clients. Agents are retained by the insurance companies and as such do NOT offer advice.
Inquiry Costs-
Inquiry cost cover is typically added to professional indemnity insurance and covers the legal defense costs that arise if the policyholder is investigated or an inquiry is held.
Insuring Clause-
Also known as the Operative Clause, this clause is vital in professional indemnity policies. It outlines what kind of coverage the policy offers, who is protected under the policy and what circumstances are covered.
Joint Venture Liability-
Joint Venture liability is where multiple parties are held responsible for restitution due to actions or events. If a third party was wronged by a joint venture then they may be able to collect damages from all of the liable parties involved.
Jurisdiction-
The power held by the courts and their power to hear matters and make legal decisions.
Lapse-
The cancellation of the insurance policy. The policy might be lapsed due to non-payment or underwriting information that has come to light that is unacceptable to the insurer.
Lease
A legally binding contract between two parties that allows one party use of an asset, for a specific time period, in exchange for money.
Levy-
A levy is a tax and additional fee that is added to insurance premiums by the government or underwriting agency.
Large and Infrequent Losses-
As the name suggests, large and infrequent losses refer to events that can cause a significant loss but the risk of it occurring is infrequent. A house fire is an example of this loss because house fires do not happen frequently but they can be very expensive to repair.
Liability-
In insurance terms, liability refers to an organisation or individual that is responsible for property damage, bodily injury, or financial loss, and is now being held liable for the damages.
Limit of Indemnity-
The indemnity limit is the highest amount that an insurer is willing to pay for compensation and claimants expenses or the costs that may occur due to a single claim or all claims that the policyholder makes under any policy for the agreed period of insurance. The limit of indemnity is generally shown within the insurance schedule.
Liquidated Damages-
A contractually predetermined amount of damages in case of a breach of contract. Liquidated damages generally included in contracts which will include an amount payable every day after a specified amount of time has elapsed without the contract being fulfilled.
Market Value-
The value of which the item is worth in its current state if sold on the open market.
Management Liability Insurance-
Providing protection for companies, their directors and officers of the business, sections of the coverage include
- Directors & officers
- Employment practices
- Tax audit & investigation costs
- Fidelity/Crime
- Statutory Liability
Mitigation-
It refers to measures that are taken to lessen potential hazards to a property, asset or person. An example includes if a car’s window was damaged in an accident, mitigation would be fixing it before the water ruins the vehicle’s interior.
Misrepresentation-
False information or statements provided to the insurer for the purpose of fraudulently obtaining insurance coverage or a claim.
Negligence-
Negligence occurs when a person does not exercise a degree of ‘reasonable care’ in any situation where they have responsibilities for another person or property.
Non-disclosure-
This is when the policyholder fails, whether on purpose or by omission, to share all relevant information with their insurance provider. This can result in the insurance company not being legally obliged to honour policy claims.
Notify Insurance Requirements Early-
Notifying your insurer of any changes to your business or assets if vital so they can appropriately calculate the new risks and adjust your policy accordingly.
Occurrence Wording-
The day or date of which an event that leads to loss, injury, or damage, that was not expected by the policyholder and which may result in liability. For example, this could include accidents, natural disasters, or even robbery. Occurrence means that the claim will be triggered from when the claim took place.
Over insurance-
Over insurance occurs when the insurance coverage is too high for the property that is being insured. Over insurance can lead to paying unnecessarily high premiums.
Payout-
A payout occurs when an insurance company compensates the policyholder for their insurance claim.
Personal property-
In essence, personal property is any asset owned by an individual, not including real estate, that can be easily moved. Including but not limited to items like clothing, furniture, and household items like a TV.
Policy-
The written and legally binding insurance agreement that acts as a contract between the policyholder (insured) and the insurance company.
Premium-
The cost of a policy cover for outlined hazards and potential risks for a determined and agreed upon time period.
Prior Claims or Known Circumstances-
Knowledge of an event that might give rise to a future claim.
Generally, claims made policies will exclude any claim that emerges due because of circumstances or factors that the insured party was aware of prior to the insurance period.
Professional Duty-
Every professional has a legal duty to conduct business with a standard of care when dealing with their clients and third parties. Their professional duty may be outlined in their own terms and conditions, contracts, or established in the industry’s laws and regulations.
Proportionate Liability-
Proportionate liability is the basis that a wrongdoer or anyone whose actions contributed to a loss, has a degree of liability for a proportion of the damage or loss but it must be limited to an accurate reflection of the wrongdoer’s responsibility/contribution for that loss.
Qualifying event-
An occurrence that falls under the outlined possible circumstances discussed within the insurance policy.
Rebate–
A partial or full refund of the premium policy payment. A monetary figure returned to the policy holder.
Re insurance-
A complex practice that involves the insurance company sharing portions of their portfolios and exposures with other companies. Each party taking a proportion of losses and shouldering the risk together.
Renewal-
The process of continuing an existing insurance policy.
Resilience-
The durability and strength of an asset or person to recover and withstand stressful events.
Retroactive date-
The retroactive date is the date when a policy begins, or that coverage extends back too. Any omissions or claims made prior to that date will not be covered by the insurance policy.
Run-off Cover-
Most policies, including professional indemnity policies, require claims to be made to the insurance company within the agreed-upon policy period. Run-off cover policy provides cover for claims that were reported or made after the expiration of that policy but still occurred during the duration covered by the run-off insurance cover.
Security- Refer to insurer.
Settlement-
A settlement involves the insurance company paying out or compensating the policyholder when they make a claim that was covered under their policy.
Signatory-
Typically the signatory is someone responsible for signing a policy or insurance contract to declare that they agree and accept all terms and conditions. On rare occasions, a signatory is a person selected to sign on someone else’s behalf.
Stamp Duty-
A Government Tax varying from state to state.
Statutory Liability Insurance-
Australian businesses must follow legislation and Occupational Health & Safety laws. These laws impose substantial fines and penalties if not followed. Breaches of these laws are considered ‘no fault’ liabilities. Statutory Liability Insurance provides coverage to defend fines and penalties
Small and Frequent Losses-
Small and frequent losses refer to damage or losses where the risk factor is smaller but the frequency is higher. For example, house burglary may be considered a frequent risk but the cost of replacing the stolen items usually is not too high.
Territorial Limits Clause
The territorial limits clause limits the cover to only include claims that occur due to the actions of the insured party of certain services in particular countries. Broad territorial exclusions will sometimes offer coverage for international services, but narrow territorial exclusions will name the countries that are not included in the cover.
Title-
The proof of purchase and a legal certificate that declares ownership
Trade Practices Act-
A clause that provides cover for a party that conducts deceiving or misleading actions that break the legislative Trades Practices Act of 1974.
Under-Insurance-
Where the insurance or declared value is less than the actual replacement or repair value.
Proving your insurance provider with accurate financial assessments or your assets, properties, and business is vital to ensure you’re insured correctly. Failing to provide your insurer with correct values and evaluations may result in not being insured correctly and compensation being lessened to the underinsurance clause contained within the policy.
Warranty-
This is a written guarantee written by the manufacturer of an item that promises to repair or compensate the customer for any faults with a product within a certain time from purchase.
