AINS key terms

The possibility of loss, or of an outcome different from what was expected. In insurance the word usually means measurable uncertainty about financial loss that can be estimated, priced, and pooled.

A situation that offers only the chance of loss or no loss, with no possibility of gain. Insurers generally prefer pure risks because they are accidental, measurable, and suited to pooling.

A situation that involves the chance of either gain or loss, such as starting a business or buying stock. Insurers normally avoid it because the loss is driven by intentional risk-taking rather than accident.

The actual cause of a loss, such as fire, windstorm, theft, or collision. A policy identifies which perils it covers and which it excludes.

A condition that increases the chance or the severity of a loss from a given peril, such as icy steps, faulty wiring, or poor housekeeping.

Dishonesty or intentional conduct that raises the likelihood or size of a loss, such as deliberately damaging property or faking an injury to collect insurance money.

Carelessness or indifference toward loss that exists because insurance is in place, such as leaving a car unlocked or skipping routine maintenance on a covered building.

A statistical principle holding that as the number of similar, independent exposure units grows, actual losses come closer to expected losses, which lets insurers forecast results and set rates.

A financial stake in property or in a person such that a loss would cause real economic harm. It must exist at the time of loss for property coverage and generally at inception for life coverage.

The idea that an insured should be restored to roughly the same financial position held before a loss, no better and no worse, so a claim payment reflects actual loss rather than profit.

The tendency of people or businesses with higher-than-average risk to buy or keep coverage more eagerly than low-risk ones, which drives up loss costs unless underwriting and pricing control it.

The insurer's right, after paying a claim, to step into the insured's shoes and recover the amount paid from the party that caused the loss, preventing a double recovery.

Shifting the financial consequences of a loss to another party, most often by purchasing an insurance policy but also through contract terms such as hold-harmless agreements.

The process of gathering information about an applicant, judging how much risk the exposure presents, and then deciding whether to accept it and on what terms and price.

Money an insurer sets aside to pay claims that have been reported but not yet settled, plus claims that have occurred but have not yet been reported to the company.

Insurance purchased by an insurer to shift part of its own obligations to another insurer, protecting against a single very large loss or a surge of many claims at once.

Reinsurance arranged one risk at a time, with the reinsurer free to review and either accept or decline each individual submission offered by the ceding insurer.

A standing agreement under which the reinsurer automatically accepts a defined class or share of the insurer's risks that fall within the treaty's stated terms and limits.

A temporary written or oral agreement that provides coverage before the policy is issued, effective from a stated date and subject to the final policy terms.

A written amendment attached to a policy that changes coverage, limits, exclusions, or duties, and that takes precedence over the original printed form when the two conflict.

A review conducted after the policy period that compares reported exposure values, such as payroll or sales, with the insured's actual records and adjusts the final premium accordingly.

Incurred losses plus loss adjustment expenses divided by earned premium, showing how many cents of each premium dollar are consumed by claims.

The loss ratio plus the expense ratio. A result below 100 percent indicates an underwriting profit before investment income is counted; above 100 percent indicates an underwriting loss.

Coverage placed with insurers that are not licensed in the state, permitted only when admitted carriers will not write the risk and usually subject to special broker eligibility rules.

A packaged personal lines policy covering a dwelling, personal property, personal liability, and additional living expenses, with different forms (HO-2, HO-3, HO-5) offering different breadth.

A standardized personal lines form covering liability, medical payments, uninsured and underinsured motorists, and physical damage for a private passenger car, with limited business-use exceptions.

A liability policy that sits above underlying auto, homeowners, or business coverage and sometimes drops down to fill gaps when those underlying policies do not respond.

A business liability form covering bodily injury, property damage, and personal and advertising injury arising from the insured's premises, operations, and completed products or work.

A packaged policy for small and midsize businesses that combines property and general liability coverage with commonly needed extensions and uses simplified eligibility and rating.

A statutory benefit system that pays medical costs and part of lost wages to employees injured on the job, regardless of fault, in exchange for limits on suing the employer.

Coverage for property that moves from place to place or is in transit, or that is unusual at a fixed location, such as contractors' tools, cargo, or fine art.

Coverage for claims that a professional's error, omission, or negligent advice caused a client financial harm rather than physical injury; also called errors and omissions insurance.

A 1945 federal law confirming that the states regulate the business of insurance and limiting federal interference, while leaving room for federal antitrust law in certain situations.

The National Association of Insurance Commissioners, a voluntary organization of state regulators that drafts model laws and forms and coordinates oversight, though it holds no direct legal authority itself.

A regulatory review of an insurer's or producer's sales, underwriting, rating, claims, and complaint handling practices to test compliance with consumer protection requirements.

Giving back part of a premium or offering something of value to a buyer as an inducement to purchase insurance; generally prohibited as an unfair trade practice.

Using misrepresentation or pressure to persuade a policyholder to drop or surrender existing coverage and replace it with another policy, usually to the policyholder's disadvantage.

The state requirement that agents and brokers pass examinations, undergo background checks, and hold a valid license for each line of insurance they sell.

Required ongoing coursework that licensed producers must complete within a set period to keep their licenses active and stay current on products, rules, and ethics.

The legal obligation of an agent or broker to act in the client's best interest and to handle premiums and client money honestly, separately, and on time.

A state entity that pays certain claims of policyholders of an insolvent insurer up to statutory limits, funded by assessments collected from licensed insurers.