IAI SA4 key terms

A legal and financial stake in the subject matter of insurance such that the policyholder benefits from its survival or suffers loss from its damage, destruction, or the event insured against. It must exist at inception for life cover.

The principle that a general insurance claim payment should restore the policyholder to the financial position held immediately before the loss, no better and no worse, subject to policy limits, excesses, and sums insured.

A condition reducing claims in proportion to underinsurance, applied when the sum insured is less than the value at risk at the time of loss. Payment equals loss multiplied by sum insured divided by value at risk.

The maximum amount an insurer will pay under a policy, stated in the schedule. It may represent the full value at risk, a first-loss limit, or an aggregate limit across multiple insured events.

The first portion of each loss that the policyholder bears, deducted from the claim settlement. It reduces small claims and premium, and may be compulsory, voluntary, or applied per event or per section.

An amount the insured must pay before insurer liability begins, common in commercial and health contracts. Unlike a simple excess, it may be structured as an annual aggregate that applies across several claims in a period.

A sharing arrangement where the insurer and policyholder split each loss by a stated percentage, or where several insurers each accept a defined proportion of a large risk under a single set of terms.

The improvement in the insured's position when a claim settlement replaces old property with new. Insurers typically deduct for betterment so settlement respects the indemnity principle rather than funding an upgrade.

A basis of settlement under property cover where the insurer funds rebuilding or replacement to a condition equivalent to new, subject to a stated limit, rather than paying depreciated indemnity value.

The insurer's right, after paying a claim, to step into the insured's legal position and recover the loss from the party responsible. It prevents the insured from recovering twice for the same loss.

The principle allowing an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest, peril, and period, so the insured does not profit from overlapping policies.

The mutual duty of insurer and insured to act honestly and disclose material facts. For commercial and consumer contracts it is now largely codified as a duty of fair presentation with proportionate remedies for breach.

Information that would influence a prudent insurer's decision on whether to accept a risk, the terms applied, or the premium charged. It must be disclosed before cover is bound, whether or not the insurer asks.

The risk that the existence of insurance changes an insured's behaviour, encouraging carelessness or dishonest claims. Insurers manage it through excesses, conditions, exclusions, and claims investigation.

A policy term that must be complied with exactly, historically allowing the insurer to avoid the contract for any breach even if unrelated to the loss. Consumer insurance reforms now limit this to suspensory remedies.

A policy term that must be satisfied before the insurer's liability arises, for example notifying a claim promptly or maintaining protective safeguards. Breach may entitle the insurer to decline the claim.

A clause removing specified perils, property, or circumstances from cover, such as wear and tear, war, or intentional acts. Exclusions define the boundary of cover and are read alongside the insuring clause.

Insurance purchased by an insurer to transfer part of its risk portfolio to another insurer. It protects solvency and capacity, and may be proportional, such as quota share, or non-proportional, such as excess of loss.

The amount of capital a regulated insurer must hold to absorb adverse experience over a one-year horizon at a specified confidence level, calculated under the risk-based regime applicable in its jurisdiction.

An additional capital buffer in technical provisions that reflects the cost of holding required capital against non-hedgeable risks until liabilities run off, distinct from the best estimate of liabilities.

The probability-weighted present value of future cash flows arising from insurance obligations, calculated using realistic assumptions for mortality, morbidity, expenses, and investment returns without prudential margins.

The probability that a person of a given age dies within a defined period, usually a year. It drives life assurance pricing and annuity valuation, and is commonly expressed per thousand lives at risk.

The frequency with which illness or injury occurs in a population over a period, often split into incidence and duration of claim. It underpins pricing and reserving for health, critical illness, and income protection cover.

The average number of further years a person of a given age is expected to live on current mortality assumptions. It is central to annuity pricing, pension projections, and longevity risk assessment.

The risk that people live longer than assumed, raising the cost of annuities and pension promises. It is systematic and hard to diversify, and may be transferred through buy-ins, buy-outs, or longevity swaps.

A contract paying a regular income, usually for life, in exchange for a lump sum. Variants include level, escalating, impaired life, and deferred annuities, each reflecting different mortality and interest assumptions.

An annuity purchased by someone with a reduced life expectancy due to illness or lifestyle, paying a higher income because expected duration of payment is shorter. Underwriting uses medical evidence and lifestyle questionnaires.

The process of assessing and classifying a proposed risk to decide whether to accept it and on what terms, premium, and exclusions. It uses medical, financial, and lifestyle evidence proportionate to the sum at risk.

The amount payable on the occurrence of the insured life event under a life or health policy, before any adjustments. It may be level, increasing, or linked to an investment fund.

The amount a policyholder receives on voluntarily terminating a savings-type life policy before maturity. It reflects accumulated reserves less charges and may be subject to surrender penalties or market value adjustment.

A whole life or endowment policy where premiums cease but cover continues at a reduced sum assured, calculated from the reserves already built up. It avoids surrender and preserves some protection.

A pooled life fund where policyholders share in investment and other experience through regular and final bonuses. Smoothing spreads returns, and an estate provides support in poor years.

The practice of aligning the timing, currency, and sensitivity of investment assets with expected insurance or pension payments, reducing interest rate and inflation mismatch risk in long-duration liabilities.

Long-term health cover replacing part of earned income when the insured cannot work through illness or injury, usually paying after a deferred period and subject to an occupational or activities-based definition of incapacity.

The waiting time after incapacity begins before income protection benefit becomes payable, chosen to align with employer sick pay or savings. Longer deferred periods reduce premium and claims frequency.

A policy paying a lump sum on diagnosis of a listed condition meeting a specified severity definition, such as cancer or heart attack. Definitions and survival periods determine whether a claim is valid.

Cover reimbursing or directly paying the cost of medical treatment, often with networks, pre-authorisation, and annual limits. It manages cost through deductibles, co-payment percentages, and benefit caps.

An occupational pension promising benefits based on salary and service, with the employer bearing investment and longevity risk. Funding is monitored through actuarial valuations and a statutory funding objective.

A pension arrangement where contributions are invested and the member bears investment risk, retiring with a fund used to buy income. Outcomes depend on contribution levels, charges, and investment returns.

A periodic assessment by an actuary of a pension scheme's assets and liabilities, determining the funding position and required contribution rate. It uses demographic and economic assumptions and a recovery plan if deficient.

The transfer of a defined benefit scheme's liabilities to an insurer, which then pays members directly. A related buy-in holds a bulk annuity as a scheme asset while the trustees retain responsibility.