III IC-102 key terms

A legal and financial stake in the person or property insured, such that the policyholder benefits from its survival and suffers loss from its damage or destruction. It must exist when the contract is formed.

The rule that a property or liability claim payment should restore the policyholder to roughly the financial position held before the loss, neither creating profit nor leaving the insured bearing the full burden.

The mutual duty on both parties, especially the applicant, to disclose all material facts relevant to the risk honestly and completely before cover begins and during the policy term.

Any piece of information that would influence a prudent insurer's decision on whether to accept a risk, what premium to charge, or what terms and exclusions to impose.

Failure by the applicant to reveal a material fact that the insurer needed for underwriting, whether deliberate or accidental, which may entitle the insurer to avoid the contract or reduce a claim.

A risk that can reasonably be transferred to an insurer because it is measurable, accidental, large enough to matter, spread across many similar exposures, and not catastrophic for the whole pool at once.

Collecting many similar but independent exposures into one fund so that the contributions of the many finance the losses of the few, making individual outcomes predictable in aggregate.

A statistical principle stating that as the number of similar independent exposure units grows, actual loss experience converges toward the expected average, improving the reliability of premium calculations.

The tendency of applicants with above-average risk to seek or retain cover more actively, which can distort premium adequacy unless underwriting and pricing separate risk classes effectively.

The increased likelihood of loss, or of a larger claim, caused by the insured's attitudes or behaviour because the financial consequences are partly carried by the insurer.

The insurer's right, after paying a claim, to step into the policyholder's shoes and recover the loss from the party responsible, preventing double recovery and reinforcing indemnity.

The principle allowing an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest, risk and period, so no policyholder profits from overlap.

The dominant, effective cause of a loss in an unbroken chain of events, used to decide whether an insured peril or an exclusion governs the claim.

A specific event or circumstance, such as fire, theft or accidental damage, that the policy expressly names as covered and against which the insurer agrees to pay.

A policy provision that removes stated events, property, persons or circumstances from the scope of cover, often because the risk is uninsurable, better handled elsewhere, or controllable by the insured.

The amount the policyholder pays, usually in advance, for the insurer's promise of cover; it must fund expected claims, expenses, reserves and a margin for profit and contingencies.

Characteristics of the risk, such as age, location, occupation or claims history, used to classify an exposure and set a premium that reflects its expected loss cost.

The process of assessing an application, classifying the risk, deciding whether to accept it, and setting the terms, premium and any conditions or exclusions that will apply.

A fixed amount the policyholder bears on each loss before the insurer pays, which removes small claims, reduces premium and gives the insured a reason to prevent losses.

The maximum amount the insurer will pay under a policy, chosen to reflect the value of the insured interest or the limit of liability required; it anchors indemnity calculations.

A situation where the sum insured is below the true value of the insured interest, so indemnity principles or average clauses reduce claim payments proportionately.

A policy condition that scales down a partial loss payment in proportion to the gap between the sum insured and the full value of the property, penalising underinsurance.

Cover arranged with two or more insurers over the same interest, peril and period, where the total sums exceed the value, so the insured cannot recover more than the actual loss.

Insurance bought by an insurer to transfer part of its accepted risk to another insurer, protecting solvency and capacity while leaving the original policyholder's contract unchanged.

A reinsurance or policy arrangement in which the buyer pays losses above an agreed amount, up to a stated limit, keeping the lower layer itself.

The portion of risk an insurer or policyholder deliberately keeps rather than transfers, whether by choice, by treaty terms or through a deductible.

A formal request by the policyholder or a third party for payment or benefit under a policy, supported by evidence of loss and assessed against the policy terms.

The residual value of damaged property recovered after a loss, which is credited against the claim so the insured does not recover more than the indemnity due.

The remedy that treats a contract as never having existed, used where the applicant seriously breached the duty of good faith; modern rules often replace it with proportionate remedies.

The regulatory authorisation an insurer, broker or agent must hold to conduct insurance business lawfully, granted only after standards on capital, fitness and conduct are met.

The minimum excess of admissible assets over liabilities that a regulator requires an insurer to hold, providing a buffer against unexpected losses and protecting policyholders.

Rules governing how insurers and intermediaries treat customers, covering fair selling, disclosure, complaints handling and claims settlement, enforced through supervision and sanctions.

The liabilities an insurer recognises for its insurance obligations, chiefly unearned premium and outstanding claims reserves, calculated on prudent and consistent actuarial bases.

The portion of premium received that relates to cover not yet provided at the reporting date, held as a liability and released to income as the policy period runs down.

The part of written premium that corresponds to cover already provided during the accounting period, recognised as revenue and matched against claims and expenses.

Incurred but not reported: an estimate of claims that have occurred before the reporting date but have not yet been notified to the insurer, included in claim reserves.

The provision set aside for reported claims that are still open, covering the expected ultimate cost of settlement, including legal, adjustment and recovery expenses.

Incurred claims divided by earned premium over a period, a core measure of underwriting performance and pricing adequacy, often expressed as a percentage.

Underwriting expenses divided by written premium, showing the cost of acquiring and administering business and complementing the loss ratio in assessing overall profitability.

The sum of the loss ratio and the expense ratio; a figure below 100 percent indicates an underwriting profit before investment returns are considered.