III IC-104 key terms

The legal and financial stake a person holds in the subject matter of insurance, such that loss or damage would cause genuine financial detriment; it must exist at inception and, for property, at the time of loss.

The mutual duty on proposer and insurer to disclose all material facts honestly and completely, without being asked, so that the risk can be fairly assessed and priced before the contract is formed.

Any information that would influence a prudent underwriter's decision to accept the risk, set the premium, or impose terms; it must be disclosed whether or not the insurer asks for it.

Failure by the proposer to reveal a material fact, whether deliberate or inadvertent, which may entitle the insurer to avoid the contract or reduce a claim depending on the governing law.

A false or misleading statement of fact made by the proposer during negotiations, which can render the contract voidable if it is material and induced the insurer to accept the risk.

The rule that a property or liability insurance payout should restore the insured to the financial position held before the loss, no better and no worse, preventing profit from misfortune.

The insurer's right, after paying a claim, to step into the insured's legal shoes and recover the loss from the negligent third party responsible, preventing double recovery by the insured.

The right of one insurer to recover a proportionate share of a loss from other insurers covering the same interest against the same peril, ensuring each pays only its fair portion.

The situation where the same insured takes out more than one policy covering the same interest, subject matter and peril; total recovery is limited to the actual loss.

The dominant, effective and efficient cause of a loss, the one that sets the chain of events in motion without interruption; it determines whether the policy responds.

The specific event or contingency that may cause loss, such as fire, flood, theft or collision; the policy schedule states which perils are covered.

A condition or circumstance that increases the likelihood or severity of a loss from a given peril, such as poor housekeeping, faulty wiring or a careless driver's record.

The risk that the very existence of insurance changes an insured's behaviour towards greater carelessness, or encourages dishonest claims, because the financial consequences are shifted to the insurer.

A clause in the policy that removes specified perils, property, persons or circumstances from cover, defining the boundary of the insurer's promise and often reflecting uninsurable or better-managed risks.

A promise or condition in the policy that the insured must comply with exactly; breach may allow the insurer to treat the contract as discharged, though modern regimes often soften this to relevance-based remedies.

A policy term that must be satisfied before the insurer becomes liable, for example notifying a claim promptly or obtaining consent before admitting liability to a third party.

The maximum amount the insurer will pay under a policy, fixed at inception for most non-life covers and used as the basis for premium calculation and average provisions.

Arises when the sum insured is less than the actual value of the property at risk, so that claim settlements are scaled down proportionately and the insured bears part of every loss.

A policy provision that reduces a claim in the proportion that the declared sum insured bears to the actual value of the property, penalising underinsurance.

The cost of replacing or rebuilding damaged property with new material of like kind and quality, without deduction for depreciation, usually available only if the sum insured reflects that basis.

The reduction in the value of an asset due to age, wear and tear, or obsolescence, used to convert replacement cost into indemnity value for claim assessment.

The first amount of each loss that the insured must bear, applied either as a fixed sum or a percentage, in exchange for a reduced premium and to discourage small claims.

An amount specified in the policy that is deducted from the assessed loss before payment, or the amount by which a claim must exceed a threshold before the insurer responds.

An arrangement where two or more insurers share a single large risk under one policy, each accepting a stated percentage of the sum insured and of every claim.

Insurance bought by an insurer to transfer part of its accepted risk to another insurer, protecting its solvency and capacity in return for a share of the original premium.

A case-by-case arrangement where the reinsurer is free to accept or decline each individual risk offered, and the insurer is free to decide whether to offer it.

A standing agreement under which the reinsurer automatically accepts all risks falling within a defined class and limit, obliging the insurer to cede and the reinsurer to accept.

A proportional reinsurance treaty in which the insurer retains a fixed amount per risk and cedes the excess up to an agreed multiple, with premium and claims shared proportionately.

A proportional reinsurance agreement under which the insurer cedes a fixed percentage of every risk in the covered class, and the reinsurer takes the same percentage of premium and claims.

A non-proportional reinsurance arrangement where the reinsurer pays losses above a retention up to a stated limit, protecting the insurer against large single losses or catastrophe accumulations.

The amount of risk an insurer or reinsured deliberately keeps for its own account before reinsurance or other risk transfer responds.

The consideration paid by the insured to the insurer for assuming risk, calculated from the rate applied to the sum insured and adjusted for loadings, discounts and policy fees.

The process of determining the premium for a risk by applying rates and factors to exposure measures such as sum insured, turnover, wages or vehicle type, reflecting expected loss cost.

Incurred claims expressed as a percentage of earned premium over a period; a core measure of underwriting performance and pricing adequacy for a class of business.

The sum of the loss ratio and expense ratio; a figure below 100 per cent indicates an underwriting profit, while above 100 per cent indicates an underwriting loss.

Operating expenses, including commission and acquisition costs, expressed as a percentage of net written premium, showing the cost of running the insurance operation.

A liability set aside for claims reported but not yet settled, plus estimates for losses incurred but not reported, reflecting the insurer's outstanding obligations.

Incurred But Not Reported: an actuarial estimate of claims that have occurred before the valuation date but have not yet been notified to the insurer, included in technical reserves.

The excess of admissible assets over liabilities that a regulator requires an insurer to maintain as a buffer against unexpected losses, ensuring it can meet obligations to policyholders.