III IC-22 key terms

A legal and financial stake in the person or property insured, such that the policyholder gains from its survival or suffers measurable loss from its damage. It must exist when the contract starts.

The principle that a property or liability claim restores the insured to the same financial position as before the loss, no better and no worse. Life policies depart from this because a life has no measurable money value.

The mutual duty of applicant and insurer to disclose all material facts relevant to the risk, without being asked. Breach by the applicant may let the insurer avoid the contract.

Any information that would influence a prudent underwriter's decision to accept a risk, set its terms, or calculate the premium. Examples include prior claims, hazardous occupations, and serious illness.

Failure by the applicant to reveal a material fact the insurer needed. Depending on the law and the insurer's remedy, it may lead to cancellation of the policy, reduced claim payment, or refusal of the claim.

The dominant, effective cause of a loss, as opposed to a remote contributing factor. Claims are decided by asking whether the loss flowed from an insured peril in an unbroken chain of events.

The specific event or happening that causes loss, such as fire, collision, theft, or death. A peril differs from a hazard, which is a condition that increases the chance of loss.

A condition or circumstance that raises the likelihood or severity of a loss without being the loss event itself. Physical hazards include poor wiring; moral hazards include dishonest intent.

The risk that the insured's own behaviour, such as carelessness or dishonesty, increases claims. Insurers counter it with deductibles, exclusions, claims investigation, and careful selection of applicants.

The core insurance mechanism in which many people contribute premiums so that the few who suffer losses can be compensated. It works best when exposures are numerous, similar, and independent of each other.

The statistical principle that as the number of similar independent exposures grows, actual loss experience converges on the expected average. It underpins credible premium rating and reserve setting.

The insurer's right, after paying a claim, to step into the insured's shoes and recover the loss from the party responsible. It prevents the insured from recovering twice and keeps the cost with the wrongdoer.

The principle that where two or more policies cover the same loss on the same interest, each insurer shares the cost proportionately. The insured cannot collect the full amount from each policy.

A condition that reduces a claim payment when the sum insured is less than the value of the property, in proportion to the underinsurance. It applies to many commercial property and fire policies.

The maximum amount the insurer will pay under a policy for a covered loss, usually stated in the schedule. For life cover it is the benefit payable on death or maturity.

The amount of life insurance benefit chosen at inception and payable on the insured event or at maturity. Bonuses or dividends may be added to it in participating policies.

The money the policyholder pays to the insurer in exchange for cover. It is built from expected claims, expenses, and a margin for profit and contingencies.

An addition to the basic premium to reflect extra risk, expenses, or profit margin. Substandard lives, hazardous occupations, and instalment payment methods commonly attract loadings.

A statistical table showing the rate of death at each age in a defined population. Life insurers use it with interest and expense assumptions to price life products and set reserves.

Money an insurer sets aside to meet future obligations to policyholders. Life reserves support guaranteed benefits; general insurers hold reserves for outstanding and incurred but not reported claims.

The cash amount a policyholder receives on voluntarily terminating a savings-type life policy before maturity. It is usually lower than total premiums paid in the early years because of acquisition costs.

The savings element that builds inside a whole life or endowment policy, on which surrender value and policy loans are based. Term insurance normally has no cash value.

A loan made by the insurer to the policyholder, secured by the cash value of the policy. Interest accrues and any unpaid balance reduces the benefit paid on death or surrender.

Pure protection cover for a fixed period, paying a benefit only if death occurs within that term. It has no savings element and is the cheapest form of life cover.

Cover that lasts for the insured's entire lifetime, with the benefit payable whenever death occurs. Premiums may be paid for life or limited to a chosen period.

A life policy that pays the sum assured on death within the term, or on survival to the end of the term. It combines protection with a savings element.

A life policy that shares in the insurer's surplus through bonuses or dividends, in addition to the guaranteed sum assured. Bonuses may be reversionary or terminal.

A contract that pays a regular income for a defined period or for life, in exchange for a lump sum. It addresses the risk of outliving one's savings.

A policy option allowing the insured to continue cover at expiry without fresh evidence of health. Premiums rise with age, but the insurer cannot refuse renewal.

The process of assessing a proposed risk and deciding whether to accept it, on what terms, and at what premium. It protects the pooled fund from adverse selection.

The tendency for higher-risk people or property to seek or retain insurance more eagerly than lower-risk ones when pricing is uniform. It threatens the viability of the pool.

The first portion of each loss that the insured bears before the insurer pays. It reduces small claims, lowers premiums, and discourages careless behaviour.

The amount deducted from a claim before settlement, similar in effect to a deductible. Compulsory excesses apply to higher-risk risks; voluntary excesses earn a premium reduction.

A stated circumstance, peril, or property that the policy does not cover. Exclusions define the boundary of cover and include war, wear and tear, and deliberate acts.

The cost of rebuilding or replacing damaged property with new equivalent items, without deduction for depreciation. It differs from market value and usually requires a higher sum insured.

Incurred but not reported claims: losses that have already happened but have not yet been notified to the insurer. Insurers estimate them to present a true picture of liabilities.

The process of estimating the amount an insurer must hold to settle reported and unreported claims. Accurate reserves protect solvency and are scrutinised by regulators and auditors.

Insurance bought by an insurer to transfer part of its risk to another insurer, the reinsurer. It protects against large single losses and against the accumulation of many claims from one event.

The portion of risk an insurer keeps for its own account after ceding the rest to reinsurers. It is set in line with capital and appetite for risk.

The excess of an insurer's admissible assets over its liabilities, required by regulation as a buffer against unexpected losses. Falling below the minimum triggers supervisory intervention.

The body that licenses insurers and intermediaries, sets capital and conduct rules, and monitors market behaviour. Its aims include policyholder protection and financial stability.

A standing agreement between a reinsurer and an insurer to automatically accept a defined class of risk. It contrasts with facultative reinsurance, which is negotiated risk by risk.