III IC-57 key terms

A financial relationship with the insured property or exposure such that the insured gains from its survival and loses from its damage. It must exist when cover begins and, for property claims, at the time of loss.

The rule that a property claim should restore the insured to roughly the same financial position held before the loss, no better and no worse, subject to policy limits, deductibles and any agreed valuation basis.

The mutual duty on proposer and insurer to disclose material facts and avoid misleading statements before the contract is formed and, in many legal systems, throughout the relationship.

Information that a prudent underwriter would treat as influencing acceptance of the risk or the terms and premium charged, such as prior losses, occupancy, construction or hazardous processes.

Failure by the proposer to reveal a material fact the insurer needed to assess the risk. Consequences range from avoided cover to proportionate claim reduction, depending on the jurisdiction and the proposer's state of mind.

A false or misleading statement of fact made to the insurer during negotiation of cover. If it is material and induced the contract, the insurer may have remedies against the insured.

A condition reducing a partial loss payment in proportion to underinsurance, calculated as sum insured divided by the value at risk, then applied to the loss amount.

Carrying a sum insured below the true value at risk, so a total loss leaves the insured short and a partial loss is reduced where average or similar conditions apply.

The maximum amount the insurer will pay for property damage under the policy, before adjustments for average, limits, deductibles or additional covers.

The full cost of replacing or reinstating the insured property at the declared basis of settlement, used to test whether the sum insured is adequate.

The cost of rebuilding, replacing or repairing the property to a comparable standard without deduction for wear and tear, usually subject to a condition requiring actual reinstatement.

The reduction in value of property from age, use, wear or obsolescence, deducted when a claim is settled on an indemnity rather than reinstatement basis.

The improvement in the insured's position when a claim payment funds new property in place of old, which insurers commonly deduct to preserve the indemnity principle.

The maximum sum payable under a policy or a specified section or extension, including sub-limits for particular perils, locations or categories of property.

A cap within the main sum insured that restricts payment for a defined category, such as money, works of art, debris removal or a named peril.

The amount of each loss the insured bears before the insurer pays, whether expressed as a fixed sum, a percentage of the sum insured or a period of time.

A first-loss amount deducted from each claim, similar to a deductible but often applied per occurrence or per peril; some excesses are aggregate or annual rather than per claim.

A threshold below which no claim is paid at all, but once exceeded the full loss is settled without deduction of the threshold amount.

An arrangement where two or more insurers each accept a stated percentage of the same risk, or where the insured contractually agrees to carry a share of every loss.

Insurance bought by an insurer to transfer part of the risk it has accepted, protecting its results and capacity; it does not alter the original insured's rights against the insurer.

Reinsurance placed risk by risk, where the reinsurer may accept or decline each individual submission and set its own terms.

A standing agreement under which the reinsurer automatically accepts a defined class or portfolio of risks that fall within the treaty terms.

The portion of risk an insurer or reinsured keeps for its own account after ceding the balance to reinsurers.

The dominant, effective cause of a loss, the one that sets the others in motion without interruption by an independent new cause, used to decide whether a peril is covered.

A policy wording that covers only the perils specifically listed, such as fire, lightning, explosion, storm or theft, with the burden on the insured to show the loss falls within a listed peril.

Cover for accidental loss or damage except what is expressly excluded, so the insured need not prove a specific peril but must show the loss was accidental and not excluded.

A list of additional perils, typically storm, flood, escape of water, impact, subsidence and malicious damage, added to a basic fire policy by extension.

A clause removing specified perils, property or circumstances from cover, such as war, nuclear risks, wear and tear, or damage caused deliberately by the insured.

A policy term the insured promises to comply with exactly; breach may suspend or void cover for the affected risk, depending on the wording and applicable insurance law.

A policy condition that must be satisfied before the insurer's liability arises, for example maintaining protective safeguards or notifying a claim promptly.

The insured's duty to inform the insurer of a loss promptly and in the required form, giving details needed for investigation; late notice can prejudice recovery.

The documented evidence an insured submits to support a claim, such as inventories, invoices, repair estimates and accounts, allowing the insurer to verify the amount claimed.

An independent specialist appointed by the insurer to investigate the circumstances and quantum of a claim, verify the cause and recommend settlement.

The residual value of damaged property, which the insurer may take over or sell to reduce the net claim, or which the insured must account for under the policy.

The insurer's right, after paying a claim, to stand in the insured's shoes and recover the loss from a third party responsible for it.

The principle allowing an insurer that has paid a claim to recover a proportionate share from other insurers covering the same interest against the same peril.

The risk that the insured's behaviour becomes less careful, or that a loss is exaggerated or contrived, because insurance exists; underwriters assess it through claims history and controls.

Financial loss following damage to property, such as lost profit or extra costs, as distinct from the physical damage itself; it requires its own cover.

Cover that pays the insured's lost trading results and increased costs of working caused by insured damage to property at the insured's premises or elsewhere.

In business interruption wording, the difference between turnover and the specified working expenses, representing the earnings that would have been generated had the damage not occurred.

The money paid or payable to the insured for goods sold and services provided in the ordinary course of business, usually measured over the twelve months before the damage.

The ratio of gross profit to turnover in the last financial year before the loss, applied to the turnover that would have been achieved during the interruption to measure the loss.

The maximum period, beginning with the date of damage, during which loss of results and increased costs of working are payable under a business interruption policy.

Additional expenditure reasonably and necessarily incurred to avoid or reduce a business interruption loss, such as hiring temporary premises or overtime working, subject to policy tests.

Fixed costs that continue during an interruption, such as rent, salaries and interest, which may be insured separately when the gross profit basis excludes them.

Amounts owed to the insured by customers. Specific cover can protect against the loss of records or inability to collect debts after insured property damage.

Cover for lost results caused by insured damage at the premises of a supplier or customer on which the insured's business depends, rather than at its own site.

A location, not owned by the insured, whose damage can trigger the insured's business interruption cover, such as a key supplier, distributor or utility installation.

An extension paying business interruption loss when authorities close or restrict access to the insured's premises because of insured damage nearby, even though the premises are unharmed.

Consequential cover for rental income lost when insured damage makes a property unlettable, or for the cost of alternative accommodation where the insured is the tenant.

A condition allowing the insurer to examine the insured's books and records to verify the declared figures and the calculated claim, adjusting the settlement accordingly.

Adjusting historical turnover or gross profit for expected growth or decline so the sum insured reflects the level likely to apply during the indemnity period.

A claims approach that pays the insured's lost results or the increased cost of working, whichever is greater, so the insured is not left worse off by choosing to mitigate.