III IC-71 key terms

A contract in which one party transfers the financial risk of a possible loss to an insurer, which agrees to pay a defined benefit or indemnity if a specified event occurs.

A legally recognized relationship between a person and the subject of insurance such that the person would suffer a genuine financial loss if the insured event occurred. It must exist when the policy is formed.

The mutual duty on both insurer and policyholder to act honestly and disclose all material facts relevant to the risk. Breach by the proposer can allow the insurer to avoid the contract.

Any information that would influence a prudent insurer's decision on whether to accept a risk, or on the terms and premium applied. It must be disclosed even if not specifically asked about.

Failure by a proposer to reveal a material fact to the insurer. If the omission is material and induced the contract, the insurer may have grounds to avoid the policy.

A false or misleading statement of fact made by a proposer that induces the insurer to enter the contract. It can be innocent, negligent, or fraudulent, with different remedies for each.

The principle that a property or liability policy should restore the insured to the financial position held before the loss, no better and no worse. It limits recovery to the actual loss suffered.

The improvement in the insured's position when a claim payment funds a new replacement for an old, worn item. Insurers typically reduce settlement to avoid the insured gaining from a loss.

The reduction in an asset's value due to age, wear, or obsolescence. It is used to calculate the indemnity value of property at the time of loss rather than its new replacement cost.

The amount the policyholder pays the insurer in exchange for cover. It reflects the assessed risk, expenses, and profit margin, and non-payment can lead to lapse or cancellation.

The process of calculating the premium for a risk using factors such as exposure, claims history, and hazard characteristics. It may use class rates, experience rating, or individual underwriting judgment.

The insurer's assessment of a proposed risk to decide whether to accept it, on what terms, and at what premium. It identifies hazards and applies exclusions, conditions, or loadings as needed.

The formal written contract of insurance setting out the parties, the insured risk, the sum insured or limits, the premium, and the conditions, exclusions, and definitions that govern the cover.

The part of a policy that records the specific details of the individual risk, such as the insured's name, the property or activity covered, the sums insured, the period, and the premium.

A clause that removes specified events, perils, property, or circumstances from the cover provided. Losses falling within an exclusion are not payable, even if the general cover would apply.

A term of the policy that imposes obligations on the insured or the insurer, such as notifying claims promptly or maintaining protective measures. Breach may affect the insurer's liability.

A promise by the insured that a particular state of affairs exists or will be maintained. Breach traditionally allows the insurer to treat the contract as discharged, even if the breach is unrelated to the loss.

The maximum amount the insurer will pay under the policy, or the value placed on the insured subject matter. It forms the basis for assessing average or underinsurance where applicable.

A situation where the sum insured is less than the full value of the insured property or exposure. It can reduce claim payments where average applies and leaves the insured bearing part of the loss.

A policy provision that reduces a claim in proportion to the shortfall between the sum insured and the actual value at risk. It discourages deliberate underinsurance and shares the loss.

The amount of each loss that the insured must bear before the insurer pays. It is often used in place of, or alongside, an excess to reduce small claims and lower the premium.

The first portion of a claim that the insured agrees to pay, with the insurer meeting the balance. It may be compulsory or voluntary, and a higher excess usually reduces the premium.

Insurance purchased by an insurer to transfer part of its risk to another insurer, called a reinsurer. It protects the ceding insurer's solvency and capacity to write large or concentrated risks.

Reinsurance arranged for a single, specific risk, with the reinsurer free to accept or decline each submission. It offers flexibility for unusual or large risks not covered by a treaty.

A standing agreement under which the reinsurer automatically accepts a defined class or portfolio of risks that the ceding insurer writes, subject to the treaty's terms and limits.

The portion of risk that an insurer keeps for its own account rather than passing to reinsurers. It is set with regard to capital, solvency requirements, and appetite for volatility.

An arrangement where two or more insurers each accept a stated percentage share of the same risk under a single policy, sharing premiums and claims in those proportions.

The dominant, effective cause of a loss, as opposed to a remote or incidental factor. Insurers look to the proximate cause to decide whether the loss falls within the insured perils.

The specific event or hazard that can cause a loss, such as fire, flood, theft, or collision. Policies list the perils covered, either as named perils or as all risks.

Cover that responds to any accidental loss or damage to the insured subject matter, except where specifically excluded. The insured still bears the burden of proving a loss occurred.

A condition or circumstance that increases the likelihood or severity of a loss. Physical hazards relate to the property itself, while moral and morale hazards relate to the insured's conduct.

The increased chance of loss arising from dishonest or unethical conduct by an insured, such as deliberate damage or exaggerated claims. Insurers screen for it during underwriting.

Carelessness or indifference by an insured because insurance exists, increasing the chance of loss. Examples include leaving property unsecured or failing to maintain protective systems.

The possibility of loss or an adverse outcome, measurable in terms of likelihood and severity. Insurance manages pure risk, where outcomes are loss or no loss, rather than speculative risk.

The systematic process of identifying, assessing, and treating exposures to loss through avoidance, reduction, retention, or transfer. Insurance is one transfer tool within a wider risk strategy.

The process by which an insurer receives, investigates, assesses, and settles claims. It includes verifying cover, quantifying the loss, applying exclusions and excesses, and paying valid claims promptly.

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

The right of an insurer that has paid a claim to recover a proportionate share from other insurers covering the same loss. It prevents the insured from recovering more than the actual loss.