III IC-81 key terms

A contract in which one party collects a premium and, in return, agrees to compensate another party for specified losses arising from stated uncertain events.

The possibility of loss or an outcome differing from what was expected; in insurance, the chance that a covered event occurs and produces a financial loss.

The specific cause of a loss, such as fire, theft, flood or accident. Policies state which perils are covered and which are excluded.

A condition that increases the likelihood or severity of a loss from a given peril, such as poor wiring, careless habits or a combustible building.

A situation offering only the chance of loss or no loss, with no possibility of gain; this is the type of risk insurance is designed to handle.

A situation that may produce a gain or a loss, such as a business venture or share purchase. Such risks are normally not insurable.

A financial relationship in which the policyholder would suffer a genuine monetary loss if the insured event occurred; it must exist at inception and, for property, at the time of loss.

The principle requiring both insurer and proposer to disclose all material facts fully and honestly, so that the insurer can assess and price the risk fairly.

Any information that would influence a prudent insurer's decision to accept a risk or to set its terms and premium. Proposers must disclose such facts.

The principle that a claimant should be restored financially to the position held before the loss, no better and no worse, subject to the sum insured.

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

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 dominant, effective cause of a loss, as opposed to a remote cause. Claims are settled according to the proximate cause and whether that peril is covered.

The consideration paid by the policyholder for insurance cover. It is calculated from the risk profile, sum insured, rate and any loadings or discounts.

The maximum amount an insurer will pay under a policy for a covered loss, representing the value placed on the insured interest at inception.

The amount of each loss the policyholder must bear before the insurer pays. It reduces premium and discourages small claims.

A sum deducted from a claim, often compulsory under a policy clause or imposed for a particular risk, so the insured shares in the loss.

A loss or situation specifically stated in the policy as not covered, such as war, wear and tear or deliberate damage, defining the boundary of cover.

A written amendment attached to a policy that alters, extends or restricts its terms and conditions. It prevails over the original wording.

The formal contract of insurance setting out the parties, cover granted, exclusions, conditions, sum insured, premium and claim procedure.

A statement or condition in the policy that the insured promises to observe; breach may allow the insurer to avoid liability, depending on its wording and relevant law.

A term of the policy that imposes duties on the insured or insurer, such as notifying claims promptly or maintaining protective measures. It affects enforceability of cover.

The process of assessing a proposed risk, deciding whether to accept it, and determining the terms, conditions and premium to apply.

The application document completed by a person seeking insurance, giving information the underwriter needs to assess the risk and decide terms.

The method of calculating premium by applying rates to a base such as sum insured or payroll, adjusted for risk features and experience.

Insurance purchased by an insurer to transfer part of its risk to another insurer, protecting solvency and enabling it to accept larger or more concentrated risks.

The portion of risk an insurer keeps for its own account after ceding the remainder to reinsurers, or the amount of loss it bears itself.

An arrangement where two or more insurers each accept a stated share of the same risk, each bearing its proportion of any loss.

Situations where the same interest is insured against the same peril with more than one insurer, entitling the insured to recover only once in total.

Cover where the sum insured is less than the actual value of the property, so any claim is reduced proportionately under average or similar clauses.

A policy condition that reduces a claim in proportion to the shortfall between the sum insured and the actual value of the insured property.

A premium discount granted at renewal when no claim has been made during the preceding policy year, rewarding favourable claims experience.

The process of continuing a policy for a further period, usually requiring fresh premium and re-declaration of material facts by the insured.

A formal request by the insured for payment under a policy following a loss, supported by evidence of the loss and its circumstances.

A professional appointed to investigate a claim, determine the cause and amount of loss, and recommend settlement to the insurer.

The residual value of damaged property after a loss. Insurers may take it into account or sell it, reducing the net amount payable.

A false or misleading statement made by a proposer or insured, whether innocent or deliberate, that may affect the validity of the contract.

Failure by a proposer to reveal a material fact that a prudent insurer would consider relevant, potentially entitling the insurer to avoid the contract.

The risk that an insured's behaviour becomes less careful, or that a person deliberately causes a loss, because insurance cover exists.