III IC-89 key terms

A legal stake in the subject matter of an insurance policy such that the policyholder benefits from its continued existence or suffers a loss from its destruction. Required at inception and, for property coverage, at the time of loss.

The rule that an insurance payment should restore the insured to roughly the financial position held before the loss, neither more nor less. It underpins how sums insured, deductibles and settlement bases are set.

The mutual duty on proposer and insurer to disclose all material facts and avoid misleading statements during placement and throughout the contract. Breach can allow the other party to avoid the policy or adjust the claim.

Any information that would influence a prudent insurer's decision on whether to accept the risk, what terms to impose, or what premium to charge. Proposers must volunteer such facts without being asked.

Failure by a proposer to reveal a material fact the insurer needed to assess the risk. Consequences range from claim reduction to policy avoidance depending on whether the omission was deliberate, reckless or innocent.

An inaccurate or misleading statement made to an insurer during negotiations that induces it to enter the contract on terms it would not otherwise have accepted. Remedies depend on the statement's nature and the resulting prejudice.

The dominant, effective cause of a loss, the one that sets the chain of events in motion without a new intervening force. Policies typically pay only when a covered peril is the proximate cause.

The specific event or hazard that produces a loss, such as fire, theft, flood or collision. Policies list covered perils, and the insured must show the loss arose from one of them.

A policy provision that removes specified perils, property, persons or circumstances from cover. Exclusions define the boundary of the insured's protection and are read narrowly against the party that drafted them.

A condition applied when the sum insured is below the value of the risk, reducing claim payments in proportion to the shortfall. It penalises underinsurance and appears commonly in property and business interruption wordings.

The maximum amount an insurer will pay under a policy or section, chosen by the insured to reflect the value at risk. It caps all liability and is central to calculating average and reinstatement settlements.

A situation where the declared sum insured is less than the true value of the insured property or exposure. It triggers proportional settlement under average clauses and leaves the insured bearing part of every loss.

The amount of each loss the insured must absorb before the insurer pays anything. Higher deductibles lower premium and reduce small claims, and they may apply per occurrence, per item or per year.

A first-loss amount deducted from each claim, often used interchangeably with deductible in some markets. It can be compulsory, imposed by the insurer, or voluntary, chosen by the insured for a premium discount.

An arrangement where two or more insurers each accept a stated share of the same risk under one policy, each liable only for its proportion. Distinct from the insured sharing loss through a deductible.

Insurance bought by an insurer to transfer part of its accepted risk to another carrier. It protects the ceding insurer's solvency and capacity, and the original insured usually has no direct claim against the reinsurer.

Reinsurance negotiated separately for an individual risk, with the reinsurer free to accept or decline each submission. Used for unusual, large or hazardous exposures that fall outside automatic treaties.

An automatic agreement under which the reinsurer accepts a defined class or portfolio of risks that the ceding insurer writes. It obliges the reinsurer to take all business falling within the treaty terms.

The portion of risk an insurer or reinsured keeps for its own account rather than ceding to others. Retention levels reflect capital, appetite and the cost of transferring risk to the market.

The consideration paid by the insured for insurance cover, calculated from rate, exposure base and risk factors. It is the insurer's primary income and must be paid for the contract to be enforceable.

The process of calculating a premium for a risk by applying rates and factors to an exposure base such as turnover, payroll or property value. It blends actuarial data with underwriting judgement.

The unit of measurement to which an insurance rate is applied, for example payroll for employers' liability or declared value for property. Choosing the right base ensures premium tracks the risk actually written.

Incurred claims divided by earned premium over a period, usually expressed as a percentage. It measures underwriting performance and signals whether rates are adequate for the risk being carried.

Underwriting expenses divided by written premium, showing the cost of acquiring and administering business. Combined with the loss ratio it produces the combined ratio, a key profitability gauge.

The sum of the loss ratio and the expense ratio. A figure below 100% indicates an underwriting profit before investment income; above 100% indicates an underwriting loss.

Incurred But Not Reported reserves: an estimate for claims that have occurred but have not yet reached the insurer. It is a core part of technical reserves and requires actuarial projection methods.

Provision held for reported claims that remain unsettled, including the estimated ultimate cost of each. Together with IBNR it forms the insurer's claims liability on the balance sheet.

The excess of an insurer's admissible assets over its liabilities, required by regulators to absorb unexpected losses. It is a buffer protecting policyholders and is monitored against prescribed capital thresholds.

The requirement that an insurer hold sufficient capital relative to the risks it underwrites and the assets it invests in. Regimes such as risk-based capital set minimum ratios and trigger supervisory intervention.

A regulatory framework that sets capital requirements according to the size and nature of each risk an insurer faces. Riskier asset or underwriting profiles attract higher capital charges.

Liabilities an insurer recognises for its insurance obligations, chiefly unearned premium and outstanding claims including IBNR. They are calculated prudently and reviewed regularly by actuaries.

The portion of written premium relating to cover that has not yet been provided at the reporting date. It is released to earned premium over the policy period as cover is consumed.

The part of premium that corresponds to cover already provided during a given period. It is the correct revenue figure for measuring loss ratios and underwriting results.

The insurer's right, after paying a claim, to pursue third parties responsible for the loss in the insured's name. It prevents the insured recovering twice and shifts cost to the party at fault.

The principle allowing an insurer that has paid a claim to recover proportionate shares from other insurers covering the same loss. It applies where policies cover the same interest, peril and period.

The residual value of damaged property recovered after a loss, which reduces the insurer's net outlay. Policies may grant the insurer rights over salvage once a total loss has been settled.

A loss where the insured property is destroyed entirely or damaged beyond economic repair, so the full sum insured or value is payable. Partial losses are settled on a repair or reinstatement basis instead.

Money set aside by an insurer to meet expected claim settlements, covering reported claims, IBNR and claims handling costs. Adequate reserving is essential to solvency and accurate financial reporting.

The process of assessing a proposed risk, deciding whether to accept it and on what terms, and setting the premium. It balances growth and profitability against the insurer's appetite and capital.