SLII Diploma in Insurance key terms

A duty on both insurer and policyholder to deal honestly and disclose all material facts relevant to the risk before the contract is formed, and to act fairly afterwards. Breach may allow the other party to avoid the contract.

A legal or financial relationship to the subject matter such that the person benefits from its survival or suffers loss from its damage. It must exist at the time of the loss for most non-life covers.

The principle that a claimant should be restored, as far as money can, to the financial position held before the loss, neither better nor worse off. It underpins most non-life insurance and is limited by sums insured and policy terms.

Any information that would influence a prudent insurer's decision on whether to accept the risk, or on the terms and premium charged. Policyholders must disclose such facts when applying.

Failure by a proposer to reveal a material fact to the insurer, whether deliberate or inadvertent. The insurer's remedy depends on the law, the nature of the failure and the terms of the contract.

A false or misleading statement of fact made by one party to the other before the contract is formed. If it is material and induced the contract, the insurer may have grounds to avoid or amend it.

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

An event or circumstance that may cause loss, such as fire, flood, theft or collision. A policy lists covered perils and excludes others, defining what the insurer promises to respond to.

A condition that increases the likelihood or severity of a loss from a peril, such as poor housekeeping, faulty wiring or a careless driver. Underwriters assess hazards when rating and accepting risks.

The risk that a person behaves less carefully, or acts dishonestly, because insurance will bear the cost. Insurers counter it with deductibles, conditions, claims investigation and policy wording.

A clause in a policy that removes specified perils, property, persons or circumstances from cover. Reading exclusions carefully is essential, since they override the general grant of cover.

The amount of each loss the policyholder must bear before the insurer pays, sometimes called an excess. It reduces small claims, encourages care and can lower the premium.

The insurer's right, after paying a claim, to stand in the policyholder's shoes and recover the loss from a third party who caused it. It supports indemnity and prevents double recovery.

The principle that where two or more policies cover the same loss on the same interest, the insurers share the cost, usually in proportion to the sums insured, so the insured cannot recover twice.

An arrangement where several insurers each accept a stated share of the same risk, often for large or specialised exposures. Each insurer is liable only for its own percentage, not the whole.

Insurance bought by an insurer to transfer part of the risk it has accepted to another insurer, the reinsurer. It protects solvency and capacity and may be proportional or excess of loss.

The amount of risk an insurer, or a reinsured, keeps for its own account rather than passing to reinsurers. It is set by appetite, capital and the cost of reinsurance cover.

The process of assessing a proposed risk, deciding whether to accept it, and setting the terms, conditions and premium. It balances the insurer's appetite for profit against the need to grow the book.

The structured evaluation of the likelihood and severity of loss from a proposed risk, using proposal information, surveys, data and experience. It informs acceptance, rating and the terms imposed.

The type and amount of risk an insurer is willing to accept in pursuit of its objectives, set by its board. It guides underwriting decisions, limits, pricing and the use of reinsurance.

The money a policyholder pays for insurance cover. It is built from expected claims, expenses, profit margin and risk factors, and must be adequate to meet obligations over time.

Characteristics used to classify risks and set premiums, such as age, location, occupation, claims history or construction type. They should be relevant, measurable and supported by data.

An addition to the standard premium to reflect an above-average risk, such as a poor claims record, hazardous occupation or substandard construction. It may be a percentage or a flat amount.

The maximum amount the insurer will pay for a defined loss under a policy, often the value of the property or the limit of liability. It should reflect current replacement or indemnity value.

A condition reducing claim payments in proportion when the sum insured is less than the value at risk, penalising underinsurance. It is common in property and business interruption policies.

The improvement in a policyholder's position when a claim payment leaves them with new or superior property in place of old. Insurers may deduct for it to preserve the indemnity principle.

Property saved from a loss, or the value recovered from damaged property, which may be sold to reduce the claim. Insurers may take salvage rights after paying for a total loss.

A loss where the subject matter is destroyed or beyond economic repair, so the insurer pays the sum insured or the value, subject to policy limits. Partial loss is settled by repair or replacement.

The process of notifying, investigating, assessing and settling claims fairly and promptly. It covers reserving, evidence gathering, fraud checks, negotiation and payment or reasoned decline.

Setting aside funds for claims already incurred but not yet paid, including reported and unreported losses. Accurate reserves protect solvency and are reviewed as new information emerges.

Claims that have happened but have not yet been notified to the insurer, often called IBNR. They must be estimated and reserved because they affect the true cost of the book.

Deliberate deception for financial gain, such as staging a loss, exaggerating a claim or hiding material facts. Insurers use detection tools, investigation and legal action to deter it.

A legal remedy that treats a contract as never having existed, returning the parties to their pre-contract positions. It may be available for serious breach of good faith or misrepresentation.

A term in the policy that imposes obligations on the insured, such as maintaining protection, notifying claims promptly or paying premium. Breach may suspend or reduce cover.

A promise or statement in the policy that must be complied with strictly. Under traditional law any breach can discharge the insurer from liability, even if unconnected with the loss.

The full contractual text of an insurance policy, including grant of cover, definitions, exclusions, conditions and schedules. Clear drafting reduces disputes over what is and is not covered.

An insurer's ability to meet its obligations as they fall due, with assets exceeding liabilities and enough capital to absorb shocks. It is monitored through solvency margins and regulatory returns.

The requirement that an insurer holds sufficient capital, measured against risk exposures, to remain solvent under stress. Regulators set minimum ratios and review them through reporting and supervision.

A person or firm, such as a broker or agent, who arranges insurance between a client and an insurer. Their duties depend on whether they act for the client or for the insurer.