A single insurance policy that combines several coverages previously sold separately. Examples include homeowners insurance and commercial multiple peril insurance.
A system proposed in the 1990s in which auto insurance premiums would be paid to state governments through a per-gallon surcharge on gasoline.
PENSION BENEFIT GUARANTY CORPORATION
An independent federal government agency that administers the Pension Plan Termination Insurance program to ensure that vested benefits of employees whose pension plans are being terminated are paid when they come due. Only defined benefit plans are covered. Benefits are paid up to certain limits.
Programs to provide employees with retirement income after they meet minimum age and service requirements. Life insurers hold some of these funds. Since the 1970s responsibility for funding retirement has increasingly shifted from employers (defined benefit plans that promise workers a specific retirement income) to employees (defined contribution plans financed by employees that may or may not be matched by employer contributions). (See <a href='/glossary/D/#147'>Defined benefit plan</a>, <a href='/glossary/D/#148'>Defined contribution plan</a> )
A specific risk or cause of loss covered by an insurance policy, such as a fire, windstorm, flood, or theft. A named-peril policy covers the policyholder only for the risks named in the policy in contrast to an all-risk policy, which covers all causes of loss except those specifically excluded.
PERSONAL ARTICLES FLOATER
A policy or an addition to a policy used to cover personal valuables, like jewelry or furs.
PERSONAL INJURY PROTECTION COVERAGE / PIP
Portion of an auto insurance policy that covers the treatment of injuries to the driver and passengers of the policyholders car.
Property/casualty insurance products that are designed for and bought by individuals, including homeowners and automobile policies. (See <a href='/glossary/C/#112'>Commercial lines</a> )
Health insurance policy that allows the employee to choose between in-network and out-of-network care each time medical treatment is needed.
A written contract for insurance between an insurance company and policyholder stating details of coverage.
The amount of money remaining after an insurers liabilities are subtracted from its assets. It acts as a financial cushion above and beyond reserves, protecting policyholders against an unexpected or catastrophic situation.
POLITICAL RISK INSURANCE
Coverage for businesses operating abroad against loss due to political upheaval such as war, revolution, or confiscation of property.
Policies that cover property loss and liability arising from pollution-related damages, for sites that have been inspected and found uncontaminated. It is usually written on a claims-made basis so policies pay only claims presented during the term of the policy or within a specified time frame after the policy expires. (See <a href='/glossary/C/#103'>Claims-made policy</a> )
See Insurance pool
PREFERRED PROVIDER ORGANIZATION
Network of medical providers which charge on a fee-for-service basis, but are paid on a negotiated, discounted fee schedule.
The particular location of the property or a portion of it as designated in an insurance policy.
The price of an insurance policy, typically charged annually or semiannually. (See <a href='/glossary/D/#156'>Direct premiums</a>, <a href='/glossary/E/#168'>Earned premium</a>, <a href='/glossary/U/#523'>Unearned premium</a> )
A state tax on premiums paid by its residents and businesses and collected by insurers.
PREMIUMS IN FORCE
The sum of the face amounts, plus dividend additions, of life insurance policies outstanding at a given time.
The total premiums on all policies written by an insurer during a specified period of time, regardless of what portions have been earned. Net premiums written are premiums written after reinsurance transactions.
In a reinsurance transaction, the insurance company that is reinsured.
Market for new issue securities where the proceeds go directly to the issuer.
Interest rate that banks charge to their most creditworthy customers. Banks set this rate according to their cost of funds and market forces.
PRIOR APPROVAL STATES
States where insurance companies must file proposed rate changes with state regulators, and gain approval before they can go into effect.
PRIVATE MORTGAGE INSURANCE
See Mortgage guarantee insurance
Securities that are not registered with the Securities and Exchange Commission and are sold directly to investors.
A section of tort law that determines who may sue and who may be sued for damages when a defective product injures someone. No uniform federal laws guide manufacturers liability, but under strict liability, the injured party can hold the manufacturer responsible for damages without the need to prove negligence or fault.
PRODUCT LIABILITY INSURANCE
Protects manufacturers and distributors exposure to lawsuits by people who have sustained bodily injury or property damage through the use of the product.
PROFESSIONAL LIABILITY INSURANCE
Covers professionals for negligence and errors or omissions that injure their clients.
PROOF OF LOSS
Documents showing the insurance company that a loss occurred.
Covers damage to or loss of policyholders property and legal liability for damages caused to other people or their property. Property/casualty insurance, which includes auto, homeowners and commercial insurance, is one segment of the insurance industry. The other sector is life/health. Outside the United States, property/casualty insurance is referred to as nonlife or general insurance.
PROPERTY/CASUALTY INSURANCE CYCLE
Industry business cycle with recurrent periods of hard and soft market conditions. In the 1950s and 1960s, cycles were regular with three year periods each of hard and soft market conditions in almost all lines of property/casualty insurance. Since then they have been less regular and less frequent.
A November 1988 California ballot initiative that called for a statewide auto insurance rate rollback and for rates to be based more on driving records and less on geographical location. The initiative changed many aspects of the states insurance system and was the subject of lawsuits for more than a decade.
An entity that offers insurance to groups of similar businesses with similar exposures to risk.
PURE LIFE ANNUITY
A form of annuity that ends payments when the annuitant dies. Payments may be fixed or variable.
The cost of a unit of insurance, usually per $1,000. Rates are based on historical loss experience for similar risks and may be regulated by state insurance offices.
The process by which states monitor insurance companies rate changes, done either through prior approval or open competition models. (See <a href='/glossary/O/#364'>Open competition states</a>, <a href='/glossary/P/#407'>Prior approval states</a> )
Six major credit agencies determine insurers financial strength and viability to meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.; Fitch, Inc.; Moodys Investors Services; Standard & Poors Corp.; and Weiss Ratings, Inc. Factors considered include company earnings, capital adequacy, operating leverage, liquidity, investment performance, reinsurance programs, and management ability, integrity and experience. A high financial rating is not the same as a high consumer satisfaction rating.
The insurance business is based on the spread of risk. The more widely risk is spread, the more accurately loss can be estimated. An insurance company can more accurately estimate the probability of loss on 100,000 homes than on ten. Years ago, insurers were required to use standardized forms and rates developed by rating agencies. Today, large insurers use their own statistical loss data to develop rates. But small insurers, or insurers focusing on special lines of business, with insufficiently broad loss data to make them actuarially reliable depend on pooled industry data collected by such organizations as the Insurance Services Office (ISO) which provides information to help develop rates such as estimates of future losses and loss adjustment expenses like legal defense costs.
REAL ESTATE INVESTMENTS
Investments generally owned by life insurers that include commercial mortgage loans and real property.
Amounts owed to a business for goods or services provided.
Unincorporated association organized to write insurance for its members, each of whom assumes a share of the risks covered.
Literally means to draw a red line on a map around areas to receive special treatment. Refusal to issue insurance based solely on where applicants live is illegal in all states. Denial of insurance must be risk-based.
Insurance bought by insurers. A reinsurer assumes part of the risk and part of the premium originally taken by the insurer, known as the primary company. Reinsurance effectively increases an insurer's capital and therefore its capacity to sell more coverage. The business is global and some of the largest reinsurers are based abroad. Reinsurers have their own reinsurers, called retrocessionaires. Reinsurers dont pay policyholder claims. Instead, they reimburse insurers for claims paid. (See <a href='/glossary/T/#516'>Treaty reinsurance</a>, <a href='/glossary/F/#196'>Facultative reinsurance)</a> )
A form of insurance that covers a policyholders belongings against perils such as fire, theft, windstorm, hail, explosion, vandalism, riots, and others. It also provides personal liability coverage for damage the policyholder or dependents cause to third parties. It also provides additional living expenses, known as loss-of-use coverage, if a policyholder must move while his or her dwelling is repaired. It also can include coverage for property improvements. Possessions can be covered for their replacement cost or the actual cash value that includes depreciation.
Insurance that pays the dollar amount needed to replace damaged personal property or dwelling property without deducting for depreciation but limited by the maximum dollar amount shown on the declarations page of the policy.
REPURCHASE AGREEMENT /'REPO'
Agreement between a buyer and seller where the seller agrees to repurchase the securities at an agreed upon time and price. Repurchase agreements involving U.S. government securities are utilized by the Federal Reserve to control the money supply.
A companys best estimate of what it will pay for claims.
Facilities, such as assigned risk plans and FAIR Plans, that exist to provide coverage for those who cannot get it in the regular market. Insurers doing business in a given state generally must participate in these pools. For this reason the residual market is also known as the shared market.
The amount of risk retained by an insurance company that is not reinsured.
The reinsurance bought by reinsurers to protect their financial stability.
A method of permitting the final premium for a risk to be adjusted, subject to an agreed-upon maximum and minimum limit based on actual loss experience. It is available to large commercial insurance buyers.
RETURN ON EQUITY
Net income divided by total equity. Measures profitability by showing how efficiently invested capital is being used.
An attachment to an insurance policy that alters the policys coverage or terms.
The chance of loss or the person or entity that is insured.
Management of the varied risks to which a business firm or association might be subject. It includes analyzing all exposures to gauge the likelihood of loss and choosing options to better manage or minimize loss. These options typically include reducing and eliminating the risk with safety measures, buying insurance, and self-insurance.
RISK RETENTION GROUPS
Insurance companies that band together as self-insurers and form an organization that is chartered and licensed as an insurer in at least one state to handle liability insurance.
The need for insurance companies to be capitalized according to the inherent riskiness of the type of insurance they sell. Higher-risk types of insurance, liability as opposed to property business, generally necessitate higher levels of capital.
Damaged property an insurer takes over to reduce its loss after paying a claim. Insurers receive salvage rights over property on which they have paid claims, such as badly-damaged cars. Insurers that paid claims on cargoes lost at sea now have the right to recover sunken treasures. Salvage charges are the costs associated with recovering that property.
A list of individual items or groups of items that are covered under one policy or a listing of specific benefits, charges, credits, assets or other defined items.
Market for previously issued and outstanding securities.
SECURITIES AND EXCHANGE COMMISSION / SEC
The organization that oversees publicly-held insurance companies. Those companies make periodic financial disclosures to the SEC, including an annual financial statement (or 10K), and a quarterly financial statement (or 10-Q). Companies must also disclose any material events and other information about their stock.
Stock held by shareholders.
SECURITIZATION OF INSURANCE RISK
Using the capital markets to expand and diversify the assumption of insurance risk. The issuance of bonds or notes to third-party investors directly or indirectly by an insurance or reinsurance company or a pooling entity as a means of raising money to cover risks. (See <a href='/glossary/C/#94'>Catastrophe bonds)</a> )
The concept of assuming a financial risk oneself, instead of paying an insurance company to take it on. Every policyholder is a self-insurer in terms of paying a deductible and co-payments. Large firms often self-insure frequent, small losses such as damage to their fleet of vehicles or minor workplace injuries. However, to protect injured employees state laws set out requirements for the assumption of workers compensation programs. Self-insurance also refers to employers who assume all or part of the responsibility for paying the health insurance claims of their employees. Firms that self insure for health claims are exempt from state insurance laws mandating the illnesses that group health insurers must cover.
Size of a loss. One of the criteria used in calculating premiums rates.
SEWER BACK-UP COVERAGE
An optional part of homeowners insurance that covers sewers.
See Residual market
SINGLE PREMIUM ANNUITY
An annuity that is paid in full upon purchase.
An environment where insurance is plentiful and sold at a lower cost, also known as a buyers market. (See <a href='/glossary/P/#415'>Property/casualty insurance cycle</a> )
Insurance companies ability to pay the claims of policyholders. Regulations to promote solvency include minimum capital and surplus requirements, statutory accounting conventions, limits to insurance company investment and corporate activities, financial ratio tests, and financial data disclosure.
SPREAD OF RISK
The selling of insurance in multiple areas to multiple policyholders to minimize the danger that all policyholders will have losses at the same time. Companies are more likely to insure perils that offer a good spread of risk. Flood insurance is an example of a poor spread of risk because the people most likely to buy it are the people close to rivers and other bodies of water that flood. (See <a href='/glossary/A/#21'>Adverse selection</a> )
Practice that increases the money available to pay auto liability claims. In states where this practice is permitted by law, courts may allow policyholders who have several cars insured under a single policy, or multiple vehicles insured under different policies, to add up the limit of liability available for each vehicle.
STATUTORY ACCOUNTING PRINCIPLES / SAP
More conservative standards than under GAAP accounting rules, they are imposed by state laws that emphasize the present solvency of insurance companies. SAP helps ensure that the company will have sufficient funds readily available to meet all anticipated insurance obligations by recognizing liabilities earlier or at a higher value than GAAP and assets later or at a lower value. For example, SAP requires that selling expenses be recorded immediately rather than amortized over the life of the policy. (See <a href='/glossary/G/#227'>GAAP accounting</a>, <a href='/glossary/A/#19'>Admitted assets</a> )
STOCK INSURANCE COMPANY
An insurance company owned by its stockholders who share in profits through earnings distributions and increases in stock value.
Legal agreement to pay a designated person, usually someone who has been injured, a specified sum of money in periodic payments, usually for his or her lifetime, instead of in a single lump sum payment. (See <a href='/glossary/A/#35'>Annuity</a> )
The legal process by which an insurance company, after paying a loss, seeks to recover the amount of the loss from another party who is legally liable for it.
A federal law enacted in 1980 to initiate cleanup of the nations abandoned hazardous waste dump sites and to respond to accidents that release hazardous substances into the environment. The law is officially called the Comprehensive Environmental Response, Compensation, and Liability Act.
A contract guaranteeing the performance of a specific obligation. Simply put, it is a three-party agreement under which one party, the surety company, answers to a second party, the owner, creditor or obligee, for a third partys debts, default or nonperformance. Contractors are often required to purchase surety bonds if they are working on public projects. The surety company becomes responsible for carrying out the work or paying for the loss up to the bond penalty if the contractor fails to perform.
The remainder after an insurers liabilities are subtracted from its assets. The financial cushion that protects policyholders in case of unexpectedly high claims. (See <a href='/glossary/C/#83'>Capital</a>, <a href='/glossary/R/#452'>Risk-based capital</a> )
Property/casualty insurance coverage that isnt available from insurers licensed in the state, called admitted companies, and must be purchased from a non-admitted carrier. Examples include risks of an unusual nature that require greater flexibility in policy terms and conditions than exist in standard forms or where the highest rates allowed by state regulators are considered inadequate by admitted companies. Laws governing surplus lines vary by state.
A charge for withdrawals from an annuity contract before a designated surrender charge period, usually from five to seven years.
The simultaneous buying, selling or exchange of one security for another among investors to change maturities in a bond portfolio, for example, or because investment goals have changed.