Like any profession, Insurance companies have their own language, terms and definitions. It pays to be an informed consumer. Use our Insurance Dictionary to help navigate some of the most commonly used terminology.
Important Note: While these terms are generally used as defined in legal malpractice insurance, individual insurance companies may define these terms differently. This listing is provided as a guide and your insurance company's definition supersedes all definitions provided in this general listing of terms. Always read your policy.
Accounts receivable insurance: Insurance against loss of revenue that cannot be collected because accounts receivable records are destroyed by an insured peril. Coverage commonly includes any extra expense to recapture records and payment of interest on loans needed to cover the interim period reduction in collections. An insured's keeping duplicate records in safe storage off premises is a highly recommended risk reduction technique-and the cost of coverage is considerably reduced thereby. Insurance may be arranged to cover electronic records as well as paper.
Actual cash value (ACV): A method for placing value on property as of the time of its loss or damage. ACV may be determined by market value (the current price for a like item in the same general condition) or replacement cost new less use depreciation (the cost of the same item brand new minus the insured's contribution to pay for the added life expectancy of the property new property). The insured may generally select whichever method is more favorable. Contrast with replacement cost.
Actuary: A specialist in the mathematics of insurance who calculates rates, reserves, dividends and other statistics. (Americanism: In most other countries the individual is known as "mathematician.")
Additional insured: One who qualifies as "insured" under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation.
Adjuster: A person may act either on behalf of the insurance company or the insured in the settling a claim. Independent adjusters represent the insurance company on a fee basis; public adjusters represent the insured on a fee basis.
Admitted company: An insurance company that is licensed (admitted) to conduct business within a given state.
Admitted Assets: Assets permitted by state law to be included in an insurance company's annual statement. These assets are an important factor when regulators measure insurance company solvency. They include mortgages, stocks, bonds and real estate.
Admitted market: The range of insurance available through admitted companies.
Agent: Individual who sells and services insurance policies in either of two classifications: 1 - Independent agents represent at least two insurance companies and (at least in theory) services clients by searching the market for the most advantageous price for the most coverage. The agent's commission is a percentage of each premium paid and includes a fee for servicing the insured's policy. 2 - Direct or career agents represent only one company and sells only its policies. This agent is paid on a commission basis in much the same manner as the independent agent.
Aggregate deductible: A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.
Aggregate Limit: Usually refers to liability insurance and indicates the amount of coverage that the insured has under the contract for a specific period of time, usually the contract period, no matter how many separate accidents might occur.
Anniversary date: The anniversary of the original date of issue of a policy as shown in the declarations.
Annuity: An agreement by an insurer to make periodic payments that continue during the survival of the annuitant(s) or for a specified period.
Approved for Reinsurance: Indicates the company is approved (or authorized) to write reinsurance on risks in this state. A license to write reinsurance might not be required in these states.
Approved or Not Disapproved for Surplus Lines: Indicates the company is approved (or not disapproved) to write excess or surplus lines in this state.
Assets refer to "all the available properties of every kind or possession of an insurance company that might be used to pay its debts." There are three classifications of assets: invested assets, all other assets, and total admitted assets. Invested assets refer to things such as bonds, stocks, cash and income-producing real estate. All other assets refer to nonincome producing possessions such as the building the company occupies, office furniture, and debts owed, usually in the form of deferred and unpaid premiums. Total admitted assets refer to everything a company owns. All other plus invested assets equals total admitted assets. By law, some states don't permit insurance companies to claim certain goods and possessions, such as deferred and unpaid premiums, in the all other assets category, declaring them "nonadmissable."
Assigned risk: A risk that may not be generally acceptable to any insurance company but for which the law says that insurance must be acquired. Personal auto liability is one such necessary coverage. Insurance companies doing personal auto business in a state can be required to accept assignment of a portion of the state's unacceptable drivers as insureds.
Authorized Under Federal Products Liability Risk Retention Act (Risk Retention Groups): Indicates companies operating under the Federal Products Liability Risk Retention Act of 1981 and the Liability Risk Retention Act of 1986.
Avoidable Consequences: Consequences that are caused by lack of care on the part of an individual, and that could have been avoided had the individual exercised proper care. Generally refers to events that occur following a loss as the result of a person's failure to take steps to prevent the consequences.
Balance Sheet: An accounting term referring to a listing of a company's assets, liabilities and surplus as of a specific date.
Basic named perils: Covered perils in a property insurance contract: fire, lightning, windstorm, civil commotion, smoke, hail, aircraft, vehicles, explosions and riot.
Best's Capital Adequacy Relativity (BCAR): This percentage measures a company's relative capital strength compared to its industry peer composite. A company's BCAR, which is an important component in determining the appropriateness of its rating, is calculated by dividing a company's capital adequacy ratio by the capital adequacy ratio of the median of its industry peer composite using Best's proprietary capital mode. Capital adequacy ratios are calculated as the net required capital necessary to support components of underwriting, asset, and credit risks in relation to economic surplus.
Binder: An insurer's agreement, by way of an agent, to provide non-life insurance on the spot, pending issuance of the policy contract.
Blanket coverage: A means of insuring various items of property under one limit of liability.
Blanket insurance: Insurance covering multiple items of property as a group. Covered property may be at one location or several.
Bodily Injury: In Commercial General Liability insurance, refers to injuries to a person, as well as sickness, disease and death.
Bond: A document for expressing surety. A bond engages three entities; the "surety" (bonding company) sells the bond to the "principal" for the purpose of paying off the party the principal will owe to the "obligee" upon failure of the "principal" to perform some act or provide some service under agreed terms.
Bond, surety: A surety bond is the financial assumption of responsibility by one or more persons for fulfilling another's obligations.
Broad form perils: A property insurance designation for coverage that extends beyond the basic named perils.
Broker: Insurance salesperson that searches the marketplace in the interest of clients, not insurance companies.
Broker-Agent: Independent insurance salesperson who represents particular insurers but also might function as a broker by searching the entire insurance market to place an applicant's coverage to maximize protection and minimize cost. This person is licensed as an agent and a broker.
Builders risk insurance: A variation of property coverage specifically applicable to construction projects. It is commonly written in an amount to cover the value of the structure when completed. The premium charged takes into account that values at risk increase gradually over the term of the policy.
Business Auto Policy (BAP): A standardized contract for writing liability and property coverage on commercial autos.
Business income coverage: Insurance protecting the income derived from an insured's business activities when curtailed peril. Coverage includes reasonable extra the insured undertakes to expedite return to business operations.
Business Net Retention: This item represents the percentage of a company's gross writings that are retained for its own account. Gross writings are the sum of direct writings and assumed writings. This measure excludes affiliated writings.
Business Owners policy (BOP): A package of property and liability insurance for small and medium size businesses, the BOP owes its origin to the success of the homeowner’s policy.
Business personal property: A tern relating to "contents" of a commercial enterprise, it may include furniture, fixtures, machinery and equipment as well as stock, all other chattels owned by the insured, and even use interest in building improvements and betterments.
Cancellation; flat, pro rata, or short rate: In a flat cancellation the full premium is returned to the insured. A pro rata cancellation means the insurer has charged for the time the coverage was in force. Short rate cancellation entails a penalty in excess of pro rata for early termination.
Capital: Equity of shareholders of a stock insurance company. The company's capital and surplus are measured by the difference between its assets minus its liabilities. This value protects the interests of the company's policy owners in the event it develops financial problems; the policy owners' benefits are thus protected by the insurance company's capital. Shareholders' interest is second to that of policy owners.
Capitalization or Leverage: Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
Captive Agent: Representative of a single insurer or fleet of insurers who is obliged to submit business only to that company, or at the very minimum, give that company first refusal rights on a sale. In exchange, that insurer usually provides its captive agents with an allowance for office expenses as well as an extensive list of employee benefits such as pensions, life insurance, health insurance, and credit unions.
Casualty: Liability or loss resulting from an accident.
Casualty Insurance: That type of insurance that is primarily concerned with losses caused by injuries to persons and legal liability imposed upon the insured for such injury or for damage to property of others. It also includes such diverse forms as plate glass, insurance against crime, such as robbery, burglary and forgery, boiler and machinery insurance and Aviation insurance. Many casualty companies also write surety business.
Ceded Reinsurance Leverage: The ratio of the reinsurance premiums ceded, plus net ceded reinsurance balances from non-US affiliates for paid losses, unpaid losses, incurred but not reported (IBNR), unearned premiums and commissions, less funds held from reinsurers, plus ceded reinsurance balances payable, to policyholders' surplus. This ratio measures the company's dependence upon the security provided by its reinsurers and its potential exposure to adjustment on such reinsurance.
Certificate of insurance: A written description of insurance in effect as of the date and time of the certificate. The certificate does not ordinarily confer any rights on the holder, i.e., the issuing insurer does not promise to inform the holder of change in or cancellation of coverage.
Change in Net Premiums Written (IRIS): The annual percentage change in Net Premiums Written. A company should demonstrate its ability to support controlled business growth with quality surplus growth from strong internal capital generation.
Change in Policyholder Surplus (IRIS): The percentage change in policyholder surplus from the prior year-end derive d from operating earnings, investment gains, net contributed capital and other miscellaneous sources. This ratio measures a company's ability to increase policyholders' security.
Chartered Property and Casualty Underwriter (CPCU): Professional designation earned after the successful completion of 10 national examinations given by the American Institute for Property and Liability Underwriters. Covers such areas of expertise as insurance, risk management, economics, finance, management, accounting, and law. Three years of work experience also are required in the insurance business or a related area.
Claim: A demand made by the insured, or the insured's beneficiary, for payment of the benefits as provided by the policy. A demand to recover under an insurance policy for loss. In Commercial General Liability insurance, a policy for loss. In Commercial Liability insurance, the claim may be against the insured by a third party under the insurance policy held by the insured. In this case, claims are referred to the insurer to handle on behalf of the insured in accordance with the term of the policy.
Claim expenses: Fees charged by attorneys designated by the insurance company or by the Insured with the Company's written consent; and all other reasonable and necessary fees, costs and expenses resulting from the investigation, adjustment, defense and appeal of a claim if incurred by the insurance company, or by the Insured with the written consent of the insurance company, including, but not limited to, premiums for any appeal bond, attachment bond or similar bond but without any obligation of the insurance company to apply for or furnish any such bond. Claim expenses with respect to a claim may be paid first and payment may reduce the amount available to pay damages Claim expenses may or may not include fees, costs or expenses of employees or officers of the insurance company.
Claims Expenses within the Limits: Claims expenses are paid first by an insurance company and reduces the amount available to pay damages.
Claims Expenses outside the Limits: Claims expenses paid by an insurance company do not reduce the amount available to pay damages. This type of coverage is usually limited to a set dollar amount. If claims expenses exceed this set aside dollar amount, the excess expenses usually will begin to reduce the amount available to pay damages (the policy limit).
Claims Made Basis Liability Coverage: Method of determining whether or not coverage is available for a specific claim. If a claim is made during the time period when a liability policy is in effect an insurance company is responsible for its payment, up to the limits of the policy, regardless of when the event causing the claim occurred. Typically this type of coverage is endorsed with a prior acts date or retroactive date before which the insurance company has excluded coverage.
Claims-Made Policy: A type of public liability insurance that responds only to claims for injury or damage that are brought (to the insurer) during the policy period (or during a designated extended reporting period beyond expiration). In Commercial General Liability insurance, a policy that pays for events occurring during a specified period and for which a claim is made during the policy period, subject to stipulated limitations and extensions. Typically endorsed with a prior acts date or retroactive date before which the insurance company has excluded coverage. This is different than most public liability policies which are written on an "occurrence" basis, covering injury or damage occurring during the policy period even if a claim is brought months or even years later.
Class 3-6 Bonds: This test measures exposure to noninvestment grade bonds as a percentage of surplus. Generally, noninvestment grade bonds carry higher default and illiquidity risks. The designation of quality classifications that coincide with different bond ratings assigned by major credit rating agencies.
Coinsurance clause: "Coinsurance" refers to the bargain between commercial property owners and the insurance industry. The clause in property policies encourages the property owner to gauge coverage needs by possible, not probable, maximum loss. With $1 million at risk but a probable maximum loss of $100,000, for example, the property owner would probably buy $100,000 insurance and bank on avoiding the larger disaster. The bargain offered by the insurance industry is a reduced rate per $100 of coverage if the owner agrees to buy coverage at a specified relation (80% commonly) to value (to possible maximum loss in other words). If the insured accepts the bargain but events prove the amount of insurance is inadequate to the stated coinsurance percentage, the insured becomes "co-insurer" in the same ratio as the amount of insurance bears to the amount that should have been carried.
Combined Ratio After Policyholder Dividends: The sum of the loss, expense and policyholder dividend ratios not reflecting investment income or income taxes. This ratio measures the company's overall underwriting profitability, and a combined ratio of less than 100 indicates an underwriting profit.
Combined Single Limit (CSL): Liability policies commonly offer separate limits that apply to bodily injury claims for property damage. "50/100/25" is shorthand under such a policy for $50,00 per person/$100,000 per accident for bodily injury claims and $25,000 for property damage. A combined single limits policy might cover for $100,000 per covered occurrence whether bodily injury or property damage, one person or many.
Commercial General Liability (CGL): The CGL policy is an ISO form, widely used to provide commercial enterprises with premises and operations liability coverage, products and completed operations insurance and personal injury coverage. Premises medical payments coverage is often included as well.
Commercial Lines: Refers to insurance for businesses, professionals and commercial establishments.
Commercial Package Policy (CPP): The Insurance Services Office (ISO) commercial lines policy that contains two or more lines of insurance or two or more coverage parts. It will include some forms and/or endorsements that are common to all lines of insurance or coverage parts, as well as the individual forms and endorsements required for the individual coverages selected. In order to quality as a CPP, the policy must include two or more of these coverage parts: Commercial General Liability, various other liability coverage parts, Commercial Property, Commercial Crime, Commercial Inland Marine, Boiler and Machinery, Farm or Commercial Auto. Individual insurers may have similar commercial packages with different requirements.
Commissioner of Insurance: The official in a state (or territory) responsible for administering insurance regulation: sometimes called the Superintended of Insurance.
Compensatory damages: The award, usually monetary, that is intended to compensate the claimant for injury sustained.
Conditional Reserves: This item represents the aggregate of various reserves which, for technical reasons, are treated by companies as liabilities. Such reserves, which are similar to free resources or surplus, include unauthorized reinsurance, excess of statutory loss reserves over statement reserves, dividends to policyholders undeclared and other similar reserves established voluntarily or in compliance with statutory regulations.
Contract: A legal agreement between two or more parties. An insurance policy is a contract.
Contractual liability: Liability that does not arise by the way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord's liability to others unsafe conditions on the premises. Some such assumptions are covered automatically under the Commercial General Liability form.
Contributory negligence: A defense to a negligence action in which it is asserted that the claimant failed to meet the standard required for his or her own protection, and that the failure contributed to the loss.
Coverage: The scope of protection provided under an insurance policy. In property insurance, coverage lists perils insured against, properties covered, locations covered, individuals insured, and the limits of indemnification. In life insurance, living and death benefits are listed.
Covered loss: An accident, including accidental damage by forces of nature, which brings a contract of insurance into play.
Current Liquidity (IRIS): The sum of cash, unaffiliated invested assets and encumbrances on other properties to net liabilities plus ceded reinsurance balances payable, expressed as a percent. This ratio measures the proportion of liabilities covered by unencumbered cash and unaffiliated investments. If this ratio is less than 100, the company's solvency is dependent on the collectability or marketability of premium balances and investments in affiliates. This ratio assumes the collectability of all amounts recoverable from reinsurers on paid and unpaid losses and unearned premiums.
Declaration page: That part of a property or liability insurance policy that discloses information pertinent to the coverage promised including names, addresses, limits, locations, term, premium, forms, and so on. The same information, perhaps in a shorthand version, is contained as well in the daily.
Deductible: The part of the loss that is to be borne by the insured; it comes off the top of any payment from the insurer.
Deposit premium: When the price of insurance is tied to fluctuating values or costs that cannot be known until the end of the policy period, inventory or payroll are two common examples, a deposit or provisional premium or estimated premium may be charged at the outset of a policy with final adjustment to come at the end of the term.
Depreciation: A property ages and becomes worn it often loses value and that has to be taken into account in any property insurance that covers loss of actual cash value.
Developed to Net Premiums Earned: The ratio of developed premiums through the year to net premiums earned. If premium growth was relatively steady, and the mix of business by line didn't materially change, this ratio measures whether or not a company's loss reserves are keeping pace with premium growth.
Development to Policyholder Surplus (IRIS): The ratio measures reserve deficiency or redundancy in relation to policyholder surplus. This ratio reflects the degree to which year-end surplus was either overstated (+) or understated (-) in each of the past several years, if original reserves had been restated to reflect subsequent development through year end.
Direct Premiums Written: The aggregate amount of recorded originated premiums, other than reinsurance, written during the year, whether collected or not, at the close of the year, plus retrospective audit premium collections, after deducting all return premiums.
Direct Writer: An insurer whose distribution mechanism is either the direct selling system or the exclusive agency system.
Dividend: The return of part of the policy's premium for a policy issued on a participating basis by either a mutual or stock insurer. A portion of the surplus paid to the stockholders of a corporation.
Earned Premium: The amount of the premium that has been paid for in advance that has been "earned" by virtue of the fact that time has passed without claim. A three-year policy that has been paid in advance and is one year old would have only partly earned the premium.
Effective date: Inception Date at which an insurance policy goes into force usually shown in the declarations page of the policy.
Employers Liability Insurance: Coverage against common law liability of an employer for accidents to employees, as distinguished from liability imposed by a workers' compensation law.
Employment practices liability: Coverage against allegations of illegal or discriminatory hiring firing practices, sexual harassment of employees, and so on.
Encumbrance: A claim on property, such as a mortgage, a lien for work and materials, or a right of dower. The interest of the property owner is reduced by the amount of the encumbrance.
Endorsement: An amendment to a policy form.
Errors and omissions coverage: Polices generally available to the various professions that require protection for negligent acts and/or omissions resulting in bodily injury, personal injury, and/or property damage liability to a client. For example, law firms are often exposed to the claim that inadequate or improper legal advice was provided, resulting in a claim by the client that they suffered a loss.
Excess insurance: Coverage that applies on top of underlying insurance that is primary, i.e., that pays until its coverage limit is exhausted at which point that excess coverage takes over.
Excess or surplus lines market: The range of insurance available through non-admitted insurers, i.e., insurance companies that are not licensed in a particular state or territory. Specific provisions of state or territorial law control placements.
Expense Ratio: The ratio of underwriting expenses (including commissions) to net premiums written. This ratio measures the company's operational efficiency in underwriting its book of business.
Exposure: Measure of vulnerability to loss, usually expressed in dollars or units.
Experience: A record of losses.
Experience modification: The rising or lowering of premiums under term of an experience rating plan.
Expiration Date: Termination date of coverage as indicated on the insurance policy. Typically 12:01 A.M. Standard Time at the address of the Named Insured as stated on the declarations page of the policy.
Extended period of indemnity: A time of recovery of proved business income loss after physical property is restored and business reopened. The 30-day extension of business income forms may be extended by endorsement.
Excess Insurance: Insurance coverage that pays only after other insurance, called primary insurance, has been exhausted.
Exclusion: Anything specifically stated in an insurance policy as not covered by the policy.
Fiduciary liability insurance: The insurance covers claims arising from a breach of the responsibilities or duties imposed on a benefit administrator, or a negligent act, error, or omission of the administrator.
File-and-Use Rating Laws: State-based laws which permit insurers to adopt new rates without the prior approval of the insurance department. Usually insurers submit their new rates with supporting statistical data.
First named insured: An insurance policy may have more than one party named as insured. In such cases, the first named insured attends to policy "housekeeping," i.e., pays premium, initiates (or receive notice of) cancellation, or calls for interim changes in the contract. This is spelled out in commercial policies in the "common policy conditions."
Floater: An inland marine form covering movable property wherever located within territorial limits.
Fraud: The intentional perversion of the truth in order to mislead someone into parting with something of value.
General Liability Insurance: Insurance designed to protect business owners and operators from a wide variety of liability exposures. Exposures could include liability arising from accidents resulting from the insured's premises or operations, products sold by the insured, operations completed by the insured, and contractual liability.
Gross Leverage: The sum of net leverage and ceded reinsurance leverage. This ratio measures a company's gross exposure to pricing errors in its current book of business, to errors of estimating its liabilities, and exposure to its reinsurers.
Hazard: A circumstance that increases the likelihood or probable severity of a loss. For example, the storing of explosives in a home basement is a hazard that increases the probability of an explosion.
Health Maintenance Organization (HMO): Prepaid group health insurance plan that entitles members to services of participating physicians, hospitals and clinics. Emphasis is on preventative medicine, and members must use contracted health-care providers.
Hold harmless agreement: A contractual assumption by one party of the liability exposure of another. Lease agreements, for example, commonly require the tenant to hold the landlord harmless for bodily injury to property damage experienced by others on the premises.
I - K
Impaired Insurer: An insurer which is in financial difficulty to the point where its ability to meet financial obligations or regulatory requirements is in question.
Inception Date: AKA Effective Date. The date at which an insurance policy goes into force usually shown in the declarations page of the policy.
Indemnity: A fundamental concept governing insurance: compensation for loss or injury sustained.
Independent agent: A "retailer" of insurance who, by contractual arrangement with a number of insurance companies, sells, and services property and liability insurance. The independent agent "owns" the policy information and expiration dates of his client's coverage and thus controls renewals and their placement.
Independent Insurance Agents & Brokers of America (IIABA): Formerly the Independent Insurance Agents of America (IIAA), this is a member organization of independent agents and brokers monitoring and affecting industry issues. Numerous state associations are affiliated with the IIABA.
Income Taxes: Incurred income taxes (including income taxes on capital gains) reported in each annual statement for that year.
Inflation guard endorsement: An endorsement attached to an insurance policy whereby the limits of liability on a piece of property are increased on a regular basis by a certain percentage in order to offset increasing building costs associated with inflation.
Insurable risk: The exposure to significant, measurable accidental loss from identifiable perils. The exposure, while not catastrophic, must be shared by a sufficient number of potential insureds so that the cost of loss for one can be measured and affordably shared throughout the market.
Insurance: A mechanism whereby risk of financial loss is transferred from individual, company, organization, or other entity to an insurance company.
Insurance Adjuster: A representative of the insurer who seeks to determine the extent of the insurer's liability for loss when a claim is submitted. Independent insurance adjusters are hired by insurance companies on an "as needed" basis and might work for several insurance companies at the same time. Independent adjusters charge insurance companies both by the hour and by miles traveled. Public adjusters work for the insured in the settlement of claims and receive a percentage of the claim as their fee. A.M. Best's Directory of Recommended Insurance Attorneys and Adjusters lists independent adjusters only.
Insurance Attorneys: An attorney who practices the law as it relates to insurance matters. Attorneys might be solo practitioners or work as part of a law firm. Insurance companies who retain attorneys to defend them against law suits might hire staff attorneys to work for them in-house or they might retain attorneys on an as-needed basis. A.M. Best's Directory of Recommended Attorneys and Adjusters lists insurance defense attorneys who concentrate their practice in insurance defense such as coverage issues, bad faith, malpractice, products liability, and workers' compensation.
Insurance Institute of America (IIA): An organization which develops programs and conducts national examinations in general insurance, risk management, management, adjusting, underwriting, auditing and loss control management.
Insurance policy: The document containing the contract between the insured and the insurer which defines the right and duties of the contracting parties.
Investment Income: The return received by insurers from their investment portfolios including interest, dividends and realized capital gains on stocks. It doesn't include the value of any stocks or bonds that the company currently owns.
Investments in Affiliates: Bonds, stocks, collateral loans, short-term investments in affiliated and real estate properties occupied by the company.
Insurance Regulatory Information System (IRIS): Introduced by the National Association of Insurance Commissioners in 1974 to identify insurance companies that might require further regulatory review.
Lapse Ratio: The ratio of the number of life insurance policies that lapsed within a given period to the number in force at the beginning of that period.
Lawyers Professional Liability Insurance: Insurance is provided in the form of a Claims Made Policy that covers monetary loss and expense of an insured attorney or law firm for legal liability in the rendering of professional services as defined by the policy. also known as: legal malpractice, legal malpractice insurance, lawyer professional liability insurance, attorney malpractice, lawyer malpractice insurance, lawyer malpractice liability insurance, attorney professional liability insurance, lawyer insurance, attorney insurance, attorney malpractice insurance, errors and omissions, errors and omissions insurance, law firm malpractice, errors and omissions coverage, lawyers liability insurance, law firm insurance, e and o
Leverage or Capitalization: Measures the exposure of a company's surplus to various operating and financial practices. A highly leveraged, or poorly capitalized, company can show a high return on surplus, but might be exposed to a high risk of instability.
Liability: Broadly, any legally enforceable obligation. The term is most commonly used in a pecuniary sense.
Liability Insurance: Insurance that pays and renders service on behalf of an insured for loss arising out of his responsibility, due to negligence, to others imposed by law or assumed by contract.
Licensed: Indicates the company is incorporated (or chartered) in another state but is a licensed (admitted) insurer for this state to write specific lines of business for which it qualifies.
Licensed for Reinsurance Only: Indicates the company is a licensed (admitted) insurer to write reinsurance on risks in this state.
Limits of Insurance: The greatest amount of insurance a policy will provide; the amount beyond which the insurer is no longer required to pay.
Liquidity: Liquidity is the ability of an individual or business to quickly convert assets into cash without incurring a considerable loss. There are two kinds of liquidity: quick and current. Quick liquidity refers to funds--cash, short-term investments, and government bonds--and possessions which can immediately be converted into cash in the case of an emergency. Current liquidity refers to current liquidity plus possessions such as real estate which cannot be immediately liquidated, but eventually can be sold and converted into cash. Quick liquidity is a subset of current liquidity. This reflects the financial stability of a company and thus their rating.
Lloyd's: Generally refers to Lloyd's of London, England, an institution within which individual underwriters accept or reject the risks offered to them. The Lloyd's Corp. provides the support facility for their activities.
Lloyds Organizations: These organizations are voluntary unincorporated associations of individuals. Each individual assumes a specified portion of the liability under each policy issued. The underwriters operate through a common attorney-in-fact appointed for this purpose by the underwriters. The laws of most states contain some provisions governing the formation and operation of such organizations, but these laws don't generally provide as strict a supervision and control as the laws dealing with incorporated stock and mutual insurance companies.
Loss Adjustment Expenses: Expenses incurred to investigate and settle losses.
Loss and Loss-Adjustment Reserves to Policyholder Surplus Ratio: The higher the multiple of loss reserves to surplus, the more a company's solvency is dependent upon having and maintaining reserve adequacy.
Losses and Loss-Adjustment Expenses: This represents the total reserves for unpaid losses and loss-adjustment expenses, including reserves for any incurred but not reported losses, and supplemental reserves established by the company. It is the total for all lines of business and all accident years.
Loss Control: All methods taken to reduce the frequency and/or severity of losses including exposure avoidance, loss prevention, loss reduction, segregation of exposure units and noninsurance transfer of risk. A combination of risk control techniques with risk financing techniques forms the nucleus of a risk management program. The use of appropriate insurance, avoidance of risk, loss control, risk retention, self-insuring, and other techniques that minimize the risks of a business, individual, or organization.
Loss experience: What the loss history has been on a particular line or book of business.
Loss exposure: A set of circumstances presenting the possibility of loss, whether or not the loss actually occurs.
Loss Ratio: The ratio of incurred losses and loss-adjustment expenses to net premiums earned. This ratio measures the company's underlying profitability, or loss experience, on its total book of business.
Loss Reserve: The estimated liability, as it would appear in an insurer's financial statement, for unpaid insurance claims or losses that have occurred as of a given evaluation date. Usually includes losses incurred but not reported (IBNR), losses due but not yet paid, and amounts not yet due. For individual claims, the loss reserve is the estimate of what will ultimately be paid out on that claim.
Losses Incurred (Pure Losses): Net paid losses during the current year plus the change in loss reserves since the prior year end.
Medical malpractice: Type of insurance protecting physicians, surgeons, nurses, and other medical practitioners against claims alleging failure to perform.
Member Month: Total number of health plan participants who are members for each month.
Minimum premium: An insurer's lowest charge for an insurance policy.
Misrepresentation: Generally, misstatement of facts made on an application for insurance. May also be a misstatement of coverage made by an agent to an insured.
Monoline policy: An insurance policy covering one subject of insurance, as opposed to a combination of multiline policy.
Mutual Insurance Companies: Companies with no capital stock, and owned by policyholders. The earnings of the company--over and above the payments of the losses, operating expenses and reserves--are the property of the policyholders. There are two types of mutual insurance companies. A nonassessable mutual charges a fixed premium and the policyholders cannot be assessed further. Legal reserves and surplus are maintained to provide payment of all claims. Assessable mutuals are companies that charge an initial fixed premium and, if that isn't sufficient, might assess policyholders to meet losses in excess of the premiums that have been charged.
Named insured: The party of parties specifically named as insured in the insurance contract. Others may have claim on the coverage of a policy by way of internal provisions, but any such right is by way of the agreement between the named insured and the insurance company.
Named Perils: A formal and specific listing of perils covered in a policy providing property insurance. A policy covering for damage by fire is said to cover for "the named peril" of fire.
National Association of Insurance Commissioners (NAIC): Association of state insurance commissioners whose purpose is to promote uniformity of insurance regulation, monitor insurance solvency and develop model laws for passage by state legislatures.
Net Income: The total after-tax earnings generated from operations and realized capital gains as reported in the company's NAIC annual statement on page 4, line 16.
Net Investment Income: This item represents investment income earned during the year less investment expenses and depreciation on real estate. Investment expenses are the expenses related to generating investment income and capital gains but exclude income taxes.
Net Leverage: The sum of a company's net premium written to policyholder surplus and net liabilities to policyholder surplus. This ratio measures the combination of a company's net exposure to pricing errors in its current book of business and errors of estimation in its net liabilities after reinsurance, in relation to policyholder surplus.
Net Liabilities to Policyholder Surplus: Net liabilities expressed as a ratio to policyholder surplus. Net liabilities equal total liabilities less conditional reserves, plus encumbrances on real estate, less the smaller of receivables from or payable to affiliates. This ratio measures company's exposures to errors of estimation in its loss reserves and all other liabilities. Loss-reserve leverage is generally the key component of net liability leverage. The higher the loss-reserve leverage the more critical a company's solvency depends upon maintaining reserve adequacy.
Net Premium: The amount of premium minus the agent's commission. Also, the premium necessary to cover only anticipated losses, before loading to cover other expenses.
Net Premiums Earned: The adjustment of net premiums written for the increase or decrease of the company's liability for unearned premiums during the year. When an insurance company's business increases from year to year, the earned premiums will usually be less than the written premiums. With the increased volume, the premiums are considered fully paid at the inception of the policy so that, at the end of a calendar period, the company must set up premiums representing the unexpired terms of the policies. On a decreasing volume, the reverse is true.
Net Premiums Written: Represents gross premium written, direct and reinsurance assumed, less reinsurance ceded.
Net Underwriting Income: Net premiums earned less incurred losses, loss-adjustment expenses, underwriting expenses incurred, and dividends to policyholders.
Nonstandard Auto (High Risk Auto or Substandard Auto): Insurance for motorists who have poor driving records or have been canceled or refused insurance. The premium is much higher than standard auto due to the additional risks.
Net Premiums Written to Policyholder Surplus (IRIS): This ratio measures a company's net retained premiums written after reinsurance assumed and ceded, in relation to its surplus. This ratio measures the company's exposure to pricing errors in its current book of business.