Glossary of Insurance Terms

C

Calendar year experience - Underwriting result based on earned premiums and booked incurred losses for the same calendar year reporting period, regardless of the dates of the loss events. Booked incurred losses include paid losses, beginning of year to end of year changes in case reserves, and IBNR.

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.

Capacity - An insurer’s (or reinsurer’s) top limit on the amount of coverage it has available. The term may also refer to the total available in the respective insurance or reinsurance market.

Captive agent - A representative of a single insurer. In the case of captive agents, the insurer owns and controls expiration dates and policy records. A captive agent is a member of what may be called an exclusive agency system.

Captive insurer - An enterprise with all the authority to perform as an insurance company, but is organized by a parent company for the express purpose of providing the parent company’s insurance.

Care, custody, or control - An expression common to liability insurance contracts. It refers to an exclusion in the policy eliminating coverage for damage to property of others that is in the insured’s "care, custody, or control." The insured has a bailee relationship to the property, in other words, making the insured liable for the care of the property beyond damage caused by negligence. A bailees floater is often used to cover the insured’s obligation for the care of such property.

Cargo insurance - An inland marine or ocean marine policy covering cargo in the care, custody, or control of the carrier.

Cash-flow underwriting - Name given to an insurer’s practice of "nonselectively" writing business in order to generate greater amounts of cash for in-vestment purposes.

Casualty insurance - The type of insurance concerned with legal liability for losses caused by bodily injury to others or physical damage to property of others.

Catastrophe (excess) cover - Another term for catastrophe reinsurance, wherein the ceding company is indemnified by the reinsurer after a specified loss amount is reached, for losses caused by catastrophes. Causes of loss forms - The reference is commonly to property insurance con-tracts and the form in question details those perils to which the coverage will respond. Though any property insurance contract must name the perils it intends to cover, e.g., crop hail, earthquake, perils of transit, and so on, the most commonly used general forms are the basic and broad named perils forms and the special form. In contrast to the named perils forms, that list specific perils for coverage, the special form contract covers simply risk of direct physical loss, relying on exclusions to delimit and define the coverage.

Cede - The transfer of all or part of a risk written by an insurer to a reinsurer.

Cedant - A ceding insurer or reinsurer. Ceding means to contractually transfer a portion of a risk or risks to a reinsurer.

Ceding commission - The cedant’s acquisition costs and overhead expenses, taxes, licenses and fees, plus a fee representing a share of expected profits, which often is expressed as a percentage of the gross reinsurance premium.

CERCLA, see Superfund.

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.

CGL (Commercial General Liability) see Commercial general liability.

CIC - Certified Insurance Counselor.

CLU - A designation — Chartered Life Underwriter — conferred upon successful completers of a series of studies of life insurance and related disciplines designed by The American College.

CPCU - A designation — Chartered Property Casualty Underwriter — conferred upon successful completion of a series of 10 exams on insurance and related disciplines designed by the American Institute of Chartered Property Casualty Underwriters.

Civil commotion - One of the extended coverage perils, paired with the peril "riot," which refers to a less widespread or generalized event than "riot" might be thought to encompass.

Claim Expense - The expense of adjusting a claim, such as investigation and attorneys’ fees. It does not include the cost of the claim itself.

Claims-made coverage - 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). This development was in response to "long tail" claims, such as those related to asbestosis injury, carrying over many years and multiple layers of coverage limits. However, most public liability policies 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.

Clash cover - A type of catastrophe reinsurance for casualty insurance. The retention is equal to the highest limit of any one insurance policy covered by the agreement. Clash cover is written to cover all losses from one source, such as a construction site.

Class rates - When property or people share a certain number of characteristics relevant to the cost of providing them with insurance (such as a male driver under the age of 25 without an accident) underwriters can develop insurance rates that reflect the exposures represented by the "class" and offer insurance based on a class rate rather than by computing individual rates for each member.

Clause - A provision or condition affecting the terms of a contract. Coinsurance, cancellation, and subrogation clauses are typical insurance contract clauses.

Clean-up costs - Generally, those costs associated with the clean up of pollution.

Close or closely held corporation - A corporation that is owned by a small number of individuals who are related. A close corporation fills its own vacancies.

Coercion - Another act defined by most states as an "unfair trade practice." This one occurs when someone in the insurance business uses physical or mental force to persuade another to transact insurance.

Coinsurance clause - "Coinsurance" refers to the bargain between commercial property owners and the insurance industry. This 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 "coinsurer" in the same ratio as the amount of insurance bears to the amount that should have been carried.

Collapse - A property insurance peril, subject to its own specific agreement in property policies, which otherwise insure on an open perils basis.

Collision damage waiver - When paired with an auto rental agreement, the rental car company agrees to waive the renter’s responsibility for any physical damage to the rental car in exchange for an additional payment. Sometimes called a "loss damage waiver."

Collision insurance - A type of physical damage insurance available for automobiles. Coverage is triggered when damage is caused by striking against another object.

Combined ratio - The sum of an insurance company’s loss ratio and expense ratio; used as an indicator of profitability for insurance companies.

Combined Single Limit (CSL) - Liability policies commonly offer separate limits that apply to bodily injury claims and to claims for property damage. "50/100/25" is shorthand under such a policy for $50,000 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 blanket bond - A bond that covers the named insured against employee dishonesty. A single coverage amount applies to any one loss, regardless of the number of employees involved.

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 - A distinction marking property and liability coverage writ-ten for business or entrepreneurial interests as opposed to personal lines.

Commissioner of Insurance - The official in a state (or territory) responsible for administering insurance regulation; sometimes called the Superintendent or Director of Insurance.

Common area - The part of a building or premises either owned by or used by all tenants or tenant-owners of the building (e.g. the swimming pool at a condominium).

Comparative negligence - A variation of contributory negligence, in which the comparative degree of negligence for each party to an accident is taken into account when awarding damages.

Compensatory damages - The award, usually monetary, that is intended to compensate the claimant for injury sustained.

Completed operations insurance, see Products and completed operations.

Completion bond - A bond that guarantees a lending institution or other mortgagee that a building or other construction that they have lent money on will be completed on time so it can used as collateral on the loan.

Comprehensive personal liability insurance - Provides individuals and family members with protection from legal liability for most accidents caused by them in their personal lives. Note that any legal liability claims submitted while in the course of business activities are not covered.

Comprehensive physical damage (automobile) - Traditional name for physical damage coverage for losses by fire, theft, vandalism, falling objects, and various other perils. On Personal Auto Policies, this is now called "other than collision" coverage. On commercial forms, it continues to be called "comprehensive" coverage.

Concurrent causation - When two perils contribute concurrently to a property loss, one excluded and the other not, the effect of the exclusion tends to be voided in a policy covering on an open perils basis. A concurrent causation exclusion is found in current forms.

Condition - One of the obligations of either the insured or the insurer imposed in the insurance contract.

Condominium - Type of dwelling where the structure is owned jointly while spaces within the structure are owned individually. Special property and liability forms cover the interests of the condominium association and of unit owners.

Condominium association coverage - A policy that provides coverage for the building, elements of the building, and liability needs for those who collectively own a piece of property.

Condominium unit owners form - A policy that provides coverage for the personal property, owned elements of a unit, and liability for the individual unit owner.

Consequential loss - An indirect consequence of direct loss to property. Business income may be lost when a store burns down, or frozen goods may spoil when windstorm causes an interruption of power. Consequential or indirect loss is not generally insured by policies covering direct damage (i.e., by fire or wind as in these examples), but insurance is readily obtainable separately for most such consequential exposures — business income coverage being among the most common.

Construction bond - A bond that guarantees the owner of a building under construction that it will be completed. If the contractor cannot finish the work, the insurer is obligated to see that the work is performed.

Constructive total loss - This condition is said to exist when the cost of repairs exceeds the actual cash value of damaged property.

Contingent business income, see Business income, dependent properties.

Contingent liability - Liability imposed on a business entity (individual, partnership, or corporation) for acts of a third party for which the business entity is responsible.

Contract of adhesion, see Adhesion contract.

Contractors equipment floater - Coverage designed for the special needs of contractors to insure their machinery and other equipment.

Contractual liability - Liability that does not arise by way of negligence but by assumption under contract. For example, in certain leases, a tenant may assume a landlord’s liability to others for 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 that failure contributed to the loss.

Controlled business - The amount of insurance countersigned, issued or sold by a producer covering that producer’s interests, immediate family, or employees. Many states limit the amount of controlled business that may be written, by placing a maximum percentage of all business that may be "controlled."

Convention (or Statement) blank - The uniform annual financial statement that must be filed by all insurers, as prescribed by the National Association of Insurance Commissioners. The convention blank must be filed annually in an insurer’s home state and every state in which it is licensed to do business.

Corporation - A business whose articles of incorporation have been approved in some state. For insurance purposes, the type of business structure helps to determine who is insured on the policy.

Countersignature - An authorized signature of agent or company representative on an insurance policy. Usually pertains to policies sold by an agent of the insurer located in another state.

Court bonds, see Judicial bonds.

Coverage trigger - In liability insurance, the "trigger" is the event that brings coverage into play. It may be either an occurrence of bodily injury or property damage; or, in a form with a claims-made trigger, the formal making of a claim.

Covered loss - An accident, including accidental damage by forces of nature, that brings a contract of insurance into play.

Credit card forgery - A criminal act involving the illegitimate use of credit cards to obtain goods or money. Limited coverage for such losses is automatically provided in most homeowners policies.

Crime insurance - A broad category covering loss of property through criminal activity — from employee dishonesty to burglary and robbery, computer fraud, and forgery.

Crop insurance - Insurance covering growing crops against hail, wind, and fire. Protection against a broader range of perils can often be arranged as well.