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|
| PACKAGE
POLICY |
A single
insurance policy that combines several coverages previously sold
separately. Examples include homeowners insurance and commercial
multiple peril insurance.
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|
PAY-AT-THE-PUMP |
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.
|
| PENSIONS |
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
Defined benefit plan;
Defined contribution plan)
|
| PERIL |
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.
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| 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 policyholder’s car.
|
| PERSONAL
LINES |
Property/casualty insurance products that are designed for and bought by
individuals, including homeowners and automobile policies. (See
Commercial lines)
|
|
POINT-OF-SERVICE PLAN |
Health
insurance policy that allows the employee to choose between in-network
and out-of-network care each time medical treatment is needed.
|
| POLICY |
A written
contract for insurance between an insurance company and policyholder
stating details of coverage.
|
|
POLICYHOLDERS' SURPLUS |
The amount
of money remaining after an insurer’s liabilities are subtracted from
its assets. It acts as a financial cushion above and beyond reserves,
protecting policyholders against an unexpected or catastrophic
situation.
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|
POLITICAL RISK INSURANCE |
Coverage
for businesses operating abroad against loss due to political upheaval
such as war, revolution, or confiscation of property.
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|
POLLUTION INSURANCE |
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
Claims-made policy)
|
| POOL |
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.
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| PREMISES |
The
particular location of the property or a portion of it as designated in
an insurance policy.
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| PREMIUM |
The price
of an insurance policy, typically charged annually or semiannually. (See
Direct premiums;
Earned premium;
Unearned premium)
|
| PREMIUM
TAX |
A state tax
on premiums paid by its residents and businesses and collected by
insurers.
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| PREMIUMS
IN FORCE |
The sum of
the face amounts, plus dividend additions, of life insurance policies
outstanding at a given time.
|
| PREMIUMS
WRITTEN |
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.
|
| PRIMARY
COMPANY |
In a
reinsurance transaction, the insurance company that is reinsured.
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| PRIMARY
MARKET |
Market for
new issue securities where the proceeds go directly to the issuer.
|
| PRIME
RATE |
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
|
| PRIVATE
PLACEMENT |
Securities
that are not registered with the Securities and Exchange Commission and
are sold directly to investors.
|
| PRODUCT
LIABILITY |
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
manufacturer’s 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.
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|
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.
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|
PROPERTY/CASUALTY INSURANCE |
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.
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|
PROPOSITION 103 |
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 state’s insurance system and was the subject of lawsuits
for more than a decade.
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|
PURCHASING GROUP |
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 |
|
QUALIFIED ANNUITY |
| A form of
annuity purchased with pretax dollars as part of a retirement plan that
benefits from special tax treatment, such as a 401(k) plan. |
| RATE |
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.
|
| RATE
REGULATION |
The process
by which states monitor insurance companies’ rate changes, done either
through prior approval or open competition models. (See
Open competition states;
Prior approval states)
|
| RATING
AGENCIES |
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.; Moody’s Investors Services; Standard & Poor’s 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.
|
| RATING
BUREAU |
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.
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|
RECEIVABLES |
Amounts
owed to a business for goods or services provided.
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|
REDLINING |
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.
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|
REINSURANCE |
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 don’t pay policyholder
claims. Instead, they reimburse insurers for claims paid. (See
Treaty reinsurance;
Facultative reinsurance)
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| RENTERS
INSURANCE |
A form of
insurance that covers a policyholder’s 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.
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|
REPLACEMENT COST |
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.
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|
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.
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| RESERVES |
A company’s
best estimate of what it will pay for claims.
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| RESIDUAL
MARKET |
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.
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|
RETENTION |
The amount
of risk retained by an insurance company that is not reinsured.
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|
RETROCESSION |
The
reinsurance bought by reinsurers to protect their financial stability.
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|
RETROSPECTIVE RATING |
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.
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| RETURN
ON EQUITY |
Net income
divided by total equity. Measures profitability by showing how
efficiently invested capital is being used.
|
| RIDER |
An
attachment to an insurance policy that alters the policy’s coverage or
terms.
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| RISK |
The chance
of loss or the person or entity that is insured.
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| RISK
MANAGEMENT |
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.
|
|
RISK-BASED CAPITAL |
| 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. |
| SALVAGE |
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.
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| SCHEDULE |
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.
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|
SECONDARY MARKET |
Market for
previously issued and outstanding securities.
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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.
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|
SECURITIES OUTSTANDING |
Stock held
by shareholders.
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|
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
Catastrophe bonds)
|
|
SELF-INSURANCE |
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.
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| SEVERITY |
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.
|
| SHARED
MARKET |
See
Residual market
|
| SINGLE
PREMIUM ANNUITY |
An annuity
that is paid in full upon purchase.
|
| SOFT
MARKET |
An
environment where insurance is plentiful and sold at a lower cost, also
known as a buyers’ market. (See
Property/casualty insurance cycle)
|
| SOLVENCY |
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
Adverse selection)
|
| STACKING |
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 GAAP accounting;
Admitted assets)
|
| STOCK
INSURANCE COMPANY |
An
insurance company owned by its stockholders who share in profits through
earnings distributions and increases in stock value.
|
|
STRUCTURED SETTLEMENT |
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
Annuity)
|
|
SUBROGATION |
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.
|
|
SUPERFUND |
A federal
law enacted in 1980 to initiate cleanup of the nation’s 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.
|
| SURETY
BOND |
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
party’s 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.
|
| SURPLUS |
The
remainder after an insurer’s liabilities are subtracted from its assets.
The financial cushion that protects policyholders in case of
unexpectedly high claims. (See
Capital;
Risk-based capital)
|
| SURPLUS
LINES |
Property/casualty insurance coverage that isn’t 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.
|
|
SURRENDER CHARGE |
A charge
for withdrawals from an annuity contract before a designated surrender
charge period, usually from five to seven years.
|
| SWAPS |
| 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 |
|
