Glossary

The insurance industry use a number of technical terms, usually for reasons of precise meaning, which are not necessarily easily understood. This section clarifies what the key words and phrases that you’ll find in insurance documents mean.

 

VIS MAJOR (ACT OF GOD) Natural causes directly and exclusively without human intervention and that could not have been prevented by any amount of foresight and pains and care reasonably to have been expected.

ADDENDUM A document setting out agreed alterations to an insurance contract. (See also endorsement).

ADDITIONAL PREMIUM A further premium payable by the insured as a result of policy amendment, that may have increased the risk or changed the policy conditions or sum insured.

ADJUSTER One who investigates and assesses claims on behalf of insurers (claims adjuster or loss adjuster).

AGGREGATE LIMIT OF INDEMNITY The maximum amount an insurer will pay under a policy in respect of all accumulated claims arising within a specified period of insurance.

ALL RISKS Term used to describe insurance against loss of or damage to property arising from any fortuitous cause except those that are speciafically excluded.

AVERAGE A clause in insurance policies whereby, in the event of under-insurance, the claim paid out by the insurer is restricted to the same proportion of the loss as the sum insured under the policy bears to the total value of the insured item.

BUSINESS USE CLASS 1 If you’re using your car as part of your job, to drive to other sites as well as your usual place of work, this counts as Business use – class 1. It doesn’t include commercial use (such as deliveries) or door-to-door selling or mini-cab driving.

Usually your spouse will also be covered for Business use – class 1, but no other named driver. Best to check when you get your quote.

BUSINESS USE CLASS 2 This is much the same as class 1, but it generally covers you (the policyholder) and a named driver, in connection with your business. However, different underwriters have their own rules about what it covers. Again, check when getting a quote.

BUSINESS USE CLASS 3 This is the one you need if you are racking up the miles – like salesmen who may also be carrying samples.

CANCELLATION Termination of a policy before it is due to expire. There may be a cancellation clause in a policy setting out the condition under which the policy may be cancelled by notice. The period of notice could be anything from 48 hours to 3 months. In most cases this will result in a return premium being paid by the insurer to the insured.

CLAIMS Injury or loss to the insured arising so as to cause liability to the insurer under a policy it has issued.

COMMERCIAL COMBINED INSURANCE A number of different commercial insurances put together as a single package.

COMMON LAW The common law consists of the ancient customs and usages of the land, which have been recognised by the courts and given the force of law. It is in itself a complex system of law, both civil and criminal, although it is greatly modified and extended by statute law and equity. It is unwritten, and has come down in the recorded judgements of judges who for hundreds of years have interpreted it.

COMMUTING This is the next class up from Social, Domestic and Pleasure in Motor insurance and covers everything included in Social, Domestic and Pleasure, plus driving to and from a permanent place of work. Driving your car to the train station and leaving it there while you go to work counts as commuting. So would giving someone a lift to their place of work.

CONCEALMENT Deliberate suppression by a proposer for insurance of a material fact relating to the risk, usually making the contract null and void.

CONSEQUENTIAL LOSS Insurance of loss following direct damage e.g. loss of profits; loss of use insurance.

COVER NOTE A document issued to the insured confirming details of the insurance cover placed. Some cover notes are a legal requirement, e.g. motor

DEDUCTIBLE The specified amount a loss must exceed before a claim is payable. Only the amount which is in excess of the deductible is recoverable.

DEFERRED PREMIUM The part of a premium which, following agreement with underwriters, is payable by instalments, usually quarterly or half yearly.

EMPLOYERS LIABILITY Insurance by employers in respect of their liability to employees for injury or disease arising out of and in the course of their employment. With some exemptions this insurance is compulsory in Great Britain, and can only be provided by an authorised insurer.

ERN (Employers’ Reference Number) Also called an ‘Employer PAYE Reference’, the ERN is a unique number given to every business that registers with HM Revenue and Customs as an employer. You will find it in your registration welcome pack and also on many other HMRC documents including P45, P60, P11/D, and pay slips. The number is made up of a three-digit HMRC office number and a reference number specific to your business.

ENDORSEMENT Documentary evidence of a change in the wording of or cover offered by an existing policy or qualification of wording if the policy is written on restricted terms. (See also Addendum).

EXCESS The first portion of a loss or claim which is borne by the insured. An excess can be either voluntary to obtain premium benefit or imposed for underwriting reasons.

EXCLUSION A provision in a policy that excludes the insurer’s liability in certain circumstances or for specified types of loss.

EX-GRATIA PAYMENT A payment made by an insurer to a policyholder where there is no legal liability so to pay.

FINANCIAL OMBUDSMAN SERVICE A bureau established by major insurance companies to oversee the interests of policyholders whose complaints remain unsolved through normal company channels of communication. The service is available to all those holding personal cover with the insurers who have joined the scheme. The decision of the Ombudsman is binding on the insurer, although the insured may appeal to the court if he so wishes.

FIRST LOSS INSURANCE Insurance where the sum insured is accepted to be less than the value of the property but the insurer undertakes to pay claims up to the sum insured, without application of average.

GROSS PREMIUM A term normally applied to gross written premiums before deduction of brokerage and discounts.

HAZARD A physical or moral feature that introduces or increases the risk.

INCEPTION DATE The date from which, under the terms of a policy, an insurer is deemed to be at risk.

INDEMNITY A principle whereby the insurer seeks to place the insured in the same position after a loss as he occupied immediately before the loss (as far as possible).

INDEMNITY PERIOD Under a business interruption insurance the period during which cover is proved for disruption to the business following the occurrence of an insured peril.

INSURABLE INTEREST For a contract of insurance to be valid the policyholder must have an interest in the insured item that is recognised at law whereby he benefits from its safety, well being or freedom from liability and would be prejudiced by its damage or the existence of liability. This is called the insurable interest and must exist at the time the policy is taken out and at the time of the loss.

INSURANCE BROKER/INTERMEDIARY An insurance intermediary who advises his clients and arranges their insurances. Although he acts as the agent of his client, he is normally remunerated by a commission (brokerage) from the insurer. An insurance broker is a full-time specialist with professional skills in handling insurance business. Since January 2005 intermediaries and brokers must be registered with, and regulated by the Financial Conduct Authority.

INSURANCE PREMIUM TAX The Finance Act 1994 introduced this new tax on most general insurance risks located in the UK. General insurance IPT is set at 6%, Travel insurance is set at 20%.

INSURED The person whose property is insured or in whose favour the policy is issued.

INSURER An insurance company or Lloyd’s underwriter who, in return for a consideration (a premium). agrees to make good in a manner laid down in the policy any loss or damage suffered by the person paying the premium as a result of some accident or occurrence.

LAPSE The non-renewal or cancellation of a policy for any reason.

LIMIT OR LIMIT OF INDEMNITY The insurer’s maximum liability under an insurance, which may be expressed as ‘per claim’, ‘per accident’, ‘per event’, ‘per occurrence’, ‘per annum’, etc

LLOYD’S (OF LONDON) A Society, incorporated under Act of Parliament of 1871 and known as the Corporation of Lloyd’s, which provides the premises a wide variety of services, administrative staff and other facilities to enable the Lloyds market to carry on insurance business efficiently.

LOSS Another term for a claim.

LOSS ADJUSTER Independent qualified loss adjusters are used by Insurers for their experience and expertise necessary to carry out detailed and in some instances prolonged investigations of complex and large losses. Although the adjuster’s fees are invariably paid by the insurers he is an impartial professional person and makes his judgement on the amount to be paid in settlement solely on the basis of established market practice. It is his task to negotiate a settlement which is within the terms of the policy and equitable to both insured and insurer. Should he himself not be an expert in a particular discipline which is necessary or desirable to pursue his negotiations, he will consult or employ such an expert.

LOSS ASSESSOR In most classes a person who, in return for a fee (usually a percentage of the amount claimed), acts for the claimant in negotiating the claim.

MATERIAL FACT Any fact which would influence the insurer in accepting or declining a risk or in fixing the premium or terms and conditions of the contract is material and must be disclosed by a proposer, or by the insurer to the insured.

NEGLIGENCE Perhaps the most common form of tort. In Blyth v Birmingham Waterworks Co. (1856) it was defined as ‘the omission to do something which a reasonable man guided by those considerations which ordinarily regulate the conduct of human affairs would do, or doing something which a prudent and reasonable man would not do’. Gives rise to civil liability.

NET PREMIUMS Term variously used to mean gross premiums net of reinsurance premiums payable, or commission, brokerage, taxes, or any combination of these.

NEW FOR OLD Where insurers agree to pay the cost of property lost or destroyed without deduction for depreciation.

NO CLAIMS BONUS (OR DISCOUNT) A rebate of premium given to an insured person by an insurer where no claims have been made by that insured. Very common in motor insurance, where it may be transferred from one car to another as long as stays the same driver.

NON-DISCLOSURE The failure by the insured or his broker to disclose a material fact or circumstance to the underwriter before acceptance of the risk.

PERIL A contingency, of fortuitous happening, which may be covered or excluded by a policy of insurance.

PERIOD OF RISK The period during which the insurer can incur liability under the terms of the policy.

POLICY A document detailing the terms and conditions applicable to an insurance contract and constituting legal evidence of the agreement to insure. It is issued by an insurer or his representative for the first period of risk. On renewal a new policy may well not be issued although the same conditions would apply, and the current wording would be evidence by the renewal receipt.

POLICY HOLDER The person in whose name the policy is issued. ( See also insured and assured).

PREMIUM The consideration paid for a contract of insurance.

PRE- EXISTING MEDICAL CONDITIONS You should tell your broker or insurer about any illness you are currently suffering from, or have already had, even in the past. These are known as pre existing medical conditions. For Private Medical Insurance, you will not normally be covered for these conditions, but for Travel Insurance, the Insurer may be able to offer cover, sometimes for a higher premium.

PRODUCTS LIABILITY INSURANCE These policies cover the insured’s legal liability for bodily injury to persons, or loss of or damage to property caused by defects in goods (including containers) sold, supplied, erected, installed, repaired, treated, manufactured, and/or tested by the insured.

PROFESSIONAL INDEMNITY INSURANCE This policy protects a professional man against his legal liability towards third parties for injury, loss, or damage, arising from his own professional negligence or that of his employees.

PROPOSAL FORM A form sent by an insurer to a person requiring insurance so as to obtain sufficient information to allow the insurer to decide whether or not to accept a risk and what conditions to apply if it is accepted.

QUOTE A statement by an insurer of the premium they will require for a particular insurance. Quoted premium can only be guaranteed for maximum of 31 days.

REINSTATEMENT Making good. Where insured property is damaged, it is usual for settlement to be effected through the payment of a sum of money, but a policy may either give the insured or the insurer the option to restore or rebuild instead.

RENEWAL The process of continuing an insurance from one period of risk to a succeeding one.

RISK The peril insured against or an individual exposure.

RISK MANAGEMENT The identification, measurement and economic control of risks that threaten the assets and earnings of a business or other enterprise.

SCHEDULE The part of a policy containing information peculiar to that particular risk. The greater part of a policy is likely to be identical for all risks within a class of business covered by the same insurer.

SOCIAL, DOMESTIC & PLEASURE This covers the drivers named on the policy for normal day to day driving – shopping, visiting friends or family and pleasure driving such as going to the park or on holiday. However, it does not include commuting to work.

STATEMENT OF FACT An alternative to a completed proposal form. A statement provided by the insurer clarifying the basis on which insurance is accepted and what conditions apply.

STATUTE LAW Presently the most important source of law is statute law, otherwise known as Acts of Parliament; which may create entirely new law, over-rule, modify, or extend existing principles of common law and equity, and repeal or modify existing Statute law.

SUM INSURED The maximum amount payable in the event of a claim under contract of insurance.

THIRD PARTY A person claiming against an insured. In insurance terminology the first party is the insurer and the second party is the insured.

THIRD PARTY LIABILITY Liability of the insured to persons who are not parties to the contract of insurance and are not employees of the insured.

UNDERLYING INSURANCE The primary insurance as distinct from excess insurance.

UNDERWRITER A person who accepts business on behalf of an insurer. (See also Lloyd’s underwriter).

UTMOST GOOD FAITH Commercial insurance contracts are contracts of utmost good faith (uberrima fides), which means that both parties to the contract have a duty to disclose, clearly and accurately, all material facts relating to the proposed insurance. Any breach of this duty by the proposer may entitle the insurer to repudiate liability.

WARRANTY A very strict condition in a policy imposed by an insurer. A breach entitles the insurer to deny liability.

WEAR AND TEAR This is the amount deducted from claims payments to allow for any depreciation in the property insured which is caused by its usage.

WITHOUT PREJUDICE

1. Term used in discussion and correspondence. Where there is a dispute or negotiations for a settlement and terms are offered ‘without prejudice’ an offer so made or a letter so marked and subsequent correspondence cannot be admitted in evidence without the consent of both parties concerned.
2. Term also used by an underwriter when paying a claim which he feels may not attach to the policy. This payment must not be treated as a precedent for future similar claims.

 

Many of these terms and definitions have been taken from the BIBA (British Institute Brokers’ Association) jargon buster website which is available here.