7        Appendix

This section contains the following topics:

§       Glossary

§       Common Features in OILM

Glossary

Accident: An event or occurrence which is unforeseen and unintended.

Accident Year: An accident year grouping of claims means that all the claims relating to events that occurred in 12 months are grouped, irrespective of when they are reported or paid and irrespective of the year in which the period of cover commenced

Actual Total Loss: An insured item that has been lost or destroyed. The full insured value is payable by the insurer.

Attritional Losses: Losses other than those related to major CAT events or exposures. These are majorly small losses with high frequency and low severity.

Cancellation: The discontinuance of an insurance policy before its normal expiration date, either by the insured or the company.

Captive Insurance Company: A company owned solely or in large part by one or more non-insurance entities for the primary purpose of providing insurance coverage to the owner or owners.

Cargo Insurance: Type of Transit insurance that protects the shipper of the goods against financial loss if the goods are damaged or lost.

Catastrophe Cover: Type of reinsurance on an excess of loss basis to protect against an accumulation of losses arising from one event.

Catastrophe reinsurance: This is a form of aggregate excess of loss reinsurance providing coverage for very high aggregate losses arising from a single event, which may be spread over several hours; 24 or 72 hours is common.

Catastrophe: In the context of general insurance a catastrophe is a single event that gives rise to exceptionally large losses. The exact definition often varies and is often dependent on the excess of loss wordings e.g. it might mean all losses, in 72 hours, arising from a wind storm.

Claim: A request by a policyholder for payment following the occurrence of an insured event. A claim does not necessarily lead to a payment.

Claim amount distribution: A statistical frequency distribution for the amounts of claims.

Claim frequency: The number of claims in a period per unit of exposure, such as the number of claims per vehicle year for a calendar year or per policy over a period.

Coinsurance: A method of sharing risk among several direct insurers, each of which has a separate direct contractual relationship with the insured and is, therefore, liable only for its contractual share of the total risk. The term is also used in certain excess of loss contracts to refer to the proportion of claims retained by the cedant.

Co-insurance: Method of sharing insurance risk between several insurers. The policyholder will deal as a lead insurer who issues documents and collects premiums. The policy will detail the shares held by each company.

Commercial Lines: Insurance of businesses, organizations, institutions, governmental agencies, and other commercial establishments.

Commercial Umbrella: A liability policy designed to cover catastrophic losses.

Commission: The part of an insurance premium paid by the insurer to an agent or broker for his services in procuring and servicing the insurance.

Comprehensive Coverage: Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods, and riots), and theft

Conditions: Provisions inserted in an insurance contract that qualify or place limitations on the insurer's promise to perform.

Consideration: In some forms of contract, the agreement is made binding by the payment of a sum of money from one party to the other. Such a payment is known as a consideration. The term is also used informally to mean any form of payment.

Deductible: The portion of an insured loss borne by the policyholder. The amount or percentage is specified in the policy.

Earned Premium: For an insurance policy, the part of the premium relates to an expired period of cover.

Endorsement: A written amendment affecting the declarations, insuring agreements, exclusions, or conditions of an insurance policy: a rider.

Estimated Maximum Loss (EML): Used in fire, explosion, and material damage insurance policies, it is an estimate of the monetary loss that could be sustained on a single risk as a result of single peril, which is considered by the underwriters to be possible.

Excess of loss: In reinsurance, an agreement requires the reinsurer to bear any loss over a certain stated amount.

Excess: Amount of any loss that is not included in the cover provided (e.g. a loss falling below the excess is not a claim). A deductible on the other hand eats into the cover. This difference only really matters where there is an upper limit on the amount of covers such as reinstatements or an annual aggregate.

Exgratia Payment: In insurance, a payment is made to settle an issue(such as an insurance claim) but without admitting liability.

Expense Ratio: The ratio of a company’s operating expenses including acquisition costs to premiums written or earned.

Facultative Reinsurance: A reinsurance arrangement covering a single risk as opposed to a treaty arrangement; commonly used for very large risks or portions of risk written by a single insurer, that is shared among several reinsurers.

Incurred Losses: Expenses account in an insurance company’s income statement reflecting the claims paid during the policy year plus the loss reserves as of the policy year, minus the corresponding reserves as of the beginning of the policy year.

Incurred-But-Not Reported Reserves (IBNR): Liability account on an insurer’s balance sheet reflecting claims that are expected based upon statistical projections but which have not yet been reported to the insurer.

Indemnification: Compensation to the victim of a loss, in whole or in part, by payment, repair, or replacement.

Indemnity: Legal principle that specifies an insured should not collect more than the actual cash value of a loss but should be restored to approximately the same financial position that existed before the loss.

Insurable Interest: Financial interest, recognized at law, which the insured has in the subject matter of insurance. In some cases, an unlimited insurable interest exists, for example, in one’s own life and the life of a spouse. However, in most cases, insurable interest is limited to the value of the property or goods, or the extent of liability.

Insurable Risk: Risk against which insurance cover can be obtained by somebody with an insurable interest in it.

Insurance: Contract under which the insurer agrees to provide compensation to the insured in the event of a specified occurrence, for example, loss or damage to property. In return, the insured pays the insurer a premium, usually at fixed intervals.

Insured Peril: Peril that is specifically stated in an insurance policy as being covered or included.

Insured: The policyholder - the person(s) protected in case of a loss or claim.

Liability: A duty or contract to fulfill an obligation to another person or organization.

Loss: The occurrence of an event for which insurance pays.

Loss Exposure: A potential loss that may be associated with a specific type of risk.

Loss Ratio: In insurance, the value of all claims is expressed as a percentage of the total premium for a period. The figure is used as a guide to the profitability of the business when considering rates.

Loss Reserve: The amount set up as the estimated cost of a claim.

Overriding: In reinsurance, commission is paid to the ceding company is more than the acquisition cost to allow for additional expenses.

Policyholder: A person who pays a premium to an insurance company in exchange for the insurance protection provided by a policy of insurance.

Premium: The amount of money an insurance company charges for insurance coverage.

Rate: The cost of a unit of insurance. Rates are based on historical loss experience for similar risks and may be regulated.

Reimbursement: The payment of the expenses incurred as a result of an accident or sickness, but not to exceed any amounts specified in the policy.

Reinstatement: The resumption of coverage under a policy that has lapsed.

Reinsurance: Transfer of insurance (or part of the risk covered) from one insurance company to another for a premium, not necessarily with the knowledge of the policyholder.

Renewal: Continuance of coverage under a policy beyond its original term by the insurer’s acceptance of the premium for a new policy term.

Retention: The net amount of risk retained by an insurance company for its account or that of specified others, and not reinsured.

Retro-cession: The amount of risk that a reinsurance company reinsures; the amount of a cession which the reinsurer passes on. The reinsurance is bought by reinsurers to protect their financial stability.

Risk: The chance of loss.

Salvage: Rescuing people or property from a flood, fire, shipwreck, or another disaster. A person who salvages goods may be paid compensation by their owners or insurers. The ownership of some salvaged goods can be a contentious issue.

Subrogation: The right of an insurer, having indemnified the insured, to avail himself or herself of any rights and remedies of the insured, for example, salvage.

Sum-Insured: Limit of an insurance company’s liability under a particular insurance policy.

Surcharge: An extra charge applied by the insurer. For automobile insurance, a surcharge is usually for accidents or moving violations.

Surplus: In reinsurance, it is the amount by which the sum insured exceeds the ceding office’s retention

Underwriting:  The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes the rejection of unacceptable risks.

Common features in OILM

The following table lists the common elements available on the summary pages of the OILM Application: