FPM Short Term - Learn About It

A contract of insurance to provide for loss sustained through an accident, or as compensation for personal injuries. Various types of policies are included within the category of accident insurance. These include personal accident and health insurance.

ACT OF GOD

An event caused by the forces of nature.

ADDITIONAL PREMIUM

The premium due from the insured arising out of the additional cover in respect of previously uninsured risk.

ALL RISKS

An all risks policy covers the insured against all risks of loss or damage to the property insured other than loss or damage specifically excluded.

ALLIED PERILS

Risks associated with fire policy including flood, storm, earthquake and landslip.

See Fire Insurance.

ARSON

The malicious or fraudulent burning of property.

ASSURANCE

A term commonly used to distinguish life (long-term) "assurance" from short-term (i.e. non life and property) "insurance".

AVERAGE CLAUSE

A clause in a policy requiring that, where assets are insured for less than their full value, the insured is required to bear a proportion of any loss. The proportion is the amount by which the assets are under insured expressed as a percentage of its indemnity value, at the time of the loss.

AVIATION INSURANCE

Insurance of aircraft and related aircraft activities. One aspect of aviation insurance is Aircraft Hull. Another aspect is aircraft operators carrying passengers which may incur public liability for which Aircraft Liability insurance is required. Airports can also incur liability, this is termed Airport Owners and Operators Liability insurance.

BALANCE OF THIRD PARTY

Third party liability cover provided to protect the insured against claims made against him for damages caused to third party vehicle.

BROKER

An agent who acts on behalf of the insured in effecting and servicing an insurance policy.

BLANKET OR GENERAL POLICY

A policy covering the specific risk without specific dates. The policy automatically covers the risk for the period that cover is required.

CANCELLATION

A complete termination of an existing policy prior to its expiration. Usually the insured may only cancel a policy if all premiums due have been paid. Cancellation clause: Clause in a policy which allows the insurer to cancel after due notice.

CAPACITY

The amount of insurance or reinsurance available from an individual underwriter or from the entire insurance market in a particular locality or country.

CATASTROPHE

Conflagration, earthquake, windstorm, explosion, and other similar events that result in substantial losses. Catastrophe losses (the whole loss of an insurance company arising out of a single catastrophic event) are usually protected by Excess of Loss treaties in order to limit any one such loss to a specific amount.

CLAIMS

A demand on the insurer for indemnification for a loss incurred from an insured event.

CLAIMS INCURRED BUT NOT REPORTED ("IBNR")

Claims resulting from accidents or occurrences which have taken place, but of which the insurer has not received notice or report of loss. An estimate is made of the amount of these claims based on previous experience. Also termed Losses incurred but not reported.

CLAIMS INCURRED BUT NOT FINALISED

Amounts provided to cover the estimated ultimate cost of settling notified claims arising out of insured events that have occurred by the end of the accounting period, less amounts already paid in respect of those claims.

CLAIMS MADE BASIS

See Losses Made Basis.

CLAIMS OCCURING BASIS

See Losses Occurring Basis.

CLAIMS RATIOS

Ratios expressing the relationship between claims and premiums. Two ratios in common usage are:

The paid claims ratio: paid claims divided by earned premiums and;
The incurred claims ratio: incurred claims divided by earned premiums.

CLAIMS REPORTED

Claims resulting from accidents or occurrences which have taken place and have been recorded in the insurers accounts.

CO-INSURANCE

Is an arrangement whereby two or more insurers enter into a single contract with the insured to cover risk in agreed proportions at an overall premium.

COLLECTIVE POLICY

A policy issued by the lead insurer on behalf of a number of insurers who share the risk.

COLLISION

Physical contact of a motor vehicle with another object (including another vehicle) resulting in damage.

COMBINED RATIO

The aggregate of the expense and claims ratios.

COMMISSION

Commission is the fee paid to a broker for the broker’s services and is calculated as a percentage of the premium generated on the insurance policy. Commission levels are presently capped by law and a broker may not be paid more than 12.5% of the premium on motor policies and 20% on other business.

COMPREHENSIVE MOTOR VEHICLE INSURANCE

Primarily insurance which covers any loss of, or damage to an insured motor vehicle (including motor cycles, caravans and trailers) arising from an accident, fire or theft. Also included in this class of business is third party and property damage arising from motor vehicle accidents.

CONSEQUENTIAL LOSS

A loss not directly caused by damage to property, but arising as a result of such damage. For example, lost production and loss of profits following a factory fire.

CONTRACT

The policy of insurance. The agreement between the insurer and the insured.

CONTRACTORS ALL RISK INSURANCE ("CAR")

This is a prescribed class of insurance sometimes known as Contractors Works Insurance. CAR covers the insurance of materials, buildings, structures, works and other property in the course of construction. The policy can be extended to include the contractor’s plant and equipment on site.

COVER

The scope of the protection provided by an insurance policy.

COVER NOTE

Confirmation of insurance cover.

CROP INSURANCE

Insurance in respect of damage to crops in the event of hail, fire, flood, wind and lightning.

DAMAGES

Financial compensation due to a third party for loss, damage or injury.

DATE OF ATTACHMENT OF RISK

The date with effect from which an insurer accepts liability under an insurance policy.

DECLARATION POLICY

A policy insuring trading stock which may vary to a great degree in quantity and value during the period covered by the policy.

DEPRECIATION

The extent to which property decreases in value due to use, wear and tear or other factors.

DUTY OF DISCLOSURE

The duty on the insured and the insurer to disclose every material fact in relation to the policy. See Uberrimae fidei.

ENDORSEMENT

Documentary evidence of a change to an existing policy, for example, change of address, increase in sum insured. An endorsement may result on an additional premium, a return premium or no premium adjustment.

EXCEPTIONS

Clauses which exclude certain perils as being insured events. See Exclusions.

EXCESS

A policy condition whereby the insured is required to pay a portion of the loss, as stipulated in the policy (for example the first R2000 of a motor vehicle damage claim). The insurer would pay the balance over that amount.

EXCLUSIONS

Clauses which exclude certain perils as being insured events.

EX GRATIA

Literally "an act of grace". If a claim is paid in full or in part by an insurer without admission of liability and without waiver of right it is paid ex gratia.

EXPERIENCE

Refers to the losses or ratio record of a particular risk, of a particular cover, or of a particular insurer.

EXPERIENCE RATING

Premium on a policy is determined by claims experience.

EXPIRY DATE

The date and hour stated in the policy or endorsement on which the insurance policy ceases to be in force.

EXPOSURE

This is the possibility of loss. It is criterion used in measuring the extent of a risk assumed by an insurer. Exposure serves as a basis for determining the loss cost, or pure premiums on expired policies. The unit of exposure for an individual comprehensive motor vehicle is one year. The term is also used generally to represent the state of being in danger of loss from a particular hazard or the hazard threatening a risk.

EXTRA PREMIUM

An additional charge, over and above the regular standard premium for the insurance, to pay for some extra risk inherent in the situation.

FIRE INSURANCE

A contract which, in consideration of the payment of an annual premium, indemnifies the policy owner for loss by fire and allied perils (in South Africa these perils include storm, wind and water, impact by aircraft, impact by road vehicles and cattle, earthquake, earth-tremor and subsidence and landslide except property fire losses of a private or domestic nature which are covered by houseowners’ and householders’ policies). Loss of profits insurance are also generally included with fire insurance business for reporting purposes. Also known as Property insurance.

FIRE INSURANCE POLICIES

Fire insurance policies can be broadly divided into the following different types:

Floating Policy: A policy insuring property (eg. Trading stock) which may be situated at various locations.
Fire protection: Various measures taken by the insured to reduce the risk of damage from fire. This includes fire resistant contraction material, fire walls (walls separating parts of a building) and fire proof materials.

HOUSEHOLDERS INSURANCE

This covers loss or damage in respect of the entire contents of the household.

HOUSEOWNERS INSURANCE

This covers loss or damage to the home of the insured from a variety of perils, essentially fire and allied perils.

HULL INSURANCE

Insurance against loss of or damage to an aircraft, ship and other air and water borne craft.

INSURANCE BROKER

An agent on behalf of the insured who negotiates the terms and cover provided by the insurer in the insurance policy.

INSURANCE POLICY

A contract whereby one party (the insurer), in return for consideration known as a premium, agrees to indemnify another party (the insured) against specified damage, loss or liability arising from the occurrence of specified risks or to compensate the insured or beneficiary upon the occurrence of a specified event.

INSURED

The person whose interest is insured, usually the policy owner with a financial interest in the property being insured.

INSURED PERIL

Source of loss which is covered under an insurance policy.

INSURER

Company offering risk protection via insurance policies.

INTERMEDIARY

A person who negotiates contracts of insurance or reinsurance with the insurer or reinsurer on behalf of the insured or reinsured.

KNOCK-FOR-KNOCK AGREEMENT

An arrangement between motor vehicle insurers whereby each will pay its own repair costs on claims made. Each insurer agrees to forego recovery action against the other irrespective of the question of fault providing all the vehicles involved in an accident are insured with signatories to the agreement.

LIMIT OF LIABILITY

The maximum amount for which an insurer is liable on any one loss. This is sometimes referred to as Limit of Indemnity.

LOSS ADJUSTER

A person who acts on behalf of the insurer, or the insured, to investigate the circumstances of a loss and to recommend the amount to be paid. Also known as Loss Assessor.

LOSS OF PROFITS INSURANCE

A form of consequential loss insurance which compensates the insured for loss of earnings resulting from the interruption of business, usually as a result of fire or flood.

MARINE INSURANCE

Marine insurance covers the risk of loss to ships and vessels and also provides Cargo cover. Marine Cargo Insurance may be divided into two divisions: inland marine, which covers property and goods in transit between locations without requiring sea transport, and ocean marine, which covers property and goods subject to a sea voyage. Marine Cargo policies are issued in various forms depending on the requirements of the shipper, the shipowner, the charterer, the consignee, etc.

MOTOR INSURANCE

Cover in respect of motorised vehicles including fire, theft, impact, collision and third party liability cover.

NEGLIGENCE

The basis for liability insurance. It is the failure to act with the legally required degree of care for others. Also known as neglect.

NET CLAIMS

The aggregate of claim payments less all deductions for reinsurance and other recoveries during a given period.

NEW BUSINESS

Policies written in response to applications for insurance, as distinguished from renewal.

NO CLAIMS BONUS

The amount by which a renewal premium is reduced if the insured has not made a claim under the insurance policy for one or more consecutive preceding years. Applied particularly to motor comprehensive cover.

NON-DISCLOSURE

The failure to disclose material facts before entering into a policy which can result in the cover being null and void

NUCLEAR RISKS

By international agreement such risks are excluded from all policies.

OVER INSURANCE

Insurance exceeding the amount of the possible loss on a policy.

PERIL

Possible loss occurrences against which insurance cover is obtained. For example, fire, windstorm, collision, hail, bodily injury, property damage, loss of profits etc.

PERSONAL ACCIDENT

A class of insurance which provides a fixed payment in the event of an insured being injured in an accident or killed in an accident. The amount paid varies according to the nature of the injury, for example, loss of a finger, loss of an arm.

POLICY

The legal document, issued by the insurer to the policyholder, that outlines the conditions and terms of the insurance. Also called the contract.

POLICYHOLDER

A person who owns an insurance policy. Also known as the policy owner.

POLICY SCHEDULE

The tabulated portion of a policy giving particulars of the policyholder, goods insured, sum insured, period of cover, excesses and similar information.

PREMIUM

The monetary consideration which the policyholder pays to the insurance company for a contract of insurance.

PRESCRIPTION PERIOD

The period within which action must be taken by one party against another to secure fulfilment of an obligation.

PRODUCT LIABILITY INSURANCE

Insurance taken out by manufacturers, wholesalers, distributors and sometimes retailers against claims arising out of the consumption, handling or use of a product or goods away from the premises where the goods are manufactured or sold. Product recall is also written under this heading if specified.

PROPOSAL

A request for insurance submitted to the insurer by or on behalf of the insured. The proposal usually includes sufficient facts for the insurer to determine whether or not it wishes to accept the risk. It will be illegal for a broker to allow an insured to sign a partially completed or blank proposal form upon the introduction of the Policy holder protection rules.

PROXIMATE CAUSE

The direct, dominant or specific cause of a loss or the uninterrupted chain of events that brought about the loss.

PUBLIC LIABILITY INSURANCE

A prescribed class of insurance business covering liability exposures of individuals and businesses for damage to property and injury to individuals.

RAF "ROAD ACCIDENT FUND"

This is a state insurer that provides compulsory third party liability insurance for motorists for bodily injury. The premiums are paid via levy on petrol purchases.

RATING AGENCY

An independent organisation which provides opinions on the claims paying ability of insurers.

REINSURANCE

An agreement whereby an insurance company transfers part or all of its risk of loss under insurance policies it writes by means of a separate contract or treaty with another insurance company. The insurance company providing the reinsurance protection is the Reinsuring Company or Reinsurer. The insurance company receiving the reinsurance protection is the Ceding Company. Reinsurance protection provided is known as Reinsurance Accepted; from the standpoint of the ceding company, reinsurance protection received is known as Reinsurance Ceded.

REPLACEMENT AND/OR REINSTATEMENT POLICIES

Fire policies which are designed to protect the insured against the effect of inflation in property values.

RISK

The hazard exposure, or chance of loss. The term "Risk" is used also in a general way to designate the subject matter of an insurance policy. It may also be used as a generic term for the insured.

RISK MANAGEMENT

Procedure to minimise the possibility of loss.

SAFSIA "THE SOUTH AFRICAN FINANCIAL SERVICES INTERMEDIARIES ASSOCIATION"

This is one of the associations of insurance brokers. It lays down a code of conduct for members.

SALVAGE

The amount received by an insurer from the sale of property (usually damaged) on which he has paid a total loss to the insured. After settlement of a claim this becomes the property of the insurer.

SASRIA "THE SOUTH AFRICAN SPECIAL RISKS INSURANCE ASSOCIATION"

This insurer provides cover against loss from riot. This is an insurer not for profit.

SCHEDULE

A document forming part of the policy indicating the sum insured, premium period of insurance and applicable information.

SELF INSURANCE

An insured protects his/her own risk out of own resources. This can be done via a risk financing arrangement.

SHORT TERM INSURANCE

Non life insurance. In the United States this is referred to as property and casualty insurance and in the United Kingdom as general insurance.

SPECIAL PERILS

Extra risks added to a policy not originally designed to cover those risks.

SPECIFIC POLICY

A policy which insures a particular item of property for a specific amount.

SUM INSURED

The stated monetary amount or amounts of indemnity or cover under an insurance policy.

TERRITORIAL LIMITS

The geographical area within which an insured event must occur to be covered in terms of the policy.

THIRD PARTY

Any person, not a party to the insurance contract, who has an alleged or actual right of action for injury or damage against the person insured under the policy.

TOTAL LOSS

Loss entailing the payment of the total sum insured under an insurance policy.

TREATY INSURANCE

Is an arrangement that covers all risks written within agreed guidelines. The insurer cedes or is obliged to cede and the reinsurer is obliged to accept these risks. This type of arrangement covers different risks that have certain characteristics in common. Individual risks are not normally negotiated. Commission is paid to the cedent by the reinsurer only on proportional treaties.

UBERRIMAE FIDEI

In all contracts of insurance, it is a fundamental principle that the parties must exercise the utmost good faith towards each other. Any material fact which would influence the parties to the contract must be disclosed, otherwise there is ground for avoiding the policy. This applies to both intentional and innocent failure to disclose material facts. The test of materiality is whether that fact would have influenced a prudent insurer in his decision to accept the risk and the premium to charge. The test is considered in view of all circumstances at that time, including the full circumstances of the fact undisclosed.

UNDER INSURANCE

The difference between the possible loss and limit in insurance.

UNDERWRITER

One who determines the acceptability or retention of business. Loosely, the person involved in setting premiums. The term is also used to denote an insurance company.

UNDERWRITING RESULT

The underwriting profit or loss ascertained by deducting claims incurred, net commission and management expenses from premiums earned.

UTMOST GOOD FAITH

See Uberrimae fidei.

VOID

Of no legal effect. The insurance policy has no legal effect.

WAIVER

The surrender of a right or privilege which is known to exist, or might exist.

WAR CLAUSE

By international agreement insurers do not underwrite war risks.

WARRANTY

A clause in an insurance contract presenting a condition relating to the degree of risk, non-compliance with which invalidates the contract.

WARSAW CONVENTION

An international agreement specifying the liability of airline operators to their passengers and in respect of their baggage.


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