Insurance Dictionary
Insurance Industry & Study Terms Dictionary
50 plain-English terms used in actuarial work, regulation, distribution, underwriting and insurance study.
Insurance Industry And Study Terms
Plain-English definitions for this part of insurance. Read the simple meaning first, then the exact insurance meaning.
Actuarial science
Simple meaning: The math and statistics used to study risk and insurance.
Insurance meaning: The discipline of applying probability, statistics, finance, and economics to uncertain future events, especially insurance and pensions.
Actuary
Simple meaning: A math and risk expert who helps insurance companies understand how often losses may happen and how much they may cost.
Insurance meaning: A professional who applies mathematics, statistics, finance, and risk theory to pricing, reserving, capital, product design, and other insurance decisions.
Adverse selection
Simple meaning: People who expect more losses may be more likely to buy more insurance.
Insurance meaning: The tendency for higher-risk individuals or entities to seek or retain more insurance than lower-risk populations when the insurer cannot fully distinguish the risk.
Appointment
Simple meaning: An insurer’s official authorization for a licensed producer to act for it when state rules require one.
Insurance meaning: A regulatory or contractual registration of a producer’s authority to represent an insurer, subject to state law.
Assigned risk plan
Simple meaning: A program that helps place certain hard-to-insure risks with insurers when the regular market will not take them.
Insurance meaning: A residual-market mechanism assigning eligible applicants among participating insurers, often used for auto or workers compensation.
Assumed reinsurance
Simple meaning: Risk a reinsurer takes from another insurance company.
Insurance meaning: Reinsurance business accepted by a reinsurer from a ceding insurer.
Ceded reinsurance
Simple meaning: Risk an insurer transfers to a reinsurer.
Insurance meaning: The portion of insurance risk and related premium transferred by a ceding insurer to a reinsurer.
Ceding insurer
Simple meaning: The insurance company that transfers some of its risk to a reinsurer.
Insurance meaning: An insurer that cedes or transfers part of its insurance risk to a reinsurer.
Also called: Ceding company
Class rating
Simple meaning: Pricing that groups similar risks together.
Insurance meaning: A rating method applying rates to risks that share specified characteristics or classifications.
Combined ratio
Simple meaning: A measure that combines claim costs and expenses to show underwriting performance.
Insurance meaning: A property-casualty underwriting measure generally equal to the loss ratio plus expense ratio. A ratio below 100 percent generally indicates an underwriting profit before investment income; above 100 percent indicates an underwriting loss.
Department of insurance (DOI)
Simple meaning: A state agency that regulates insurance and helps consumers with insurance issues.
Insurance meaning: A state insurance regulatory agency, though the official name varies by state, such as department, division, bureau, or office of the insurance commissioner.
Also called: DOI
Direct written premium
Simple meaning: Premium written by an insurer before subtracting premium sent to reinsurers.
Insurance meaning: Premium on policies written directly by an insurer, before ceded reinsurance adjustments.
Earned premium
Simple meaning: The part of premium that belongs to coverage time that has already passed.
Insurance meaning: Premium recognized for the portion of the policy period during which coverage has already been provided.
Expense ratio
Simple meaning: A measure comparing insurance operating expenses with premium.
Insurance meaning: A ratio measuring underwriting or operating expenses relative to premium, using definitions that can vary by accounting or analysis method.
Facultative reinsurance
Simple meaning: Reinsurance arranged for one specific risk or policy.
Insurance meaning: Reinsurance negotiated individually for a particular risk, exposure, or policy, with the reinsurer deciding whether to accept it.
FAIR plan
Simple meaning: A state property-insurance program or mechanism for eligible properties that cannot get standard coverage.
Insurance meaning: A Fair Access to Insurance Requirements residual-market plan offering basic property coverage to qualifying applicants in participating jurisdictions. Coverage and eligibility vary by state.
Also called: Fair Access to Insurance Requirements plan
Form filing
Simple meaning: Policy language an insurer submits to a regulator when required.
Insurance meaning: A regulatory submission of policy forms, endorsements, applications, or related documents for approval, review, or informational filing under state law.
Frequency
Simple meaning: How often losses happen.
Insurance meaning: The number or rate of claims or losses occurring during a period relative to the exposure base.
Guaranty association
Simple meaning: A state-created safety system that may pay certain covered claims if a licensed insurer fails.
Insurance meaning: A state-based mechanism funded by insurers that provides limited protection to eligible policyholders and claimants when a member insurer becomes insolvent, subject to statutory limits and exclusions.
IBNR
Simple meaning: An estimate for claims that have happened but have not been reported yet.
Insurance meaning: Incurred but not reported loss reserves for claim events that have occurred but are not yet known or fully reported to the insurer, often including development on known claims depending on usage.
Also called: Incurred but not reported
Insurance regulator
Simple meaning: The government office that oversees insurance companies and insurance activity.
Insurance meaning: A state or federal authority responsible for regulating specified insurance markets, companies, products, producers, solvency, or consumer protections. Most insurance regulation in the U.S. is state-based.
Law of large numbers
Simple meaning: The more similar risks you observe, the easier it is to estimate the group’s average losses.
Insurance meaning: A statistical principle that actual results tend to approach expected results as the number of similar independent exposure units increases.
Loss cost
Simple meaning: An estimate of the part of a rate needed to pay claims and claim-adjustment costs.
Insurance meaning: A prospective estimate of claim costs and related loss-adjustment expenses, before adding insurer expenses, profit, taxes, and other pricing components.
Loss ratio
Simple meaning: A measure comparing claim costs with premium.
Insurance meaning: An insurance performance ratio generally comparing incurred losses and loss-adjustment expenses with earned premium, though exact definitions vary by reporting purpose.
Loss reserve
Simple meaning: An estimate of money needed for claims that have happened but are not fully paid.
Insurance meaning: An insurer liability for unpaid claim costs from events that have already occurred, including reported and, depending on the reserve, unreported claims.
Morale hazard
Simple meaning: Carelessness can increase because someone knows insurance may pay.
Insurance meaning: A risk-management term for indifference or carelessness toward loss because insurance exists, as distinguished from intentional dishonesty.
Moral hazard
Simple meaning: Insurance can sometimes change behavior because a person does not bear the whole cost of a loss.
Insurance meaning: A change in behavior or incentives after risk is transferred that can increase the likelihood or severity of loss. It does not necessarily mean fraud.
NAIC
Simple meaning: A U.S. organization made up of state insurance regulators.
Insurance meaning: The National Association of Insurance Commissioners, a standard-setting and regulatory-support organization governed by the chief insurance regulators of the 50 states, District of Columbia, and U.S. territories.
Also called: National Association of Insurance Commissioners
Pooling
Simple meaning: Many people put money into the insurance system so losses of the few can be paid from the group.
Insurance meaning: The combining of many similar exposure units so losses can be spread and predicted more reliably.
Producer
Simple meaning: A licensed person or business that sells, solicits, or negotiates insurance.
Insurance meaning: A state-law term for a licensed insurance professional or entity authorized to sell, solicit, or negotiate insurance. States may use agent, broker, or producer differently.
Also called: Insurance producer
Rate filing
Simple meaning: Information an insurer submits to a regulator about insurance prices or rating rules.
Insurance meaning: A regulatory filing containing rates, rating plans, actuarial support, or related materials, subject to each state’s regulatory system.
Reinsurance
Simple meaning: Insurance for insurance companies.
Insurance meaning: A contract through which an insurer transfers part of its insurance risk to another insurer or reinsurer in exchange for premium or other consideration.
Reinsurer
Simple meaning: An insurance company that takes risk from another insurance company.
Insurance meaning: An insurer that assumes insurance risk transferred by another insurer under a reinsurance agreement.
Reserve
Simple meaning: Money or a liability amount an insurer sets aside on its books for expected obligations.
Insurance meaning: An accounting liability established for future claim payments, policy benefits, unearned premium, or other insurance obligations, based on applicable accounting and actuarial rules.
Residual market
Simple meaning: A special insurance market for people or businesses that cannot get required or essential coverage in the regular market.
Insurance meaning: A state-created or state-supported mechanism providing access to specified insurance for risks unable to obtain coverage in the voluntary market, such as assigned-risk or FAIR plans.
Retention (reinsurance)
Simple meaning: The part of insurance risk the original insurer keeps.
Insurance meaning: The amount of risk the ceding insurer retains before reinsurance responds under the agreement.
Risk-based capital (RBC)
Simple meaning: A regulatory way to compare an insurer’s capital with the risks it takes.
Insurance meaning: A regulatory capital framework that sets action levels based on an insurer’s size and risk profile. It is a regulatory screening tool, not a simple consumer rating.
Also called: RBC
Schedule rating
Simple meaning: Adjusting a business insurance price for specific features not fully captured by the normal class rate.
Insurance meaning: A commercial rating method applying debits or credits for defined individual risk characteristics under approved rules.
Severity
Simple meaning: How expensive losses are when they happen.
Insurance meaning: The average or distribution of the size of insurance losses or claims.
Solvency
Simple meaning: An insurer’s ability to meet its financial obligations.
Insurance meaning: The financial condition in which an insurer has sufficient assets and capital to meet policyholder obligations as they come due, under applicable regulatory standards.
Surplus lines broker
Simple meaning: A specially licensed professional who places eligible insurance with nonadmitted insurers.
Insurance meaning: A producer licensed or authorized under state surplus-lines law to place qualifying risks with eligible nonadmitted insurers.
Surplus lines insurance
Simple meaning: Insurance from an eligible nonadmitted insurer for risks that can be placed through the surplus-lines market under state rules.
Insurance meaning: Coverage procured from an eligible nonadmitted insurer through a licensed surplus-lines channel when state requirements are satisfied. Consumer protections and guaranty-fund treatment may differ from admitted insurance.
Also called: Excess and surplus lines; E&S
Treaty reinsurance
Simple meaning: Reinsurance that automatically covers a defined group of policies or risks under an agreement.
Insurance meaning: A reinsurance contract covering a portfolio or class of business according to agreed terms, rather than negotiating each risk separately.
Unearned premium
Simple meaning: The part of premium tied to future coverage that has not happened yet.
Insurance meaning: Premium received for the unexpired portion of an insurance policy and therefore recorded as a liability until earned over the coverage period.
Written premium
Simple meaning: Premium recorded for policies written during a period.
Insurance meaning: Premium associated with insurance contracts issued or renewed during a reporting period, before certain earning or reinsurance adjustments, depending on accounting definition.
Multi-carrier insurance agent
Simple meaning: A licensed insurance professional who may represent more than one insurance company.
Insurance meaning: An insurance producer or agency that is not limited to representing only one insurer and may place business with multiple insurers, subject to licensing, carrier appointments, contracts, state law, product access, and agency relationships.
Captive agent
Simple meaning: An insurance agent who primarily represents one insurance company or insurance group.
Insurance meaning: A producer operating under a company-specific distribution arrangement that generally limits the insurer products the agent may sell. Exact contractual rights and restrictions vary by insurer and state.
Exclusive agent
Simple meaning: An agent whose agreement generally centers on one insurance company’s products.
Insurance meaning: A producer operating under an exclusive-agency agreement with an insurer or insurance group. The exact scope of exclusivity and access to outside products depends on the agreement and applicable law.
Direct writer
Simple meaning: An insurer that sells coverage through its own channels rather than relying only on outside agent channels.
Insurance meaning: An insurance distribution model in which the insurer sells directly to consumers through company employees, websites, call centers, company agents, or other insurer-controlled channels. A company may use direct and agent channels at the same time.
Financial professional
Simple meaning: A broad term for a professional who may help clients with insurance, financial planning, investments, retirement, or related needs.
Insurance meaning: A non-uniform business term that can include licensed insurance producers, registered representatives, investment adviser representatives, or other professionals depending on the person’s licenses, registrations, employer, and services. The title alone does not prove authority to sell a particular insurance product.
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