Surplus Lines Insurance Definitions

Errors and Omissions (E&O)

1.) An insurance form that protects the insured against liability for committing an error or omission in performance of professional duties. Generally, such a policies are designed to cover financial losses rather than liability for bodily injury and property damage. 2.) An error in policy coverage made by a Broker or an Agent.

Incurred but not reported (IBRN)

An estimate of the amount of an insurer's (or self insurer's) liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. The sum of the IBNR losses plus incurred losses provides an estimate of the insurer's eventual liabilities for losses during a given period.

Consultant

An independent insurance advisor hired by an insured to review exposures and policies and make recommendations based upon these reviews. Consultants typically do not place the insurance policies and therefore do not receive commissions. They are paid a fee directly by the insured. Are used in addition to an agent (the placing agent).

Cold Call

Calling on an individual or business that you have no known prior relations with.

Excess

Policies that pay after the primary insurance policy limits have been exhausted by payment of covered claims. Typically cover catastrophic events.

All Other Wind (AOW)

The Peril of wind but not including named storm wind and hail.

Admitted Company (Standard Market/Admitted Insurer)

A company licensed or authorized to sell insurance to the general public. In the US, admitted companies are licensed on a state-by-state basis and differentiated from surplus lines insurers, which are authorized to sell insurance in a state on a non-admitted basis. The premium tax is paid by the insurer and is included in the premium to the insured.

Insurance Company (Market, Carrier, Company)

A company that sells insurance and provides the policy that contains the terms agreed upon for a premium agreed upon.

Broad Form General Liability Endorsement

A comprehensive endorsement to be attached to pre-1986 editions of the standard general liability policy that provided coverage enhancements including blanket contractual liability; personal injury and advertising liability; broad form property damage liability, including completed operations; limited worldwide coverage; additional persons insured (employees); extended bodily injury coverage; premises medical payments; host liquor liability; fire legal liability on real property; incidental medical malpractice; non-owned watercraft liability; and automatic coverage for newly acquired organizations. Not needed for post 1986 policy forms.

Extended Reporting Period (ERP)

A designated time period after a claims-made policy has expired during which a claim may be made and coverage triggered as if the claim had been made during the policy period.

Average Annual Loss (AAL)

A formula used to average what the expected loss from a catastrophe will be. Event Losses x Event Occurrence Rate = AAL

Binder

A legal agreement issued either by an agent (with binding authority) or an insurer to provide temporary evidence of insurance until a policy can be issued.

Broker of Record (BOR)

A letter issued by the insured giving exclusive marketing rights to a specific agent.

Hit List

A list of accounts recently written by a market or broker. Purpose is to demonstrate to prospective agents the types of risks and cover ages the company or broker has recently bound.

CG 2010

An endorsement that extends protection to the Additional Insured named on the endorsement (Owners, Lessees or Contractors) for injury or damage caused FOR ONGOING OPERATIONS.

Driver Other Car Coverage (DOC)

Automobile coverage available for employees, executives, or any other person who is supplied a company vehicle, but does not own a personal vehicle, and thus does not have coverage under a personal auto policy. An endorsement may be added to the automobile policy of the company that furnishes the automobile to give protection while the named individual or spouse is driving a borrowed from a third party.

CPL (Contractors Pollution Liability)

CPL is available to any type of contractor performing operations or conducting work. From environmental or remedial contractors to general and specialty trades, CPL has become a viable financing option for environmental loss providing for large or even catastrophic loss scenarios at a reasonable premium.

Contents

Coverage for business personal property. Includes more than building contents because it applies to property located in or on the described building, or within 100 feet of the described premises while in a vehicle or out in the open.

California Quake

Earthquake insurance is intended to pay the cost to repair or replace damaged building both residential or commercial and other structures on the insured property. Earthquake damage can include a range of possible problems, including fire, structural damage, flooding and water damage. Even though there is coverage for these problems without earthquake insurance, your insurance is not obligated to pay for such damages if they are caused by an earthquake. Because California is a high risk state for earthquakes, not all insurance companies offer earthquake coverage. Instead, you may have to purchase the coverage through specialty insurance companies, such as the California Earthquake Authority (CEA) or through state-sponsored insurance pools that all insurance companies are required to participate in.

Extended Period of Indemnity

Endorsement or Option that adds coverage under a business interruption policy for loss of income suffered during a specific period of time (eg., 30, 60 90 days) after the damaged property has been repaired. In the absence of this endorsement or option, business interruption coverage typically ends on the date the damaged property is repaired or replaced.

Expected Loss

Estimated loss frequency multiplied by estimated loss severity, summed for all exposures. This measure of loss refers to a best estimate of the total losses of a particular type.

Coinsurance

In the US insurance market, coinsurance is the joint assumption of risk between the insurer and the insured.

Allocated Loss Adjustment Expenses (ALAE)

Loss adjustment expenses that are assignable or allocable to specific claims. Fees paid to attorneys, experts, and investigators used to defend claims are examples of ALAE.

Additional Premium

Premium usually added by endorsement to the original price of the policy, usually for extended coverage or additional items/locations. These are charges that occur after policy inception.

All Risks Coverage

Property insurance covering loss arising from any fortuitous cause except those that are specifically excluded. This is in contrast to named perils coverage which applies only to loss arising out of causes that are listed as covered.

HPR (Highly Protected Risk Property)

Property that is judged to be subject to a much lower than normal probability of loss by virtue of low hazard occupancy or property type, superior construction, special fire protection equipment and procedures, and management commitment to loss prevention.

Blanket Coverage

Single limit of insurance that applies over more than one location or more than one category or property coverage (such as one amount of insurance to cover two buildings or a single building and its contents). A blanket policy usually contains certain restrictions, which may be absent in "specific" or "itemized" limit policies, such as the use of coinsurance clauses. A prerequisite to blanket insurance for property is to have SOV (statement of values).

Home Office

The corporate headquarters of an insurance

Agent of Record (AOR)

The insurance agent recognized as the placing agent by an insured and the insurance carriers.

Capacity (Appetite)

The largest amount of insurance or reinsurance available from a company or from in the market in general. An insurer's capacity/appetite to write business is often measured and/or limited by its premium-to-surplus ratio.

Date of Loss (DOL)

The specific date a loss occurs.

Extra Expense Coverage (EE)

Time element property insurance that pays for expenses in excess of normal operating expenses that an organization incurs to continue operations while its property is being repaired or replaced after having been damaged by a covered cause of loss. Extra expense coverage can be purchased in addition to or instead of business income coverage, depending on the needs of the organization. Examples of EE Coverage: 1. Cost of moving business operations to a temporary location while original property is being repaired. 2. The hiring of a third-party service to meet contract obligations, such as a textbook printing company. 3. Payment of overtime wages to expedite repairs or above market price purchases for inventory replenishment.

Indemnify

To make compensation to an entity, person, or insured for the incurred injury, loss, or damage.

Inland Marine

A group of property insurance coverage's designed to insure exposures that cannot be conveniently or reasonably confined to a fixed location or insured at a standard rate under a standard form. Four major types of inland marine coverage are: 1. Property being transported (Cargo) 2. Buildings under construction (Builders Risk) 3. Computer and Data (Electronic Data Processing-Acord 148) 4. Contractors Equipment (Equipment Floaters)

Aggregate

A limit in an insurance policy stipulating the most it will pay for all covered losses sustained during a period of time, usually a year. Aggregate limits are commonly included in liability policies. While not often used in property insurance, aggregates are sometimes included with respect to certain catastrophe exposures, e.g., earthquake and flood.

Composite Rate

A method of rating insurance premiums on a singular rate developed to apply to all coverage's according to a selected exposure basis. It simplifies a policy's audit process.

Hit Ratio

A metric used to determine success between an underwriter and an agent. It is the number of binders divided by number of quotes or submissions.

Fiduciary

A person or entity with the authority to act on behalf of others, and with the obligation to meet a high standard of conduct and do so without putting their own interest first.

Additional Insured

A person or organization not automatically included as an insured under an insurance policy, but whom insured status is arranged, usually by an endorsement. Often required in contracts the named insured's execute.

Deductible

A portion of covered loss that is not paid by the insurer and is retained by the insured. This is not the same as a SIR (self insured retention).

Flat

A premium that is not adjustable. For example, when a premium is quoted on a "flat" basis, no additional premiums (or refunds) will be due under the policy, regardless of changes in exposure during the term of coverage.

Adjustable Premium

A premium that may vary according to a change in exposures during the policy period. Most often the adjustable premium only varies upward in the E&S marketplace.

Contents Rate

A property insurance rate on personal property, most of which is likely to be contained within a building.

Profit Commission (PC)

A provision found in some reinsurance agreements that provides for profit sharing. Parties agree to a formula for calculating profit, an allowance for the reinsurer's expenses, and the cedent's share of such profit after expenses.

Exclusions

A provision of an insurance policy referring to hazards, perils, circumstances, or property not covered by the policy. Exclusions may be contained in the coverage form or causes of loss form used to construct the insurance policy, or as an endorsement to the policy.

Inspection (or Inspection Report)

A report, by an insurer or one of a number of inspection services available, assessing the moral, financial, and physical aspects of a risk.

Difference in Conditions (DIC)

A separate contract that expands or supplements insurance for property written on a "named perils" or "All Risk" basis so as to provide broader perils than the main property policy. DIC policy can be tailor-made to fit the needs of the insured. This coverage can include losses incurred from the perils of Flood and/or Earthquake (as these perils are not provided by "All Risk" policies), Collapse, Subsidence, Strikes or any other peril excluded in the main policy. The DIC policy will exclude the perils covered by covered by the main policy as the peril's intent is to cover only the difference between what a named perils policy covers and what an all risks policy covers - (hence the name, Difference in Conditions).

Audit

A survey of the exposures of an insured to determine if any additional premium (AP) is due.

Claims Made

A term describing an insurance policy that covers claims first made (reported or filed) during the year the policy is in force for any incidents that occur that year or during any previous period during which the insured was covered under a "claims made" contract. This form of coverage is in contrast to the occurrence policy, which covers an incident occurring while the policy is in force regardless of when the claim arising out of that incident is filed---one or more years later.

Duty to Defend

A term used to describe an insurer's obligation to provide an insured with defense to claims made under a liability insurance policy. As a general rule, an insured need only establish that there is potential for coverage under a policy to give rise to the insurer's duty to defend. Therefore, the duty to defend may exist even where coverage is in doubt and ultimately does not apply. The duty to defend is therefore often broader than a duty to indemnify.

Exterior Insulation Finishing System (EIFS)

A type of building exterior wall cladding system that provides exterior walls with an insulated finished surface and waterproofing in an integrated composite material system. Often excluded under both property and liability policies due to past catastrophic loss experience by the insurance industry.

Facultative Reinsurance

Also known as "FAC" is a form of reinsurance whereby each exposure, which the ceding company wishes to reinsure is offered to the reinsurer and is contained in a single risk transaction. The submission, acceptance, and resulting agreement are required on each individual risk that the ceding company seeks to reinsure. Reinsurance for a single risk or policy as opposed to treaty reinsurance.

COPE (Property Risk)

An acronym that stands for the four property risk characteristics an underwriter reviews when evaluating a submission for property insurance: CONSTRUCTION (e.g., frame, brick, masonry, masonry veneer); OCCUPANCY (e.g., how the building is being used); PROTECTION (e.g., quality of the responding fire department, adequacy of water pressure and water supply in the community, the presence or absence of smoke alarms); and EXPOSURE (e.g., risks of loss posed by neighboring property or the surrounding area, taking into consideration what is located near the property, such as an office building, a subdivision, or a fireworks factory).

Clearance

An act by a broker or underwriter to clear a submission and/or known as a function in AIM (found in New Submission). Utilized to ensure only one CRC/Crump broker will be working on the same line of business for the insured. Clearance also refers to when an insurance company reserves the account for a Company or Broker so no one else can work on the placement.

CG 2037

An endorsement that extends protection to the Additional Insured named on the endorsement (Owners, Lessees or Contractors) for injury or damage caused AFTER THE OPERATIONS ARE COMPLETE.

Group Purchasing Organizations (GPO)

An entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members. Many GPOs are funded by administrative fees that are paid by the vendors that GPOs oversee. Allows small companies to have access to large vendors who normally only do business with a certain size client.

Broker

An insurance intermediary who represents the insured rather than the insurer. Since they are not the legal representatives of the insurers, brokers, unlike independent agents, often do not have the right to act on behalf of the insurers, such as to bind coverage. Often used interchangeably with retailer, retailer agent, agent, or producer when used as a term for an insurance agent, used interchangeably with wholesaler, E&S broker, or Managing General Agent (MGA) when referring to the wholesale marketplace.

Carrier

An insurance or reinsurance company that insures or "carries" the insurance or reinsurance. See also Paper, Insurance Company, Underwriter (U/W).

Buffer Layer

An insurance placement for limits between the primary and the excess layer of a tower of coverage.

Builders Risk

An insurance policy (property) that is designed to cover property in the course of construction. There is no single standard builders risk form; most builders risk policies are written on inland marine (rather than commercial property) forms. Coverage is usually written on an all risk basis, and typically applies not only to property at the construction site, but also to property at off-site storage locations and in transit.

Endorsement

An insurance policy form that either adds or changes to the provisions included in one or more other forms used to construct the policy, such as the declarations page or the coverage form. 1.) Takes precedent over any conflicting terms in the policy when it is attached. 2.) Handwritten endorsements supersede a computer printed or typewritten one because handwritten alterations tend to reflect true intent more accurately than preprinted policy terms.

Crime/Commercial Crime Policy

An insurance policy that is designed to meet the needs or organizations other than financial institutions (such as banks). A commercial crime policy typically provides several different types of crime coverage, such as: employee dishonesty coverage; forgery or alteration coverage; computer fraud coverage; funds transfer fraud coverage; kidnap, ransom, or extortion coverage; money and securities coverage; and money orders and counterfeit money coverage.

Duty to Indemnify

An insurer's obligation to provide compensation to an entity, person, or insured for a covered claim.

Ceding Company

An insurer, also called a primary insurer, which passes on to other insurers some part of its risk under insurance policies it has accepted.

Insurance Services Office (ISO)

An organization that collects statistical data, promulgates rating information, develops standard policy forms, and files information with state regulators on behalf of insurance companies that purchases its services.

Bumbershoot

Excess liability coverage for insured's with wet marine exposures. The policy covers both non-marine and maritime liability exposures, i.e., protection and indemnity, general average, collision, sue and labor, as well as general liability hazards.

Frame Construction

Exterior walls of wood, brick, brick veneer, wood ironclad, stucco on wood. (Used in ISO/CLM for rating purposes)

Advertising Injury (AI)

General Liability Coverage, combined in standard commercial general liability policies with personal injury coverage that insures the following offenses in connection with the insured's advertising of its goods and services: libel, slander, invasion of privacy, copyright infringement, and misappropriation of advertising ideas.

BI

In Property Policies means, Business Income. In Liability Policies means, Bodily Injury. (See business income and bodily injury)

Installation Floater

Inland Marine coverage on property (usually equipment) being installed by a contractor. Essentially a specialized type of builders risk coverage that is often written on the same form used to provide builders risk coverage.

Business Interruption (BI)

Insurance covering loss of income suffered by a business when damage to its premises by a covered cause of loss causes a slowdown or suspension of its operations during the time required to repair or replace the damaged property.

General Liability (GL)

Insurance protecting commercial insured's from most liability exposures other than automobile and professional liability.

Casualty

Insurance that is primarily concerned with the losses caused by injuries to persons, and legal liability imposed on the insured for such injury or for damage to property of others. Generally includes General Liability, Auto, Worker's Compensation and Umbrella/Excess.

D&O (Directors and Officers Liability)

Insures corporate directors and officers against claims, most often by stockholders and employees, alleging financial loss arising from mismanagement.

Bodily Injury (BI)

Liability Insurance term that includes bodily harm, sickness, or disease, including resulting death.

Contingent Liability (vicarious liability)

Liability incurred by a business for acts other than those of own employees. This particular situation may arise when an independent contractor is hired. The business scan be held liable for negligent acts of the contractor to the extent that its representatives give directions or exercise control over the contractor's employees.

Bind

Officially makes a policy effective by instructing the insurance company to put coverage in effect. Premium becomes payable when coverage is bound.

Hard Market

One side of the market cycle (underwriting cycle) that is characterized by high rates, low limits, and restricted coverage. Rates increase and coverage is often restricted. Underwriting criteria is tightened and it is harder for producers to find coverage.

Adjuster

One who settles insurance claims. This typically involves investigation of the loss and determination of the extent of coverage. Also determines reserves and authorizes claim payments.

Associate in Management (AIM)

Professional Designation awarded by the Insurance Institute of America (IIA) upon a successful completion of three national exams, two of which are designed specifically for this program and one which is a CPCU exam. Dealing with contemporary management principles, the program is designed for upper and middle managers as well as those who are about to move into such positions.

Basic Form (Causes of Loss)

Provides basic named perils coverage for direct damage to property.

Independent Adjuster

Represents insures and self-insured's on a contract basis.

Commercial

Term used when selling insurance to businesses versus the term Personal when Insurance is sold to an individual.

Protection Class (PC)

The 10 categories used by Insurance Services Office, Inc. (ISO), to rank cities and towns according to the availability of water (e.g., fire hydrants and water pressure) and the quality of firefighting (e.g., training of personal and paid versus volunteer). Protection class one indicates the best available protection; class 10 indicates a rural area without fire hydrants or fire departments.

Expense Ratio

The percentage of premium used to pay all the costs of acquiring, writing, and servicing insurance and reinsurance. Underwriting expenses / written premiums = ER

Cause of Loss

The perils that can bring about or trigger loss or damage. Can be direct (the action immediately precedes the loss) or indirect (part of an uninterrupted chain of events leading to the loss).

Attachment Point

The point at which the insurance policy limits apply. For example, the attachment point for a primary policy is the insured's SIR or deductible. Also, the attachment point for an excess policy is the limit scheduled beneath the excess policy.

Form

The policy coverage document and any endorsements attached thereto.

Catastrophe Modeling (Cat modeling)

The process of using computer programs to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake. Property Underwriters use this information as part of their underwriting analysis, and as a pricing tool. Almost all E&S Property Insurance Companies will not provide a quote unless they have completed and reviewed the cat modeling for a given risk.

Conditions

The section of an insurance policy that identifies general requirements of an insured and the insurer on matters such as loss reporting and settlement, property valuation, other insurance, subrogation rights, and cancellation and renewal.

Absolute Pollution Exclusion

The standard exclusion in post-1986 ISO commercial general liability policies. This exclusion earned its name due to its removal of the several "sudden and accidental" exception to the 1973 CGL's standard pollution exclusion. While it does remove coverage for most pollution events that would occur in the course of an insured's business operations, coverage is preserved for some significant exposures; primarily for certain incidental pollution damage (including hostile fires and completed operations/products). Since the exclusion is not truly 'absolute', a more appropriate moniker for it is "broad form pollution exclusion." Also referred to as ISO pollution.

Combined Ratio

The sum of two ratios, one calculated by dividing incurred losses plus loss adjustment expense (LAE) by earned premiums (the calendar year loss ratio), and the other calculated by dividing all other expenses by either written or earned premiums (i.e., trade basis or statutory basis expense ration). When applied to a company's overall results, the combined ratio is also referred to as the composite or statutory ratio.

Employers Liability

This coverage is provided by Part 2 of the basic workers compensation policy and pays on behalf of the insured (employer) all sums that the insured shall be come legally obligated to pay as damages because of bodily injury by accident or disease sustained by an employee of the insured arising out of and in the course of his employment by the insured.

Agent (retailer, producer, or broker)

This is the insured's representative into the insurance marketplace. They consult, review exposures, recommend risk transfer and risk assumption options, and place insurance policies.

Economic Loss

Total estimated cost incurred by a person or persons, a family, or a business resulting from the death or disability of a wage earner (key employee), damage or destruction of property, and/or a liability suit (negligent acts or omissions by a person result in property damage or bodily injury to a third party). Factors included in the total cost are loss of earnings, medical expenses, funeral expenses, property damage restoration expenses, and legal expenses.

Habitation

Typically refers to apartment owners, operators or Management Companies.

Completed Operations

Under a general liability policy, work of the insured that has been completed as called for in the contract; or work completed at a single job site under a contract involving multiple job sites; or work that has been put to its intended use.

General Aggregate Limit

Under the standard commercial general liability (CGL) policy, the maximum limit of insurance payable during any given annual policy period for all losses other than those arising from the products and completed operations hazards.

Fire Resistive Construction (FR)

Use of engineering-approved masonry or fire resistive materials for exterior walls, floors, and roofs to reduce the severity of a potential fire and lower premium rates.

Decline (Declination)

When an application or submission is rejected (to deny coverage).