Insurance Terms http://www.trafalgar-intl.com/definitions.

htm

A Glossary of Insurance Terms

A to D
When insurers and loss adjusters quote those mysterious words and sadly shake their heads, you can sense
there is a problem on that claim - if only you could understand what it was! Here is a glossary of some
commonly used insurance terms but if you really need help with those problematic claims contact Trafalgar.
Better still, contact us now and avoid those problems alltogether.

Just click on the initial letter of the term you are unsure of:

A B C D E to H I to L M to P Q to T U to Z

is for Auld Enemy – In Scotland the English are sometimes referred to as the Auld Enemy,

A especially nowadays in relation to sporting events. The phrase relates to the long and bitter conflict
between the two countries which thankfully now is demonstrated only on the sports fields.

A is also for
Abandonment Accidents Act of God Actuaries
Advance Profits
Additional Perils Adjustable Policies Agents
Insurance
Aggregate Limits Aircraft Damage All Risks Arbitration Clause
Architects’,
Surveyors’ and
Average
Consulting Engineers’
Fees

Abandonment

In Marine insurance this is the right of an insured to abandon lost or damaged property and still claim full
settlement from an insurer subject to certain restrictions.

Accidents

In insurance terms, events that are not deliberately caused by the insured and that are not inevitable. Thus, if
you deliberately cause damage by driving your car into a tree, the damage is not insured. Similarly, insurers
may argue that if you carry out a large excavation in soft soil without appropriate bracing, damage to
surrounding property is inevitable and you may not be able to claim any insurance.

Act of God

Natural occurrence such as earthquake or typhoon. These can be specifically included in most insurance
policies contrary to popular opinion.

Actuaries

A professional usually involved in the life insurance industry, who applies mathematical theories of
probabilities and statistical techniques in risk calculation. Actuaries are becoming increasingly involved in
general insurance in relation to loss reserving and premium calculations.

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Additional Perils

Sometimes called Special Perils, these may include losses caused by aircraft, explosion, earthquake, storm,
tempest, flood, burst water pies, riot, strike, civil commotion, malicious damage. These are extensions that
widen the scope of a basic fire insurance policy. Similar extensions may be available for other classes of
insurance

Adjustable Policies

Often, the premium on certain policies is based upon estimates of the size of the risk. For example turnover,
gross profit or average stock value on your premises over the next twelve months. Under an adjustable policy,
these estimates can be adjusted appropriately, upwards or downwards, at the end of the period of insurance,
when the actual figures are available.

Advance Profits Insurance

Business Interruption insurance arranged in advance of the commencement of the insured’s business usually
in conjunction with a construction all risks insurance. Cover guards against the potential of a delay in putting
a plant into operation, caused by loss or damage affecting the buildings or key items of machinery during
construction, erection or testing and commissioning. This type of insurance is expensive and difficult to
arrange. It is a core competency of Trafalgar. If you are looking to invest substantially in a business
expansion, contact us now.

Agents

An insurance salesman linked specifically to a single insurance company.policies on behalf of insurers.

Agents often obtain their clients from friends and relatives and therefore tend to have a personal knowledge
of the client. Unlike insurance brokers, they rarely have high levels of professional expertise or access to
worldwide markets. They also represent insurers and not their clients and can do little to assist in the event of
a major claim.

Aggregate Limits

An aggregate total limit on claims during a policy period, which applies in addition to a limit per claim. Often
this applies to liability and medical policies.

Aircraft Damage

See ‘Additional Peril’ under a Fire policy. Covers not only the unlikely prospect of a plane crashing into your
building, but also damage caused by articles falling from aircraft.

All Risks

A misleading name for an insurance policy, which provides wide cover but does contain a number of
exclusions. The term ‘All Risks’ should not be taken too literally and in some jurisdictions the term is no
longer used.

This cover is often used for valuable items such as jewellery and other readily portable items. In Marine Cargo
Insurance Institute Cargo Clauses (All Risks) has been replaced by a new easier to understand wording
known as Institute Cargo Clauses (ICC) ‘A’

Arbitration Clause

This clause is often found in the Conditions of property insurance policies. Any dispute between insurer and
insured in agreeing on the amount or quantum of a claim can be referred to independent arbiters. Most
arbitration clauses only apply to dispute over quantum, not to disputes over liability. Arbitration is usually
faster and cheaper than going through the Courts.

Architects’, Surveyors’ and Consulting Engineers’ Fees

Professional fees arising from repairing or reinstating damaged buildings are not always automatically
covered by insurance policies. This is an extension to cover such costs in respect of building and machinery.

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Average

‘Average’ has several meanings in the insurance industry.

In Marine insurance, ‘average’ means loss and ‘particular average’ means partial loss. See also ‘General
Average’.

If a policy is ‘subject to average’, then, if the sum insured at the time of a loss is less than the actual value of
the property insured, then the amount of claimed under the policy will be reduced in proportion to the
underinsurance. In mathematical terms:

Loss x Sum Insured

Allowable Claim =
Value at risk

If you do not insure for the full values at risk, then you may not be able to obtain a full settlement of any loss.
See also “First Loss”.

is for Bawbee – Originally a Scottish coin worth sixpence, a bawby later came to mean a

B half-penny, a coin long since fallen into disuse. Now the word means any small amount of money,
especially in any term implying miserliness or shortage of cash.

B is also for
Banker’s Blanket Boilers and Pressure
Bailee’s Liability Bloodstock Insurance
Bond Plant
Bonds Book Debts Insurance Broker Builders Risks
Burglary

Bailee’s Liability

Bailee’s Liability insurance covers the bailee’s legal liability for loss, destruction or damage to property whilst
in the bailee’s care. As an example, clothes being cleaned are under the temporary control of the bailee
(laundry). The bailor (owner) expects the clothes to be returned in good condition. If the clothes are stolen
from the cleaners, the bailee’s Liability insurance would cover the liability of the laundry for the loss.

Banker’s Blanket Bond

A wide form of insurance for Banks, which covers Theft and Fidelity risks.

Bloodstock Insurance

Livestock insurance for horses kept for racing and breeding purposes providing ‘life and health’ cover.

Boilers and Pressure Plant Cover

Boilers and other vessels such as economisers, super-heaters and steam piping are subject to internal
pressure and can explode or collapse. A boiler policy can cover explosion and collapse or be extended to cover
any type of breakdown. Cover is often extended to cover damage to surrounding property and third party
liability arising from explosion or collapse.

Bonds

These are a guarantee issued by a bank or insurance company that an individual or company will meet
various obligations.

Under a construction contract a contractor may be required to obtain:

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A bid bond. - This will protect the developer against the failure of the contractor to proceed with a project at
his bid price.

Prepayment bond. – This guarantees any advance payment made by the developer for the contractor’s
mobilisation.

Performance bond. – This guarantees that the contractor carries out the project properly and the developer
will be compensated for any breach of contract.

Retention bond. – Often a developer will retain a small amount from the contract price for a period to ensure
that any defects in the project discovered after completion are corrected in a timely manner. This can
adversely effect the contractor’s liquidity. A retention bond will guarantee that any corrective work is carried
out and allow the developer to settle in full with the contractor immediately the project is complete.

Other bonds may also be required in business, such as customs bond.

Book Debts Insurance

Also known as Accounts Receivable insurance, this covers any debit balances that you are unable to collect
because the books have been destroyed. Backup records obviate the need for this cover.

Broker

In insurance, a professional intermediary representing the client’s interests, not the interests of the insurance
company. The professional standards of insurance brokers varies from country to country and from firm to
firm. For truly professional advice, some research regarding their levels of expertise and experience may be
necessary.

Trafalgar is among the largest insurance brokers in Thailand and can offer truly professional advice to clients
on a wide spectrum of risk related issues.

Builders Risks

A marine policy that covers a ship during construction until possession passes to owners.

Burglary

An outdated legal term refering to theft involving forcible or violent entry to or exit from the premises.

Bursting or Overflowing of Water Tanks, Apparatus and Pipes

See ‘Additional Peril’ under a fire policy. This covers damage resulting from a plumbing accident but does not
strictly cover the cost of repairing the burst tank or pipe. Often household insurers will settle a claim in full,
including the damage to the tank or pipe.

Business

An insurance policy covering a business will only provide cover in respect of the ‘businesses’ described in the
policy.

Business Interruption Insurance

See also ‘Consequential Loss’ or ‘Loss of Profits’ insurance. This insurance is intended to maintain the profit
from your business at budgeted levels even though revenue may be adversely effected an insured catastrophe.
For example, if a factory is badly damaged in a fire, the owner may expect insurers to pay the cost of replacing
the building and equipment. However, work may take 12 months or more to complete and during this period,
the factory will not be able to continue production and will produce no revenue. Costs such as payroll, etc
may well continue and shareholders will still wish to receive a dividend from their investment. A business
interruption policy will ensure that ongoing expenses are paid and profits are maintained.

Correctly setting up a business interruption policy can be complicated. Premiums will vary greatly with the
ability of a business to function after a loss has occurred. Professional advice from Trafalgar is essential to
ensure appropriate protection and competitive premiums

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Business Travel Insurance

Travel insurance, provides companies and their employees with a variety of covers raging from damage to
baggage, loss of deposits on flights and hotels, liability, loss of cash, tickets or passports to the cost of further
airfares to send a replacement if an executive travelling abroad falls ill.

is for Caber – In Scottish highland games, a heavy section of trimmed tree trunk is thrown so that it

C lands away from the thrower on its heavy end. The tree trunk is known as a “caber” and the sport is
known as “tossing the caber”.

C is also for
Certificate of
Cancellation Captive Cargo
Insurance
Chartered Insurance Collision Damage
Co-Insurance Computer Insurance
Inst. Waiver
Computer Systems Condominium Constructive Total
Consequential Loss
Records Insurance Loss
Contributory
Contingent Liability Contract of Indemnity Contribution
Negligence
Cost Insurance and
Coupon Insurance Crop Insurance Counter Guarantee
Freight

Cancellation

With a few exceptions, notable construction insurance policies, insurers have the right to cancel a policy at
any time. If they do so they must give the period of notice required stated in the policy and refund a pro-rata
premium. If the insured cancels, then insurers may charge short period rates which will cost considerably
more.

Captive

This is an in-house insurance company used by a corporation to insure the risks of the parent company.
There may be significant tax advantages in locating a captive off-shore or the parent company may experience
difficulty with the traditional insurance market’s reluctance to underwrite certain hazardous types of risk.

Cargo

This is usually covered under a Marine Insurance policy, whether for domestic or international journeys, by
sea, air or land. There are three internationally recognised types of cover, known as ‘Institute Cargo Clauses
A, B and C’. These have replaced three old covers with antiquated wordings known as All Risks, With Average
(WA) and Free of Particular Average (FPA).

Certificate of Insurance

A piece of paper not to be confused with an insurance policy. It is issued mainly to comply with certain
statutory requirements as evidence of cover. A certificate is issued to motor vehicle owners and also to
employers under Workman’s Compensation laws. Another type of certificate can be issued under a Marine
Cargo Open Cover as evidence that Cargo insurance has indeed been arranged.

Chartered Insurance Institute

The UK based insurance education body, which also operates through world-wide affiliates. This is the main
professional examining body for the insurance industry outside the USA. Insurance personnel who have
passed their insurance examinations can qualify as Associates or Fellows of the Institute.

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Co-Insurance

In many British-type insurance markets, co-insurance means the sharing of one insurance policy between
two or more insurers. Usually, this entails each insurer paying directly to the insured their respective share of
the loss. In other words, the insured has an insurance contract with more than one insurer. This arrangement
is cumbersome to administer and is used only on very large risks.

Collision Damage Waiver

Cover that can be purchased by someone renting a car where the rental company waives any right to recover
the amount of damage to the car from the individual regardless of fault.

Computer Insurance

A relatively new type of insurance specially geared to cover delicate and high value computer equipment.
Cover is usually on an All Risks basis and can be extended to include the costs of reinstating data, and
business interruption cover such as increased costs of working, or loss of revenue/gross profit.

Computer Systems Records

Cover for these is often not available under basic Fire and Burglary policies. You can either extend your cover
specifically to protect such records or, alternatively take out a special Computer insurance.

Condominium Insurance

A special policy taken out by owners or management corporations designed to cover the buildings of a
condominium, sometimes carrying other benefits, such as Liability insurance for the management
corporation or committee, plus Errors and Omissions cover.

Consequential Loss

An alternative name for Business Interruption or Loss of Profits insurance.

Constructive Total Loss

Partial loss of such significance that the cost of restoring damaged property would exceed its value after
restoration. For example, a car is so badly damaged by fire that repairing it would cost more than the repaired
vehicle would be worth.

Contingent Liability

This is where a liability is incurred by a business for acts other than those of its own employees. If an
independent contractor is hired to carry out some work, then the business may be held liable for the negligent
acts of the contractor if the contractor is acting under the direction or control of an employee of the business.

Contract of Indemnity

Property insurance that restores the insured to his original financial condition after suffering a loss. The idea
is that the insured cannot profit by his misfortune. Personal Accident insurance, where a pre-agreed lump
sum payment is made, is not a Contract of Indemnity.

Contractor’s All Risks

Sometimes called ‘Contract Works Insurance’, this is an insurance policy which covers contract works, such
as new buildings in the course of construction, and engineering projects, on an All Risks basis. This policy
would usually include Public Liability cover as well. It is often arranged in the joint names of the principal
and the contractors.

Contribution

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Where someone is holding two or more insurance policies covering the same interest in the same property for
the same peril, and if the policies are contracts of indemnity, then the law does not allow the insured to
recover a loss under both policies and so make a profit out of the misfortune he has insured against. Instead,
the insurers concerned share in the loss proportionately. This is known as contribution.

Contributory Negligence

A principal of law recognising that injured persons may have contributed to their own injury. For example, by
agreeing to be a passenger in a car being driven by someone that you know to be drunk. If you are
subsequently injured you may be said to have been contributorily negligent.

Cost Insurance and Freight

If you import or export your goods on a ‘CIF’ basis, then insurance is included in the deal. ‘C & F’ excludes
insurance - in this case, the buyer has to make his own insurance arrangements.

Crop Insurance

Covers various growing crops in the event of loss or damage caused by insured perils, notably fire, flood or
hailstorm. In many countries this is available through government bodies.

Counter Guarantee

If an insurance company issues a Bond, then it will usually ask for either cash collateral or a counter
guarantee from a surety or directors of the company to whom it issues the Bond. If insurers make payment,
then redress will be sought against such sureties under a counter guarantee.

is for Deifie – In Glasgow “to sling a someone a deifie" is to ignore them or disregard what they

D have to say or simply to pretend not to have heard them. At Trafalgar we listen to our clients and
throw no deifies.

D is also for
Debris Removal
Declaration Policies Deductible Demurrage
Clause
Difference in Difference in Limits
Denial of Access Defective Design
Conditions Insurance Insurance
Directors and Driving Under the Driving Under the
Dual Basis Payroll
Officers Insurance Influence of Influence of Drugs

Debris Removal Clause

The basic cover under a fire or industrial all risks policy does not automatically extend to include the cost of
removing debris, shoring up buildings or dismantling machinery. These costs are insured under a separate
“debris removal” clause. It is important to note that the standard debris removal clause does not extend to
cover the removal of stock debris.

Declaration Policies

See adjustable policies

Deductible

The amount of any claim which is the responsibility of the Insured and which the insurer will deduct from
any claim payment. Often this is referred to as an excess. Sometimes deductibles are voluntary and a
premium discount allowed. Sometimes they are imposed by insurers as an underwriting requirement to avoid

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large numbers of small claims and their associated administration costs.

Demurrage

Demurrage is the loss of use a vessel owner incurs if his vessel is restricted to port as a result of damage to the
vessel or delays in loading or unloading.

Denial of Access

A company’s business could be affected by a nearby fire (or other loss) which restricts access to the
company’s premises. As a result, although the company’s own premises are undamaged, they suffer a
reduction in turnover and a loss of gross profit. This type of loss is not covered under a basic business
interruption policy but can be covered if the policy is appropriately extended.

Defective Design

A public liability policy provides cover for liabilities an Insured may incur as a result of business activities.
This policy may be extended to include “goods sold or supplied” or “products liability”. Even when so
extended, a basic policy will not cover losses incurred by third parties due to the defective design in the
products. To provide such defective design cover a further design extension is required.

Difference in Conditions Insurance / Difference in Limits Insurance

Multi-national companies often arrange their insurance programme centrally on a global basis so that the
risk manager will know exactly what levels of cover operate and can ensure these offer appropriate cover for
the organisation. However, the legislation in individual countries, the existence of joint venture partners or
other circumstances may require local insurance to be arranged. In such circumstances, the global
programme will cease to operate for those risks covered by the local policy, but will continue to operate for
those areas not covered by the local programme but included in the global programme. If the standard of the
cover is different, then the “top-up” cover provided by the global programme is called Difference in
Conditions Insurance. If the sum insured or policy limits are different, then the “top-up” cover provided by
the global programme is called Difference in Limits Insurance.

Directors and Officers Insurance

Legislation in many countries makes directors and senior officers personally responsible for wrongful acts
they commit as representatives of the company. If poor management decisions are made and the company
loses business, if investors are given inaccurate information or if an employee believes he has been unfairly
dismissed, personal action may be taken and the company may be prohibited from paying costs or damages
on the directors behalf. Extremely large personal claims have been seen in the USA and they are becoming
more frequent in Asia. For more information on Directors and Officers Insurance, see our separate article.

Driving Under the Influence of Alcohol or Drugs

Although laws vary greatly, it is now a criminal offence in most countries to drive while under the influence of
alcohol or drugs. However, not only do you commit a criminal offence, but if you should have an accident
while driving under the influence of alcohol or drugs you will find your insurer will refuse to settle your
insurance claim.

Dual Basis Payroll

See Business Interruption. Payroll is normally included as part of the Gross Profit insured under a business
interruption policy. In some cases however, an Insured may feel it unnecessary to insure full payroll and wish
to insure on a more restricted basis. Dual basis payroll cover allows the Insured to cover 100% of payroll for
an agreed initial period say three months with cover then dropping to say 25% of payroll. This allows the
Insured to perhaps pay all appropriate redundancy money to staff as they are laid off following a catastrophic
loss, but to retain certain key staff (in this case up to 25% of the payroll) until the business is fully recovered.
Dual basis also allows an “option to consolidate”. If this option is elected, the Insured can extend the initial
period of full cover by a small additional period after which all cover for payroll ceases.

Dual basis cover provides a flexible and low cost method of insuring payroll. It does however provide only
partial cover.

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A B C D E to H I to L M to P Q to T U to Z

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