Insurance Definitions/Terminology

Definitions and Terminologys...some weird and wonderful insurance terms....

AFS LICENSEE
A company who possesses an australian financial services licence.
Required to transact financial services business.

AUSTRALIAN FINANCIAL SERVICES LICENCE
A licence issued pursuant to the Financial Services Reform Act 2001.

AGGREGATE LIMIT:
Usually the total amount of money an insurance company will pay under a Liability policy for all claims which arise during the period of insurance.

AUTHORISED REPRESENTATIVE
A party who provides advice or dealings relating to financial services business and includes both a corporate entity and natural persons.

AVERAGE OR CO-INSURANCE CLAUSE:
A clause in a policy requiring that, where property is insured for less than its full insurable value, the Insured is required to bear a proportion of any loss. The proportion is the amount by which the property is underinsured expressed as a percentage of its full insurable value at the time of the loss.

It is common practice for insurance contracts to be subject to Average or Co-Insurance which means that if the value of the property insured exceeds the sum insured, then you would be required to contribute proportionally to each and every loss.

BUSINESS INTERRUPTION
(Loss of Profits, Consequential Loss):
Covers loss of gross profit or revenue, to maintain the continuing or fixed costs of a business and increased working costs incurred to avoid or diminish a reduction in the business results and profitability following loss of or damage to property.

CLAIMANT:
The party making a claim under an insurance policy. The claimant may be the Insured. Under Liability policies, the claimant is a third party.

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.

COMMERCIAL PACKAGE
This insurance package is typically designed for small business enterprises and provides coverage for both Assets and Liabilities within the framework of one policy.

COMPULSORY THIRD PARTY (“CTP”):
Insurance covering accidental bodily injury to or death of third parties as a result of road traffic accidents. All owners of motor vehicles using public roads in Australia are required to have CTP cover taken out in the State in which their vehicles are registered. The parties involved in a road traffic accident are:

· First Party – the Insured or policy holder.
· Second Party – the Insurer
· Third Party – other persons involved, except the driver of the vehicle at fault.

CONTRIBUTION
The amount provided by the Insured or others to a claim under the Contract of Insurance (Policy).

CONTRIBUTORY NEGLIGENCE:
Lack of care on the part of the individual injured or suffering loss which helped to cause the accident or aggravated the injury or damage.

COVER:
The scope of protection provided by an insurance contract.
COVER NOTE:
Temporary contracts to protect the Insured while the procedures for the preparation and issuing of the insurance policy are progressing.

DEDUCTIBLE:
A policy condition whereby the Insured is required to pay a portion of the loss, as stipulated in the policy (eg, the first $400 of a motor vehicle damage claim); the Insurer paying the balance over that amount.

DEPOSIT PREMIUM:
Certain policies are written under conditions which provide that the final premium is not determined until the policy has expired. The premium charged at the inception of cover is the “advance”, “provisional” or “deposit” premium. The term is also sometimes used to refer to the initial premium paid by an applicant for life insurance which is held in suspense by the life company pending its acceptance or rejection of the proposal.

DISCLOSURE
Every matter that the Insured knows or could reasonably be expected to know that is relevant to the Insurer’s decision to accept the risk and if so on what terms.

ENDORSEMENT:
A written or printed recording on the Policy or an annexure to the Policy which alters provisions (terms and conditions) of the Contract of Insurance. Documentary evidence of a change to an existing policy, for example, change of address, increase in sum insured etc. An endorsement may result in an additional premium, a return premium or no premium adjustment.

EXTRA COST OF REINSTATEMENT:
Provides protection for additional costs necessary to comply with government regulations following a loss, eg previous premises may have had a wooden staircase whereas current regulations require concrete, thus the sum insured should allow for reinstatement in concrete.

FINANCIAL SERVICES REFORM (FSR)
The financial services reform programme implemented by the Financial Services Reform Act 2001 together with regulations promulgated pursuant thereto and Policy papers issued by ASIC.

FIRE AND EXTRANEOUS PERILS:
This composite policy can include a selection or all of the following perils: Fire, Lightning, Explosion, Aircraft, Earthquake, Storm & Tempest, Rainwater, Water Damage, Flood, Malicious Damage, Riots & Strikes, Impact by Vehicles or Animals.

FIRE SERVICES LEVIES
Amounts payable by insurance companies to meet the operating costs of Fire Brigade authorities as determined by the various State Governments are passed onto policyholders as premium loadings known as Fire Service Levies.

INDEMNITY:
The principle of indemnity is to place the Insured in the same financial position after a loss as that which applied immediately before the loss. That is, the Insured does not receive “new for old”. The potential recovery that the Insured has under a Contract of Insurance (policy) which is payable by the Insurer in the event of a claim.

NON-DISCLOSURE
A failure of the Insured to provide disclosure to the Insurer.

PRODUCT DISCLOSURE STATEMENT (PDS)
A Policy description statement issued by the Insurer and provided to the Insured by the Intermediary pursuant to the requirements as set out in the FSR.

PROFESSIONAL INDEMNITY / ERRORS AND OMISSIONS:
Covers legal liability to compensate third parties for loss sustained by them arising out of negligent acts, errors or omissions or civil liability on the part of the Insured in the conduct of their business.

PROXIMATE CAUSE
The most directly related uninterrupted cause which causes the injury or damage.

PUBLIC AND PRODUCTS LIABILITY:
Legal liability to pay compensation (including legal expenses) to third parties in the event of the Insured causing injury, death or loss of or damage to property arising out of business operations or products.

RELEASE:
A signed document accepting settlement for a loss.

REINSTATEMENT AND/OR REPLACEMENT:
This is a method of insuring property on a “new for old” basis. In the event of a physical loss or destruction of property insured under these conditions, settlement would be based on the cost of replacing the property or restoring the damage in new materials without any deduction for depreciation.

RENEWAL
The reinstatement of a Contract of Insurance for a further period of insurance.

RETAIL PRODUCT
A financial product falling into one or either of the following categories:
– motor vehicle Policies
– home building and/or home contents Policies
– sickness & accident Policies
– consumer credit Policies
– travel Policies
– personal & domestic product Policies
– any other Policies as may be prescribed by the FSR

STATEMENT OF ADVICE (SOA)
A statement of advice issued pursuant to the requirements as set out in the FSR.

SUBROGATION:
The common law right of an Insurer to recover from a third party who is wholly or partially responsible for a loss paid by the Insurer under the terms of a policy. For example, when an Insurer has paid the Insured for loss sustained to his car as the result of a collision, the Insurer may collect through the process of subrogation from the person whose car caused the damage. Subrogation recoveries are treated as reductions of losses paid when calculating claims experience.

TERMS
The conditions of a Contract of Insurance

UNDERWRITER:
One who determines the degree of acceptability and the pricing of insurance business.

UTMOST GOOD FAITH
Each part must enter into the Contract of Insurance with good faith and communicate every fact and circumstance which may influence the other in entering the contract.

WORKERS’ COMPENSATION:
All employees injured by accident or industrial disease arising out of, or in the course of their employment are legally entitled to compensation under the various Workers’ Compensation statutes. The Acts in each State and Territory require employers in Australia to maintain compulsory “no fault” insurance to cover their legal liability.