Frank’s Insurance A-Z

let’s break through the INSURANCE jargon and provide some straight forward explanation on some commonly used insurance terms

A: AB-INITIO

Latin term meaning 'From the Beginning'.  An insurer can void an insurance policy ab-initio if they have been lied to.

B: BASIS OF SETTLEMENT

The basis of settlement which your insurer will settle your claim, for example to either rebuild, repair, replace or provide a cash settlement/payment.

Replacement - to replace a lost or destroyed item with a new one, or repair the item so it is as new as practically possible.

Indemnity – putting you back in the same financial position you were in prior to the loss occurring, so that you are no better or worse off than you were immediately before the loss.  The settlement is based on how much you would pay for the item second-hand or the replacement cost of the item less an allowance (depreciation) for age and use.  Indemnity value may also be referred to as Market Value or Present Day value. 

C:  CIF

Cost, Insurance and Freight (CIF) requires the seller to arrange for the carriage of goods by sea and provide the buyer with the necessary documentation to obtain the goods from the carrier once arrived at port of destination.

D:  DUAL WAGES

A form of insuring your wages on a dual basis.

You elect an initial period of say 12 weeks where you would pay your employees 100% of their wages.  Then for the balance of your indemnity period your wages would be partially covered at the elected percentage for example 40% for remaining 40 weeks to ensure key staff are kept on the payroll.

E:  ENDORSEMENT

Amending your policy during the policy period. 

For example, removing a vehicle you have sold a few months after your policy renewed.

F:  FIDELITY

A form of insurance covering businesses for losses caused by the dishonest or fraudulent acts of its employees.

G:  GROSS PROFITS

A type of business interruption insurance that provides funds in the amount of profit lost if any insurable event, such as property damage, occurs.

H:  HOLD HARMLESS

A contract between two parties designed to release one or both parties from legal claims.  For example, one party agrees not to hold the other party liable for any expenses, damages, or losses arising from a transaction or activity between the two parties.

I:  INDEMNITY v INDEMNIFY

Indemnity also known as present day value is what the item is worth in today’s terms, based on replacement cost less an allowance (depreciation) for age and condition/use.

Indemnify is to provide compensation to an entity, person or insured for injury, loss or damage. 

J:  JURISDICTION

The location determining which courts have the power or authority to decide a particular decide on a particular matter.

K:  KNOCK FOR KNOCK

An agreement between two insurance companies whereby, when both companies’ policy holders have a motor vehicle accident (in the same event), each insurer pays the costs incurred by its own policy holder regardless of who was at fault. 

L:  LOSS RATIO

The ratio of total losses (claims paid) divided by the total premiums earned.

M:  MATERIAL FACT

Information where the insurer may have made a different decision about either: (a) accepting the insurance or (b) setting the terms of the insurance, including the premium and excess, if they had known that information.

N:  NEGLIGENCE

Failure to use a degree of care considered reasonable under a given set of circumstances.

O:  OCCURANCE WORDING

A policy which protects you from any covered incident that ‘occurs’ during the policy period, regardless of when the claim is filed.  Will respond to claims that come in even after the policy is cancelled, so long as the incident ‘occurred’ during the period in which coverage was in place.   

This differs to a ‘Claims Made’ wording which is triggered when a claim is made against the insured, regardless of when the wrongful act took place.

P: PROXIMATE CAUSE

The defining issue or event that resulted in the overall loss.  

Q:  QUANTIFIABLE LOSS

An award, typically of money, to be paid to a person as compensation in relation to a loss or injury.  For example, repair or replacement of damaged property, lost earnings (both historically and in the future), loss of irreplaceable items and so on.

R:  RETROACTIVE-DATE

A provision found in some liability policies that eliminates cover for claims produced by wrongful acts that took place prior to the specified date (being the retroactive date), even if the claim is made during the period of insurance.

S:  SUBROGATION

The right for an insurer to ‘step into your shoes’ and legally pursue another party to recover the costs incurred in relation to damage that they caused to your property. 

T:  TORT

A civil wrong such as negligence or nuisance

U:  UBERRIMA FIDES

Latin term meaning Utmost Good Faith.  This forms the basis of all insurance dealings between insurers and clients. 

V:  VALUE

Replacement value refers to an amount required to replace an item or structure.

Indemnity value puts you back in the same financial position you were in prior to the loss occurring, so that you are no better or worse off than you were immediately before the loss.  The settlement is based on how much you would pay for the item second hand or the replacement cost of the item less an allowance (depreciation) for age and use.

W:  WARRANTY

A statement of fact given to an insurer by the insured concerning the insured risk which, if untrue, will void the policy.

X:  EX GRATIA

A payment made from a sense of moral obligation rather than because of any legal requirement.  For example, an insurer may agree to pay costs to a client that has suffered a loss which is not covered under the policy wording.

Y:   LLOYDS

The worlds specialist insurance and reinsurance market located in the City of London.  It is not an insurance company but rather a market providing specialist insurance services to businesses in over 200 countries.

Z: EXCLUSION ZONE

An area or zone where insurance cover is unable to be obtained.