Insurance terms Glossary
OVERVIEW OF COMMON TYPES OF INSURANCE AND INSURANCE TERMS
The following is an alphabetical list of common insurance terms
and types of insurance coverage:
SELF INSURANCE
A major corporation may, for one or more of the following reasons,
consider self-insurance:
1. To exercise greater control over costs and expenses normally
associated with traditional risk transfer through the purchase of
insurance policies;
2. To avoid the unpredictable and cyclical nature of the Insurance
market place; and
3. To address exposures for conventional insurance is unavailable.
In the context of 1 above, it is important to understand the true
meaning of the “cost of risk” and not just focus on
the actual policy premiums. In addition to premiums, the annual
cost of policy deductibles for claims made and the expense involved
in the administration of the insurance program including claims
handling must be considered.
Some simple examples of self-insurance are:
• Deductibles;
• Self Insured Retentions;
• Reimbursement Agreements;
• Total risk retention with no insurance policy protection;
• Primary risk limits provided by an insurance policy with
excess self retained; and
• Captive Insurance Company.
Assuming that risk has been identified and quantified, it is unusual
for a corporation to self-insure for 100% of the risk. In all probability,
a program would be designed following a risk management approach
that would combine an element of self-insurance and traditional
risk transfer through the purchase of some insurance protection.
STATED AMOUNT COINSURANCE
A Stated Amount clause eliminates the co-insurance penalty associated
with a percentage co-insurance requirement. The insurance company
will agree to drop the percentage co-insurance clause if the insured
provides a signed statement indicating the replacement cost values
and purchase coverage for the full declared value. In most cases
an appraisal of the property to be insured will be requested by
the insurance company.
STRIKE COVER
It is possible to purchase insurance to protect against a long strike
adversely affecting the corporation’s revenue streams. This
coverage is expensive.
SUBROGATION
The doctrine of subrogation has long been used by insurance companies
who are obligated under their policies to pay their insured for
property damage or for liability losses that the insured has sustained.
In situations where the damages appear to have been caused by the
negligence or fault of third parties, insurance companies have traditionally
exercised their right of “subrogation” to pursue claims
against the alleged negligent parties (tortfeasors). The insurance
company’s right to subrogation is granted under the Insurance
Act, R.S.B.C. 1996, c. 226, at law, and under the “Additional
Conditions” clauses contained in all insurance policies.
Whereas the basic premise of subrogation is contained in all insurance
policies, there are other clauses contained in various insurance
policy forms that effectively abrogate this without specifically
saying so. A property policy makes provision for the insured to
enter into a release prior to loss without affecting the insured’s
right to recovery of their own claim. The Commercial General Liability
policy, under the policy condition typically headed “Transfer
of Rights of Recovery Against Others to Us,” also usually
includes the phrase, “If the Insured has rights to recover,”
which suggests that rights can be waived by the insured prior to
a loss.
As a general rule, it is always advisable for any insured, before
entering into any form of release with a third party, to request
the insurer issue an endorsement to the policy specifically waiving
subrogation rights against the third party. This eliminates the
potential for disputes, and ensures that the full ramifications
of the particular situation are fully understood by all parties
prior to a loss.
TERRORISM
It is not possible to summarize all the different endorsements and
wordings that underwriters are using in excluding this peril.
TRADE DISRUPTION INSURANCE
This coverage provides for lost earnings or extra expense incurred
as a result of trade delay or non-delivery of product at any point
during the supply chain. This coverage is normally written as an
adjunct to a marine stock policy.
UMBRELLA LIABILITY
Umbrella Liability is sometimes referred to as Excess Liability,
but this is misleading as the Umbrella Liability policy is designed
to provide more than pure excess limits. A true umbrella policy
is subject to its own terms and conditions and consequently it is
not “Follow Form” cover, meaning that coverage can be
broader than the primary underlying policies.
The purpose of Umbrella Liability is to ensure that all exposures
are captured under one policy that can include general liability,
automobile liability, non-owned aviation and watercraft liability.
There are three coverage aspects:
• To provide coverage up to the policy limits once the limits
of the applicable underlying insurance has been exhausted;
• To respond to any erosion of underlying aggregate limits;
and
• To cover a claim for which no coverage is afforded by the
applicable underlying insurance.
In the event that the third point is applicable, the policy contains
a retained limit or self-insured retention which requires the insured
to contribute a fixed dollar amount to the claim.
WORKERS’ COMPENSATION INSURANCE
This coverage is a schedule of benefits that is payable to an employee
by a board (government agency) or an insurer without regard to liability.
Some extremely large corporations do self-insure. It is important
to note the enormous differences that occur in this area between
Canada and the United States. The main differences are as follows:
• In Canada, Workers’ Compensation is “insured”
by government agencies, whereas in most states, protection is through
insurance companies; and
• Coverage in Canada is absolute and, with virtually no exceptions,
workers injured “on the job” are NOT permitted to sue
their employer for damages. In the USA, suits by employees are frequent
and very expensive, both in terms of awards made and defense costs
incurred.
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