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Glossary of Terms

Ab InitioAb initio is a Latin term. Where an Insured has provided false or fraudulent information when applying for insurance, the insurer can avoid the contract ab initio, meaning from inception. A policy contract avoided in this way is deemed as not having been in effect at all. The Insurance Contracts Act allows an insurer to avoid or cancel a policy ab initio (from inception) if the Insured has made fraudulent misrepresentations or deliberate non-disclosure when proposing the insurance to the insurer.
AbandonmentArising, usually during the course of a claim settlement, the Insured may be able to or have the right to, abandon or surrender insured property to the Insurer in lieu of financial settlement or recompense from the insurer, as a partial or total settlement of the claim.
Absolute LiabilityThe term used to describe liability for damages even though prima facie fault and or negligence cannot be proved.
AcceptanceAcceptance of the insurance contract by an insurance underwriter. Usually refers to the point in time at which the insurer places cover on a proposed item(s).
Accident CoverInsurance covering a claim for injury or death arising from an unforeseen event (Accident) or violence.  Can be subject to test or requiring evidence to establish the cause as being Violent, External and Visible means.  This test or requirement is usually applied, because one may reasonably argue that becoming ill is an accident, thereby making an "Accident Only" type policy a De Facto Accident and Illness Policy.  Applying the Violent, External and Visible means test and or requirement more clearly defines the intent of the cover provided.
Accident YearMay also be referred to as "year of occurrence". Insurers calculate Profits or Losses based on information for the accident year rather than strictly a fiscal year basis.  Loss payments and reserves on losses are allocated to the year in which the loss has occurred (accident year). Information on loss payments and or reserves for losses which have occurred within a particular accident year are monitored in time intervals (e.g. monthly, quarterly, yearly). The losses allocated to a given accident year are measured against the earned premium income of the same annual period. Statistical information gathered on an accident year basis is important to insurers for future underwriting decisions.  Loss incurred but not reported are part of this equation.  See also IBNR.
Accidental DamageMostly refers to damage to property rather than injury.  May also be referred to Fortuitous Loss and Damage.  Damage or injury occurring from an unexpected, unforeseen mishap or untoward event.  Loss arising from an event which is not expected or designed. In many policies such as an ISR or Business Pack the meaning of this term is defined.
Accounting YearMay also be called fiscal or financial year, and may vary from the calendar year. In Australia, the accounting year is typically from 1 July to 30 June, but it can be altered by agreement with the Australian Tax Office. In New Zealand, the accounting year is from 1 April to 31 March.
Accumulation ControlThe monitoring by insurers of aggregate property sums insured by geographical reporting areas such as ICA zones.
ACODAccident Circle Occupational Diseases clauses
Acquisition CostsThe cost of the Insurer acquiring a business including commissions, brokerage, taxes, etc. but not including general administrative costs and or operating expenses.  For a reinsurer it is the acquisition costs including reinsurance commission, reinsurance brokerage, reinsurance premium tax and other costs (such as fire brigade charges and other levies).
ACRAdditional Case Reserves
Act of GodA term that is no longer widely used in the Australian or New Zealand insurance markets, but refers to an act occasioned exclusively by naturally occurring forces, being uncontrolled and uninfluenced by the power of man. An act of God is typically of such a character and/or magnitude that it could not have been overcome, prevented or escaped from by any amount of foresight or prudence, e.g.. tsunami, tempest, lightning, perils of the sea, earthquakes.
ActivationThe implementation of Business Continuity procedures, activities and plans in response to a Business Continuity Emergency, Incident, Event and/or Crisis (E/I/E/C) See: Invocation
Actual Total LossAn Actual Total Loss occurs when the subject matter of the policy is lost, destroyed or damaged beyond economic repair. Using a motor policy as an example, the vehicle would be an actual total loss if it were stolen and not recovered, burned out, or damaged to such an extent that it is beyond repair. In the case of an actual total loss, the underwriter pays out the sum insured (less any applicable excess). When this occurs the policy is said to be exhausted and is then cancelled. i.e. the contract has been fulfilled.
ActuaryActuaries are mathematicians employed by insurers to calculate premiums, reserves and allowances. General insurers are required by law to appoint actuaries to calculate premiums and technical reserves. These actuaries are approved by the Australian Prudential Regulation Authority (referred to as APRA). Actuaries are restricted by law from being directors of the insurers for whom they undertake actuarial calculations.
AddendumAlteration to a contract shown in the form of an additional schedule. The additional schedule (Addendum) may become part of the original document and may modify the terms of the original document.
Additional Case ReservesAmounts reserved by an insurer or reinsurer on a particular loss that exceed or are additional to the insurers or reinsurers original estimates of liability.
Additional Increased cost of workingIncrease in Cost of Working has two limitations; expenditure must be for the sole purpose of reducing a Loss of Turnover, and it is subject to an economic limit test. The cover provided by Additional Increase in Cost of Working is broader. This wider cover allows increased costs that maintain the business or service, but which do not necessarily reduce or avoid a Loss of Turnover. For example, the Insured may employ additional accounting staff to ensure debt collection is maintained at the normal rate while their normal staff assist in other areas. In Australia this cover is not subject to the economic limit test, which can be a great advantage, particularly if the expenditure ensures the retention of customers well after the expiration of the Indemnity Period. The costs, however, must be reasonable and incurred in consequence of the damage. Finally, the cover is not subject to any adjustment for under-insurance. However, it is important that the cover is adequate to allow the business person to take all reasonable steps to protect their business during the period of the crisis.
Adjustable FeaturesContract terms and conditions which vary according to the performance or total risks applied during the term of the contract. e.g. Contingent Commissions, Total of Goods Sent, Stock Inwards.  Adjustments may be made on a declaration basis,  sliding scale and portfolio profit, variable rates, loss participations.
Adjuster A person who investigates, assesses and adjusts insurance claims on behalf of insurers and or insureds.  Some policyholders may appoint their own loss adjuster to assist them in making a claim.  In the context of marine insurance, the adjusters tasks may be expanded to include apportionment general average losses on behalf of ship owners (an average adjuster). An adjuster may also be called an Assessor / Loss Assessor / Claims Adjuster.                              
Admitted Insurer   An insurer who is licensed or authorised to do business in a particular State or country. The insurer does not necessarily need to have a physical presence in that State or country.
Advance PremiumSee: Deposit Premium (Reinsurance)
Advice (in relation to Financial Services)A statement made or information provided in such a way as to influence, or which has the intention to influence, a person to purchase a particular financial product or service. Advice can be personal or general. Personal advice is advice that takes one or more of a persons individual circumstances into account and/or advice that may relate to personal insurance products. General advice is advice that is not personal and does not fulfil the individual circumstances test.
AgentAn individual who offers and sells insurance on behalf of Insurers/Underwriters but does not require a Brokers' Licence to sell insurance policies.  A person and or other legal entity, holding an agency agreement with an insurer and who, for reward, carries on the business of arranging contracts of insurance as the representative for one or more insurers.  An agent may now referred to as an Authorised Representative.  An Insurance Broker may trade as an Agent or Authorised Representative.  However, an Insurance Agent or Authorised Representative cannot trade as an Insurance Broker.  If an Insurance Broker is arranging a contract of insurance as an Agent or Authorised Representative, he must advise the prospective insured of this representation in writing before the contract of insurance is arranged.  Under the terms of the Insurance (Agents and Brokers) Act an Insurance Agent is deemed to be a representative of the insurer. Alternatively, an Insurance Broker is deemed to be the representative of the insured.
Aggregate Excess of LossA form of Excess of Loss reinsurance that indemnifies the reinsured against the amount by which the total of its losses incurred during a specific period (usually 12 months) exceeds a pre-determined value or amount. This is a variation on Stop Loss reinsurance.
Aggregate Extension ClauseThis applies to liability and professional indemnity insurance covered by non-proportional reinsurance. It applies where there is an  accumulation of policies involved in the same loss (whether involving the same insured or not). The reinsured can elect to add together all the losses from the same loss for the purposes of recovery under the reinsurance.  In some cases this may be done, regardless of the basis of reinsurance coverage, losses occurring or policy inception dates.
Aggregate Sums Insured1. Total Sum Insured of all property owned by the Insured in a specified geographical area.  2. A single limit of indemnity offered by a Products Liability policy to indemnify the total of all losses incurred and/or lodged against a Products Liability policy within a single policy period.  3. The total of all property insured or reinsured within a specific geographic area, zone or postcode.
Aggrieved PartyA party who has been wronged and possibly suffered loss and or damage.  A person who is a victim is said to be an aggrieved party.
AITAustralian Income Tax
AlertA formal notification that an incident has occurred which may develop into a Business Continuity Plan invocation.
Allocated Loss Adjustment Expenses Expenses allocated to a specific claim for adjustment and or management of the claim.  These fees may include loss adjusters fees, claim investigation costs, lawyers fees and other claims management expenses.  Lawyers fees may also include costs arising from investigation of and/or defence of the insured policyholder for the specific claim.  It excludes the insurers own operating expenses, office expenses and payments to employees of the insured or reinsured.
Alternate SiteA site held in readiness for use to maintain the business continuity of an organisation's Mission Critical Activities. The term applies equally to office or technology requirements. Alternate sites may be 'cold', 'warm' or 'hot'. This type of site is also known as a Recovery Site. See: Cold Site, Warm Site, Hot Site, Recovery Site.
Alternative Risk FinancingMethods for the financial management of insurance risk exposures as an alternative method for financing risk transfer other than through traditional insurance covers.
Alternative Risk TransferA generic phrase to denote the use of various non-traditional financial instruments where risk is transferred to the capital markets or vehicles of self-insurance, such as captive insurance companies using an alternative to traditional insurance. Therefore, these alternative risk transfer devices are commonly referred to as ART. On a broader note, ART refers to the convergence of insurance/reinsurance, banking and capital markets.
AmortisationThe process of paying off indebtedness by instalments of principal and earned interest over a defined period.
Annual Aggregate DeductibleA provision in some non-proportional reinsurance contracts stipulating that the reinsured will retain, in addition to its retention per risk or per occurrence, an annual aggregate loss amount that would otherwise be recoverable from the reinsurer. The annual aggregate deductible amount may be expressed as an amount or a percentage of the reinsured's subject premium for the annual period. This deductible may be used by the reinsurer to lessen exposure to specific events such as cyclone. The same principle may also be applied to standard insurance policies.
APRA Australian Prudential Regulation Authority
ArbitrationAn alternative to the Court system where legal disputes can be resolved in consultation with, and overseen by, an independent arbitrator. Arbitration can be overseen and/or ordered by the Court system, usually prior to a matter proceeding to trial, in an attempt to have the matter resolved more expeditiously. This option is seen by many as more cost-effective, viable and timely than undertaking what can be a lengthy legal Court process.
Arbitration ClauseThis 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. Many Australian policies have done away with this clause relying on Internal Dispute mechanisms and the Insurance Ombudsman in the first instance to resolve disputes.
ARPCAustralian Reinsurance Pool Corporation
ART Alternative Risk Transfer
As IfA term describing the recalculation of the previous claims experience of a particular policy to demonstrate what the underwriting results of the particular policy would have been if the policy had been subject to different terms, conditions and or levels of deductable (Excess).
ASICSee: Australian Securities & Investments Commission
Assembly AreaThe designated area at which employees, visitors and contractors assemble if evacuated from their building/site.
AssessorSee: Adjuster
AssigneeA person accepting a transfer or assignment of a policy.
AssignmentThe transfer of policy ownership.
Attachment PointThe value amount or point in time at which insurance or reinsurance protection comes into effect.
AttestConfirmation and/or declaration in writing and usually requiring a signature or seal.
AuditThe process by which procedures and/or documentation are measured against pre-agreed standards.
Australian Competition & Consumer CommissionThe Australian Competition and Consumer Commission (ACCC) is an independent Commonwealth statutory authority. It was formed in 1995 to administer the Trade Practices Act (1974) and other Acts. The ACCC promotes competition and fair trade in the market place to benefit consumers, business and the community. It also regulates national infrastructure services. Its primary responsibility is to ensure that individuals and businesses comply with the Commonwealth competition, fair trading and consumer protection laws. The ACCC is the only national agency dealing generally with competition matters, and the only agency with responsibility for enforcing the Trade Practices Act and the State/Territory application legislation. In fair trading and consumer protection, the role of the ACCC complements that of the State and Territory consumer affairs agencies, which administer the mirror legislation of their jurisdictions, and the Competition & Consumer Policy Division of the Commonwealth Treasury.
Australian ConstitutionThe Commonwealth of Australia Constitution Act, established the Parliament, the Executive, and the Judiciary - and is the foundation of the authority which they exercise. The Australian Constitution covers financial and trade matters; the relationship between the State and Federal Governments, including the formation of new States; the arrangements for a Seat of Government; and the process for any alteration of the Constitution itself. It can be altered only with the agreement of a majority of voters in a majority of States.
Australian Financial Services LicenceA licence granted by ASIC under the Financial Services Reform Law Act to allow a person to provide financial services, such as advice and recommendations on financial products such as insurance.
Australian Financial Services LicenceeA person or other legal entity who holds an Australian Financial Services Licence.
Australian Law Reform Commission (ALRC)Established in 1975, the Australian Law Reform Commission is a permanent, independent federal statutory corporation, operating under the Australian Law Reform Commission Act 1996 (Cth). The ALRC conducts inquiries, known as references, into areas of law reform at the request of the Attorney-General of Australia. While accountable to the federal Parliament for its budget and activities, the ALRC is not under the control of government, giving it the intellectual independence and ability to make research findings and recommendations without fear or favour. ALRC recommendations provide advice to government but do not automatically become law. However, the ALRC has a strong record of having its advice taken up. Nearly 80 per cent of the ALRC's reports have been either substantially or partially implemented - making it one of the most effective and influential agents for legal reform in Australia.
Australian Prudential Regulation AuthorityThe Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. As at 30 June 2005, APRA supervises institutions holding approximately $2 trillion in assets for approximately 20 million Australian depositors, policyholders and superannuation fund members.
Australian Prudential Regulation Authority (APRA)The Australian Prudential Regulation Authority (APRA) is the prudential regulator of the Australian financial services industry. It oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, friendly societies, and most members of the superannuation industry. APRA is funded largely by the industries that it supervises. It was established on 1 July 1998. As at the 30th June 2005, APRA supervises institutions holding approximately $2.0 trillion in assets for approximately 20 million Australian depositors, policyholders and superannuation fund members.
Australian Securities & Investments CommissionEstablished by the ASIC Act 1989, and commenced operation on 1 January 1991 as the Australian Securities Commission (ASC), replacing the National Companies & Securities Commission (NCSC) and the Corporate Affairs offices of the States and Territories. The authority eventually became the Australian Securities & Investments Commission (ASIC) on 1 July 1998, when it became responsible for consumer protection in superannuation, insurance, and deposit taking. From 2002, ASIC has also taken on consumer protection in the area of credit.
Authorised RepresentativeA person who provides financial services and/or advice relating to financial services on behalf of one or more Australian Financial Services Licence holders. ASIC must be notified and approve the appointment of an authorised representative.
Automatic CapacityPlacement capacity provided by treaty reinsurance.
Average (Co-insurance)Average (which may also be known as Co-insurance) is a mechanism that redresses the situation confronted by insurers where a partial loss is incurred in respect of a property that is under insured. Property insurance is not generally written on a first loss basis as is usually the case with some other classes, with theft being a typical example. The likelihood of a total loss in the vast majority of theft risks is very remote and it is customary to insure for sums insured lower than the actual value of the property at risk. In the case of property insurance, however, the likelihood of a total (or near total) loss is much higher and clients who underinsure are selecting against insurers by not contributing to the premium pool in an equitable manner. Hence the necessity for a co-insurance provision, the principle of which is intended to encourage the Insured to contribute to the respective premium pool at a proportionate level to the risk posed. When a client under insures his property (deliberately or otherwise) under the terms of the co-insurance provision he becomes a co-insurer for a proportion of the risk and shares proportionally in all losses (total or partial) with his insurer. In the event of a Total Loss, he will be paid the Sum Insured by his insurer and bear the remainder of the loss himself. He and his insurer will have shared proportionally in the loss. In simple terms, when a partial loss occurs, the same principal applies and he will bear that proportion of the loss that his sum insured bears to the actual value of the property, again sharing proportionally in the loss. To avoid penalising insureds unfairly in an environment of escalating costs it has become common practice to allow some leeway in respect of the requirement to insure for full value. This is achieved by basing the co-insurance calculation on a percentage of the full value, typically 80% in the case of a commercial package policy and 85% or 90% for others. Most policies do not impose co-insurance on losses less than a small percentage of the sum insured. (typically 5% or 10%)