banking and insuranse terminology

8/7/2019 Banking and Insuranse Terminology

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A PROJECT ON

TERMINOLOGY OF BANKING

AND INSURANSE

Submitted to

Mr.Promod matolia

Faculty of management

By

Savita Sharma

BBA (B&I)

VIIth tri


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BANKING TERMS

ABA Routing Number:-

A series of number that is located at the bottam of an account holders checks or deposit slips.These numbers identify a particular address for a specific banking institution.

Amortization:-

The repayment of a loan or process of reducing debt by installments with regular payments to cover

principle and interest, usually in a term expressed in months.

Assignment:-

The transfer of a loan from one party to another.

ACH:-

Automated Clearing House, which is an electronic transfer of funds.

Account :-

Money deposited with a bank for investment and/or safekeeping purposes.

Annual fee :-

A yearly fee charged to a customer to participate in an open-ended credit program.

Account :-

Money deposited with a bank for investment and/or safekeeping.

Adjusted balance:-

The balance that remains when all payments made during a billing cycle are subtracted from the

balance from the previous billing cycle. This balance does not include finance charges for the

current billing cycle.


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Annual fee :-

A yearly fee charged to a customer to participate in an open-ended credit program.

Annual percentage rate (APR) :-

The cost of credit expressed as a yearly rate. APR is a percentage that results from an equation

considering the amount financed, the finance charges, and the term of the loan.

Assets :

Items of monetary value (e.g., house, land, car), owned by an individual or a company.

ATM :-

Acronym for automated teller machine.

Authorized user:-

A person who has been given permission to make changes to a credit account. This status must be

given by the primary account user. An authorized user is not legally responsible for repaying the

account.

Average daily balance:-

The balance that results from adding together all the daily balances of a credit account in the billing

cycle and dividing by the number of days in the billing cycle. This balance is often used to calculate

finance charges.

Balance:-

An outstanding amount of money. In banking, balance refers to the amount of money in a particularaccount. In credit, balance refers to the amount owed.

Balance transfer :-

Repayment of one credit debt with another credit source.


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Balance transfer fee :-

The fee charged to transfer balances between two credit sources. This fee is often a percentage of

the amount transferred.

Billing cycle :-

The period of time that a credit statement covers.

Bill Discounting:-

It is the process of providing advance against a bill- which can be promissory note, bill of exchange,

credit bills, etc,- to the clients such that the clients can meet their short term financial needs.

Billing statement:-

The summary of all actions applied to a credit account during a billing cycle. These can include

payments, purchases, finances charges, fees and other transactions.

Bounced check:-

A check that a bank has refused to cash or pay because you have no funds to cover it in your

account.

Balloon Payment :-

The final lump-sum payment that is made at the maturity date of a loan.

Bankruptcy:-

A proceeding on a federal court in which a debtor who owes more than more than his assets can

cover is granted relief from debt by transferring all assets to a court appointed trustee.


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Canceled check :-

A "used" check that has been paid and subtracted from the check-writer's account. Canceled checks

have extra data on them from the bank. Canceled checks are excellent receipts that should be kept

for reference and tax purposes.

Capital :-

A stock of accumulated wealth used or available for producing more wealth.

Cardholder agreement :-

The written statement that defines and explains all legal terms for a credit card agreement. It

includes payment terms, billing dispute procedures and communications guidelines, among other

items.

Cash :-

Money in the form of paper and coins (e.g., U.S. dollars and cents). In banking, this is the act of

paying a check.

Cash advance fee :-

A fee assessed when a card holder uses a credit card to obtain cash. These fees are often charged as

a percentage of the cash obtained.

Cashier's check:-

A check issued by a bank, drawn on its own funds rather than on one of its depositor's funds.

Certificate of deposit :-

A savings account in which an individual promises to deposit the money for a set period of time, for

which the bank pays higher interest than a regular savings account.


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Charge card :-

A card that requires a user to pay off the entire balance every month.

Check:-

Any written document instructing a bank to pay money from the writer's account.

Checking account :-

An account for which the holder can write checks. Checking accounts pay less interest than savings

accounts, or none at all.

Clear :-

A check "clears" when its amount is debited (subtracted) from the payer's account and credited

(added) to the payee's account.

Collateral:-

Anything that a bank accepts as security against the debtor's not repaying a loan. If the debtor fails

to repay the loan, the bank is allowed to keep the collateral. Collateral is most commonly in the

form of real estate (e.g., a home).

Compound interest :-

Interest calculated not only on the original principal, but also on the interest already accrued.

Co-signer :-

The person who signs on a credit agreement in addition to the primary applicant. This person is

legally responsible for repayment of the debt.

Credit bureau :-

An agency that checks credit information and keeps a complete file on people who apply for and use

credit.


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Credit card :-

A plastic card that gives access to a line of credit. Users are limited in how much they can charge,

but they are not required to repay the full amount each month. Instead the balance (or "revolve")

accrues interest with only a minimum payment due.

Credit limit :-

The maximum amount of money a borrower can access in a credit account.

Credit rating :-

A banks evaluation of whether a person is suitable to receive credit. Credit ratings are based on an

individual's character, capacity to repay, and capital.

Credit report :-

A summary of the credit usage of a consumer, including payment histories and current status of all

credit accounts. This plays a very large part in the decision to grant credit to a consumer.

Cross selling :-

It refers to selling additional products of the bank to the existing customers. The bank uses its entire portfolio to match the requirement of the customer and sell the product that best suits those

requirement.

Customer Relationship management :-

It involves all activities that help identify, establish, maintain, enhance and when necessary. Also

terminate relationships with customers and stakeholders, at profit, so that the objective of both

parties are met.

Data Mining :-

It is used to identify and retrieve useful information from the huge volumes of data present in a data

warehouse. The data mining tool recognizes patters in the available data and provides support for

decision making.


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Debit :-

A bookkeeping term for a sum of money owed by an individual or institution; a charge deducted

from an account.

Debit card :-

A banking card enhanced with ATM (automated teller machine) and POS (point-of-sale) features

that can be used to purchase goods and services electronically. The card replaces cash or checks.

Transactions are deducted from the cardholder's checking account either immediately or within one

to three days. Depending upon the type of card, a debit card may require the user to sign his or her

name or enter a PIN (personal identification number) into special equipment.

Deposit slip :-

An itemized slip showing the exact amount of paper money, coin, and checks being deposited to a

particular account.

Depositor :-

An individual or company that puts money in a bank account.

Direct Selling Agents

DSAs are agencies involved in selling financial products on behalf of the financial product

marketers. Any financial product marketer can enter into a mutual agreement with the DSAs to sell

their products.

Endorse :-

To sign, as the payee, the back of a check before cashing, depositing, or giving it to someone else.

The first endorsement must be made by the payee to authorize the transaction. Later endorsements

may be made by whoever receives the check.


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Electronic Fund Transfer :-

It uses an electronic medium to transfer funds from one bank to another. It enables transfer the funds

between two bank branches within the same day.

Electronic Funds Transfer at Point of Sale (EFTPOF) :-

It enables the customer to carry out cashless transactions at merchant establishments, where the

invoice amount of the goods purchased by the customer is debited from the customers account and

transferred to the merchants account.

Federal reserve system :-

A governmental agency established by Congress to organize and regulate banking throughout the

United States. The twelve reserve banks keep paper and currency reserves for affiliated banks.

Fixed rate :-

An interest rate that does not vary over time.

Grace period :-

The length of time between the use of credit to make a purchase and the start of interest on theamount charged.

HELOC :-

An acronym used to identify a Home Equity Line of Credit.

Index :-

A published interest rate that is used to determine the actual rate charged with a variable interest rateaccount. The prime rate, published in the Wall Street Journal, is often used as the index.


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Interest :-

The fee paid for the use of money. Interest may be paid, for example, by an individual to a bank for

credit card use, or by a bank to an individual for holding a savings account. Interest is expressed in

terms of annual percentage rate (APR).

Introductory rate :-

A temporarily low interest rate, used as incentive to entice a consumer to sign up for credit. After

the introductory period, the rate will increase to the standard percentage.

Joint account :-

A savings or checking account established in the names of more than one person (e.g., parent/child,

wife/husband).

Late payment fee :-

A fee charged to a consumer if his or her monthly payment is made after the due date stated on the

billing statement. line of credit -- An authorized amount of credit given to an individual, business, or

institution.

Line of credit :-

An authorized amount of credit given to an individual, business, or institution.

Minimum payment :-

The smallest payment a consumer can make in a billing cycle to keep the account from going into

default.

Mortgage :-

A long-term loan obtained by individuals to buy a home that legally transfers ownership from the

debtor to the creditor until the debt is paid.


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Overdraft :-

A check written for more money than is currently in the account. If the bank refuses to cash the

check, it is said to have "bounced."

Payee :-

An individual or company to whom a check is written; one who receives money as payment.

payer :-

An individual or company who writes a check; one who gives money as payment.

Personal identification number (PIN) :-

A code that provides security for consumers at an ATM.

Posting date :-

The date when a transaction is recognized on your account.

Pre-approved :-

A term used to denote a credit offer that is extended after the creditor has performed a credit pre-

screening process.

Previous balance :-

The balance that has carried over from the previous billing period.

prime rate :-

An index rate that is used to determine the APR in a variable interest rate account.

Principal :-

The original amount of money borrowed, deposited, or invested before interest accrues.


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Refinance:-

To revise a loan agreement to make the terms of payment more suitable to a borrower's present

income and ability to repay. Refinancing usually provides a lower interest rate and lower monthly

payments over a longer period of time.

Revolving line of credit:-

A credit agreement that allows a consumer to borrow a set amount of money, then after repayment

of any portion of that money, the consumer may borrow again up to the original set amount. A

credit card is a form of revolving credit.

Savings account :-

A bank account that accrues interest in exchange for use of the money on deposit.

Service charge :-

A monthly fee a bank charges for handling a checking account.

Stop payment :-

A request made to a bank to not pay a specific check. If requested soon enough, the check will notbe debited from the payer's account. Normally there is a charge for this service.

Terms :-

The period of time and the interest rate arranged between creditor and debtor to repay a loan.

Tiered:-

A term that applies to interest rates, where the actual rate applied depends on the balance on theaccount.

Transaction date:-

The date that a purchase was made or a cash advance was taken.


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Truth in lending act :-

A law that required a lender to inform a borrower of the amount financed, total finance charges,

annual percentage rate, payment schedule, and many more important figures.

Unsecured debt :-

A credit source that is not guaranteed with collateral.

Variable rate :-

An interest rate that changes and is determined by adding the index rate to the previously disclosed

margin.

Wire transfer :-

A transaction that electronically transfers money from one financial institution to another.

Withdrawal :-

An amount of money taken out of an account.


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INSURANCE TERMS

Abandonment

In Marine insurance this is the right of an insured to abandon lost or damaged property and stillclaim 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.

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.

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.


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Advance Profits Insurance

Business Interruption insurance arranged in advance of the commencement of the insureds 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.

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 ofprofessional 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.

All Risks

A misleading name for an insurance policy, which provides wide cover but does contain a number

of exclusions. 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)

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.


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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.

Average

Average has several meanings in the insurance industry. In Marine insurance, average means

loss and particular average means partial loss.

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:

Allowable Claim =Loss x Sum Insured

Value at risk

Bailees Liability

Bailees Liability insurance covers the bailees legal liability for loss, destruction or damage to

property whilst in the bailees care. As an example, clothes being cleaned are under the temporary

control of the bailee (laundry). The bailer (owner) expects the clothes to be returned in good

condition. If the clothes are stolen from the cleaners, the bailees Liability insurance would cover

the liability of the laundry for the loss.

Bankers 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.


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Boilers and Pressure Plant Cover

Boilers and other vessels such as economizers, super-heaters and steam piping are subject to internal

pressure and can explode or collapse. 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.

Book Debts Insurance

Also known as Accounts Receivable insurance, this covers any debit balances that one is 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 clients interests, not the interests of the

insurance company.

Builders Risks

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

Burglary

An outdated legal term referring to theft involving forcible or violent entry to or exit from the

premises.

Bursting or Overflowing of Water Tanks, Apparatus and Pipes

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.


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Business Interruption Insurance

This insurance is intended to maintain the profit from your business at budgeted levels even though

revenue may be adversely affected 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.

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.

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 markets 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

All Risks, With Average (WA) and Free of Particular Average (FPA).


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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 Workmans 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 theInstitute.

Co-Insurance

Co-insurance means the sharing of one insurance policy between two or more insurers. 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.


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Computer Systems Records

Cover for these is often not available under basic Fire and Burglary policies. One can either extend

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.


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Contractors 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. Itis often arranged in

the joint names of the principal and the contractors.

Contribution

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 torecover 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 knownas 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 issuesa 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.


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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.

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 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 companys business could be affected by a nearby fire (or other loss) which restricts access to thecompanys premises. As a result, although the companys 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.


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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.

Effective Date

The date upon which cover under an insurance policy becomes effective. Usually this will not be

until an insurer has accepted the proposal and confirmed cover in writing by issuing a cover note or

cover confirmation.

Employers Liability

The legal rights of an employee are usually defined in law under a countrys Employment Code or

Workmens Compensation Acts. Usually these laws provide for certain fixed sums to be paid by a

government body to an employee if the employee is injured in the course of his work. The sums are

usually funded by a government levy imposed upon all employers. However, in some territories it

is possible for the employee to take legal action in common law to recover damages for injury if the


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accident occurred as a result of the negligence of the employer. Negligence on the part of the

employer could come about for example by the employer providing unsafe equipment, an unsafe

system of work or perhaps through the negligence of another employee.

Any damages awarded and the legal costs of defending any claim can be covered under an

Employers Liability Policy.

Engineering Insurance

Also known as Machinery Breakdown or Plant All Risks Insurance, this type of insurance provides

very broad cover for damage to electrical and mechanical machinery.

Endorsements

An endorsement is a special amendment to a policy wording. It may be attached to the policy from

inception or it may be added to the policy mid term. Mid term endorsements are often issued at the

request of the Insured. For example an endorsement may be issued to note a change of address of

the Insured.

Erection All Risks

An erection all risks policy offers cover very similar to a contractors all risks or construction allrisks policy. It is however aimed more at erection of plant and machinery rather than the

construction of buildings.

Errors and Omissions Insurance

Engineers, architects, lawyers, accountants and even insurance brokers hold themselves out as

professionals capable of offering accurate and well considered advice. If they fail in their duty to

provide best advice they leave themselves exposed to claims for errors and omissions or

professional negligence.

Excess

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 a deductible. Sometimes excesses are voluntary


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and a premium discount allowed. Sometimes they are imposed by insurers as an underwriting

requirement to avoid large numbers of small claims and their associated administration costs.

Excess of Loss Reinsurance

Insurance companies can rarely bear a total loss on the business that is offered to them. They usually

choose to share the risk with other insurers through co-insurance or re-insurance. Excess of Loss

Reinsurance is a form of reinsurance whereby the original insurer decides the amount that it is

prepared to bear on any one loss, and the reinsurer pays the amount of any claim in excess of this

retention.

Exclusions

Also known as Exceptions. All contracts contain certain conditions and it is important that you are

aware how these affect your rights under a contract. An insurance policy is no different in this

respect. Some exclusions are very standard for example, war risks on land, nuclear radiation and the

deliberate acts of the Insured.

Ex Gratia Settlement

A claim settlement made by an insurer even when the loss is not covered by the policy. Usually

made for commercial reasons where the claims experience has otherwise been good.

Expediting Expenses

Costs incurred in returning a business to its normal trading status in the minimum possible time,

following a loss for example, overtime, express freight and premium prices paid to secure

replacement plant at short notice.

Explosion

A standard fire policy usually insures against fire that results from an explosion, but not the shock

and concussion damage that can result. This should be covered under an explosion extension.


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Facultative Reinsurance

Insurance companies can rarely bear a total loss on the business that is offered to them. They usually

choose to share the risk with other insurers through co-insurance or re-insurance. Facultative

Reinsurance is a form of reinsurance whereby the original insurer decides what level of risk it is

prepared to retain on any one policy and offers to share the risk (for a premium) with a reinsurer.

The reinsurer will then decide whether the reinsurance premium is adequate and how much of the

risk he wishes to reinsure, according to the merits of the individual case.

Fidelity Guarantee

An all risks, theft or burglary policy will usually exclude losses due to theft by people legally on the

premises. This obviously excludes losses caused by employee theft. Such losses are covered under aFidelity Guarantee policy. Usually such policies are subject to deductibles or coinsurance by the

Insured to ensure that recruiting policies are maintained and references properly followed up.

Fire and Theft

A limited form of cover for motor vehicles offered as an extension to a basic third party only policy

Fire Policy

Depending upon the individual territory, a standard Fire policy usually covers fire, lightning and

explosion of gas or boilers used for domestic purposes. Fire means actual ignition. Scorching or

charring is not covered. Cover will sometimes extend to cover fire arising from any cause, but more

often it is subject to policy exclusions for example fire damage caused by a riot may not be covered

unless the policy is extended to include Riot.

First Loss Policies

This is a form of partial insurance where the Insured decides he could not suffer a total loss and

selects a maximum sum to insure for any loss. First Loss Policies are often used in Theft insurance

high-value goods which would be physically impossible to steal in a single burglary.


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Fleet Policy

A single policy covering a number of vehicles usually issued to a company operating a large fleet of

vehicles. Premiums are usually calculated on the basis of historic claims or a straight discount

allowed for the reduced administration costs in combining several policies into one.

FOB

FOB or Free on Board is a contractual basis for the sale of goods internationally. On an FOB

basis the seller's interest in the goods ceases when they are loaded onboard the carrying vessel. This

is usually an appropriate time, as the ship's representative will normally inspect the goods on

loading to ensure they are in good condition and record any damage. Once loaded onboard the

carrying vessel, the buyer takes over responsibility for the goods and is responsible for anynecessary insurance.

Franchise

A franchise is similar to a deductible in that the insurer makes no settlement if the total claim is

below the franchise figure. However, if the claim is above the franchise figure, the claim is paid in

full. Franchises are very unusual in modern insurance practice though machinery breakdown covers

sometimes use time franchises.

Free of Particular Average (FPA)

Particular Average means partial loss so Free of Particular Average means excluding partial losses

or Total Loss only. FPA is a set of marine cargo insurance conditions providing very narrow cover

(though not limited to total loss only!). FPA conditions have now generally been replaced by the

more modern Institute Cargo Clauses C.

Full Theft Cover

Most Theft or Burglary policies cover theft only if it involves forcible or violent entry to or exit

from the premises. Full theft cover extends this cover to any dishonest appropriation. Full theft

cover is not normally available to shops or hotels, which are susceptible to casual theft.


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General Agent

In some territories this may mean merely an insurance agency involved in all types of insurance. In

other territories it may mean an insurance agency for an overseas insurer and empowered to

underwrite risks and settle claims on behalf of that insurer.

General Average

In order to save a ship in peril of sinking during a storm, some of the cargo may have to be thrown

overboard. The ship owner and the owners of the saved cargo obviously benefit at the expense of

the owners of the jettisoned cargo. This was deemed unfair and the principal of General Average

evolved so that all parties would contribute in such a situation.

General Principles of Insurance

Insurance practice has developed over many years in many territories and been added to and

amended by the courts or governments. However certain basic principles have been established as

the basis on which insurance is written and operates. These principles include Indemnity and its

corollaries Contribution and Subrogation, Utmost Good Faith and Proximate Cause.

Glass Insurance

Glass insurance is normally provided as part of a package policy for shops and other small risks but

can be obtained a separate policy. The policy covers breakage of fixed glass from any cause but

normally excludes damage to frames.

Golfer's Insurance

A sportsmans package policy which covers loss of or damage to golfing equipment, liability to

third parties, personal accident and entertainment expenses incurred at the 19th

hole celebrating that

elusive hole in one.

Goods in Transit Insurance

Property, especially stock, does not necessarily remain at your premises alone. It moves around the

country and maybe internationally to be delivered from suppliers or to customers. Goods in Transit


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insurance provides cover for inland transit by road or rail and often extends to include inland and

coastal waters. Cover may be arranged by the owner or by the haulier to protect him against his

liabilities under the haulage contract. International transit by sea or air is insured under a Marine

policy.

Gross Profit

Gross profit is normally defined by insurers as the amount by which the sum of the turnover and the

closing stock shall exceed the sum of the opening stock and the uninsured working expenses. These

uninsured working expenses vary from one business to another and should be specified in the

policy.

Hague Protocol 1955

An agreement amending the Warsaw Convention Limits relating to an airline operators liability to

passengers and goods carried by air.

Hague-Visby Rules

Referred to in Bills of Lading, the Hague Visby Rules set out the conditions upon which goods are

carried by and the obligations and responsibilities of the carrier and ship.

Hazard

Hazard is another word for risk. Insurers often separate risk into two areas: the physical hazard and

the moral hazard.

Physical hazard refers to the physical aspects of the risk that could make a loss more or less likely,

or affect the severity of that loss. Moral hazard on the other hand refers to the attitude and conduct

of the Insured himself. While physical hazard can nearly always be addressed by insurers through

recommended risk improvements, policy conditions and premium rate, moral hazard can only be

addressed by declining the risk absolutely.

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Highly Protected Risk (HPR)

As the term suggests, HPR risks are those risks that are of the highest quality in terms of physical

hazard. Both frequency and severity of loss will have been addressed by the installation of sprinkler

systems, haylon systems, water hydrants and fire and smoke alarms. HPR risks enjoy a low

premium rating.

Hired-in Plant

Hiring contracts for plant and equipment usually make the hirer-in totally liable for any damage to

the plant from the time the plant leaves the hirer-outs premises until the time it is returned unless it

can be shown that a loss is due to bad maintenance by the hirer-out. The hirer-in should therefore

arrange appropriate insurance under a hired-in plant policy. This can usually be arranged on anannual basis with the premium based on a percentage of annual hiring charges. An existing policy

for owned plant may normally be endorsed to cover any sums you become legally liable to pay

under the hiring agreement.

If one do hire in mobile plant, one must insure the road traffic act liabilities if the plant is to be used

on the public road.

Hoists and Lifts

Your legal liability arising from the operation of lifts or hoists may be excluded from your public

liability policy. Check the wording carefully to ensure cover is adequate or ask Trafalgar

International for a full risk management review of you operations. Machinery Breakdown insurance

is available to cover unforeseen damage to lifts and hoists

Hole-in-One

By tradition a golfer will buy drinks at the 19th hole (the clubhouse) to celebrate a hole-in-one. A

golfers policy normally includes cover for these entertainment expenses up to a certain limit.

Household Insurance

Household or domestic insurance policies provide a wide range of personal insurance cover.


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Hull Insurance

Ships or Hulls, like cargo, are insured under marine insurance policies usually based on Marine

Institute Clauses. In the case of ships, the normal basis of cover is Institute Time Clauses Hulls.

Impact

Impact covers damage to property by any road vehicle and often by animals as well. Wordings used

to exclude damage caused by the Insureds own vehicles.

Implied Conditions

Certain policy conditions are not actually written into the policy but that have evolved from basic

insurance principles over the years. For instance, the insurance cannot cover illegal operations and

there must be an insurable interest in any insured property.

Increased Cost of Working

Increased costs may be incurred by an Insured in trying to maintain turnover following an insured

loss. Such costs, with certain limits can be insured under a Business Interruption Policy.

Indemnity

Indemnity is one of the basic principles of insurance and has been legally defined on several

occasions. It states that the Insured should not profit by any claim, but should be returned to as near

as possible the same financial position as he would have been had the loss not occurred.

Certain policies are not subject to the principle of indemnity, notably Personal Accident and Life

policies with fixed sums insured. The modern approach of reinstatement and new for old covers

put the Insured in a financial better position, but this is justified by the fact that second-hand

replacement items may not be readily available.

Index Linked Policies

Index Linked Policies increase sums insured automatically at renewal by the amount of a given

index.


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Industrial All Risks

Also known as Industrial Special Risks, IAR or ISR policies offer wider cover than property covers

written on a fire and allied perils basis. While accidental damage cover is given in addition to the

fire and allied perils, the main difference is probably the difference in the way cover is described.

Under a fire and allied perils policy, the wording defines exactly what perils are covered. Under an

IAR policy everything is covered other than the exclusions, defined in the wording.

IAR policies are usually available only to especially large accounts.

Inherent Vice

Certain goods are, by their very nature susceptible to damage and it would be unreasonable to

expect insurers to pay for such damage. Examples of inherent vice are would be deterioration of

imperfectly cured skins, spontaneous fermentation or combustion of improperly dried grain.

In-Patient Cover

Certain Medical Expenses policies are restricted to expenses incurred during hospitalisation and do

not cover out-patient care. Such policies are said to provide In-Patient Cover only.

Institute Cargo Clauses

The cover under a Marine Cargo policy is defined by standard policy wordings issued by the

Institute of London Underwriters (or the American Institute of Marine Underwriters). These are

called Institute Cargo Clauses. While there are numerous clauses and different clauses will apply to

different cargoes, normally the widest cover is provided under Institute Cargo Clauses A with more

restrictive cover under, Institute Cargo Clauses B and Institute Cargo Clauses C. These new clauses

replaced the previous Institute Cargo Clauses All Risks, With Average (WA) and Free of Particular

Average (FPA).

Insurable Interest

Insurable Interest is one of the basic principles of insurance. It states that the Insured must have a

financial interest in the property insured such that he benefits from its continued existence and will


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be prejudiced by its loss or damage. This basically differentiates insurance from gambling. The

insurance policy insures the interest of the policyholder in the property. If there is no insurable

interest, the policy will not respond.

Intermediaries

The insurance industry uses intermediaries to introduce clients to insurers and to provide day to day

servicing of a clients insurance needs. The intermediary may be an international insurance broker

offering a wide range of professional risk management services and access to world wide markets or

he may be a part time tied agent acting purely as a commission agent.

Jettison

A Marine Insurance term referring to the throwing of cargo overboard to lighten the ship in order to

save it from sinking. Jettison is one of the many perils covered under Institute Cargo Clauses A, B

and C.

Jewellers Block

An all risks policy offering very wide cover for jewellers and similar shops and for manufacturers of

jewellery.

Jurisdiction

Jurisdiction means the legal environment which will apply to a contract of insurance. A jurisdiction

clause is often endorsed on Liability policies so that they will respond only to an action brought

under a particular jurisdiction. Most commonly jurisdiction of USA and Canada would be excluded.

Kidnap and Ransom

Insurance can be purchased by individuals or companies worried about their key executives to cover

ransom demanded by kidnappers. Most policies also cover professional advice and independent

negotiators to remove emotion from negotiation with the kidnappers. The negotiators sole objective

is to secure the release of the victim. This is a very specialist insurance product where

confidentiality is obviously very important.


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Knock for Knock Agreement

An agreement between two insurance companies whereby each insurer pays the vehicles repair

costs of its own policy-holder regardless of who was responsible for an accident. While an insurer

may be able to pursue a recovery from the party responsible for an accident of from his insurer, this

is a costly administrative procedure. The Knock for Knock Agreement simplifies recovery claims

among insurers and the cost is seen to balance out over a long period of time.

Legal Expenses

Public Liability policies include cover for legal costs and expenses incurred by the Insured with his

insurers consent or recovered by any claimant against the Insured.

Policies are now available to cover legal services in certain circumstances. For example, recovery of

uninsured expenses following a motor accident or legal costs to evict a tenant who refuses to move

out at the expiry of the lease.

Legal Liability

Liability at law can arise under tort (or civil actions) or under contract. While settlements are often

made out of court by mutual agreement, legal liability can only be finally decided by the courts.

Public, Products Professional Liability, Directors and Officers and other Third Party Liability

insurance would normally cover only non-contractual obligations.

Liability Insurance

Covers Legal Liability to third parties, including legal costs

Lightning

A standard Fire policy will automatically cover damage to property caused by fire, lightning or

certain types of explosion.


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Limits of Liability or Indemnity

Liability policies normally contain a limit stating the maximum amount insurers will pay for any

single event and perhaps for all events occurring in a single policy period. Limits should be

carefully reviewed to ensure they are sufficient.

Liquidation

Liquidators take on onerous responsibilities when they take over a company for liquidation, as they

are responsible for maximising creditors recovery and can face legal action if they do not act in a

proper professional manner. If for example uninsured property was destroyed following a fire, the

liquidator could be held responsible, as he had not protected the property with insurance. This

situation can be a serious problem as many insurance policies laps automatically if the Insured becomes bankrupt or enters into an agreement with creditors. Special insurance packages can be

arranged to protect liquidators by covering property, liability and business interruption risks

immediately the liquidator becomes responsible. Cover is automatic and premiums calculated upon

declaration of the details of the individual risks.

Livestock

A life insurance policy for animals, usually horses other than thoroughbred race horses, cows, bulls

etc.

Lloyds

This is the worlds oldest and most famous insurance market, attended by Lloyds brokers and

Lloyds underwriters. Lloyds started in a London coffee-house frequented by ship owners in the

seventeenth century.

Long Term Agreement

While there are exceptions, insurance policies normally run for a period of one year only. Insurers

will however offer a small discount if you undertake to offer the renewal to them for a period of

three years at the same terms. LTAs are no longer common as insurance rates have fallen

dramatically in recent years.


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Loss Adjusters

Loss Adjusters are independent firms, dealing with the investigation and settlement of insurance

claims. They are generally highly qualified and experienced operations that can fully understand the

details of the Insureds loss and he insurance policy cover. Although insurers pay their fees loss

adjusters are impartial. Loss adjusters should not be confused with loss assessors who are employed

by the Insured to represent them in a claim recovery.

Loss of Use of Vehicle

Standard Motor policies do not include cover for such costs but cover is available from specialist

companies in certain territories. If the accident is cause by someone else it may be possible to claim

loss of use from the other party or his insurers.

Loss Ratio

The ratio of losses paid and outstanding to premiums. A low loss ration means the insurance is

profitable to the underwriter. Bear in mind however that the insurance company must cover

commissions and administration costs as well as claims.

Machinery Breakdown

Complex industrial plant and simple office machinery can be insured not only for fire and allied

perils, but also for any accidental damage including mechanical or electrical derangement. Such

cover is usually subject to certain levels of maintenance being maintained and is almost certainly

subject to a significant deductible. For industrial plant business interruption following breakdown is

also usually insured.

Maintenance Period

The Maintenance Period is the period following completion of a construction project during which

the contractor is responsible for certain maintenance issues under the many building or engineering

contracts. During this period, the contractor needs to maintain insurance in force, the extent of

which will depend on the contract and on his own concern for the risk he is facing. Normally the

maintenance period will last for twelve months from the completion of the contract but this may be


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longer or shorter. Differing levels of cover are available (visits maintenance, extended maintenance

guarantee maintenance) depending upon the specifics of the particular contract.

Malicious Damage

Cover against malicious damage provides cover against damage caused by malicious persons and

is usually only available as part of a riot and strike extension.

Malpractice Insurance

Engineers, architects, lawyers, accountants, insurance brokers and the like carry professional

indemnity or errors and omission insurance. Doctors, nurses, surgeons and hospitals require the

same type of cover, but refer to it as malpractice insurance.

Marine Insurance

Marine insurance refers to much more than the insurance of ships. The insurance market tends to

divide into three areas: Life, Marine and Non-Marine. Marine insurance will include the insurance

of hulls, the cargo they carry, liabilities that may devolve upon ships and ship operators, known as

protection and indemnity and also the insurance of wharves, ports and harbours, container

terminals and even oil platforms and drilling rigs.

Material Damage Proviso

All Business Interruption policies contain a requirement that a Material Damage policy remains in

force at all times to protect the property, which is the subject of the business interruption policy.

This is usually a Fire policy, an Industrial All Risks policy or a machinery breakdown policy. This

is to ensure that in the event of a loss, funds are available to repair the damage and thus minimise

the period during which the business will be interrupted.

It is important to note that as a result of the material damage proviso, older style wordings may

exclude cover under a business interruption policy where the material damage falls below the

material damage deductible.


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Material Fact

The principle of utmost good faith requires anyone seeking insurance to disclose all the material

facts about the risk that he knows, or should know. A material fact has been defined in a number of

legal cases and broadly is any fact which may influence the judgement of a prudent underwriter in

deciding whether to accept a risk and if so at what rate of premium. How do you as an Insured

know what an underwriter may regard as material? If in doubt as to whether some piece of

information is relevant, tell insurers anyway. While the law has softened in favour of the Insured in

many territories, it is still normally possible for the insurer to turn away any claim if there has been

a breach of utmost good faith i.e. material facts have been withheld by the Insured

Maximum Indemnity Period

The Maximum Indemnity Period is a limit under a business interruption policy relating to the

maximum period over which the insurer will pay for loss of profit. It is the responsibility of the

Insured to decide upon the Maximum Indemnity Period and if the period chosen is inadequate, it

can have a very serious effect on the Insureds business. Professional advice is necessary in deciding

this issue and we recommend you contact your professional advisors, Trafalgar International.

Maximum Probable Loss

There is no fixed definition for this term, which tends to mean slightly different things to different

insurers. It is used along with Estimated Maximum Loss (EML) and Maximum Possible Loss to

refer to the largest loss likely, possible or probable under any given insurance policy.

Medical Insurance

An absolute must for expatriates where medical facilities may not be as modern or as reliable as

they are at home. Trafalgar International are experts in this area and operate a number of

programmes which can be tailor made to any situation.


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Money Insurance

Cash, bank and currency notes, cheques, money orders, postal orders and current postage stamps are

excluded from the cover given by a fire insurance policy and a separate money policy is usually

required. This is written on an All Risks basis to cover any accidental loss or damage but will

exclude or limit cover for employee dishonesty. Cover can extend to money in or out of a safe on

business premises, in the home of any director or employee, in a safety deposit box, in transit to or

from the bank or in the hands of bill collectors. One particular area that needs to be considered is the

definition of money. Does it really include all the financial instruments that you hold.

banking and insuranse terminology

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