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RATE.
1
RATE REGULATION.
1
RATING AGENCIES.
1
RATING BUREAU.
2
REAL ESTATE INVESTMENTS.
2
RECEIVABLES.
2
REDLINING.
2
REINSURANCE.
2
RENTERS INSURANCE.
2
REPLACEMENT COST.
3
REPURCHASE AGREEMENT /'REPO'
3
RESERVES.
3
RESIDUAL MARKET.
3
RETENTION.
3
RETROCESSION.
3
RETROSPECTIVE RATING.
3
RETURN ON EQUITY.
4
RIDER.
4
RISK.
4
RISK MANAGEMENT.
4
RISK RETENTION GROUPS.
4
RISK-BASED CAPITAL.
4
The cost of a
unit of insurance, usually per $1,000. Rates are based on historical
loss experience for similar risks and may be regulated by state
insurance offices.
The process by
which states monitor insurance companies’ rate changes, done either
through prior approval or open competition models. (See Open
competition states; Prior approval states)
Six major credit
agencies determine insurers’ financial strength and viability to
meet claims obligations. They are A.M. Best Co.; Duff & Phelps Inc.;
Fitch, Inc.; Moody’s Investors Services; Standard & Poor’s Corp.;
and Weiss Ratings, Inc. Factors considered include company earnings,
capital adequacy, operating leverage, liquidity, investment
performance, reinsurance programs, and management ability, integrity
and experience. A high financial rating is not the same as a high
consumer satisfaction rating.
The insurance
business is based on the spread of risk. The more widely risk is
spread, the more accurately loss can be estimated. An insurance
company can more accurately estimate the probability of loss on
100,000 homes than on ten. Years ago, insurers were required to use
standardized forms and rates developed by rating agencies. Today,
large insurers use their own statistical loss data to develop rates.
But small insurers, or insurers focusing on special lines of
business, with insufficiently broad loss data to make them
actuarially reliable depend on pooled industry data collected by
such organizations as the Insurance Services Office (ISO) which
provides information to help develop rates such as estimates of
future losses and loss adjustment expenses like legal defense costs.
Investments
generally owned by life insurers that include commercial mortgage
loans and real property.
Amounts owed to a
business for goods or services provided.
Literally means
to draw a red line on a map around areas to receive special
treatment. Refusal to issue insurance based solely on where
applicants live is illegal in all states. Denial of insurance must
be risk-based.
Insurance bought
by insurers. A reinsurer assumes part of the risk and part of the
premium originally taken by the insurer, known as the primary
company. Reinsurance effectively increases an insurer's capital and
therefore its capacity to sell more coverage. The business is global
and some of the largest reinsurers are based abroad. Reinsurers have
their own reinsurers, called retrocessionaires. Reinsurers don’t pay
policyholder claims. Instead, they reimburse insurers for claims
paid. (See Treaty reinsurance; Facultative reinsurance)
A form of
insurance that covers a policyholder’s belongings against perils
such as fire, theft, windstorm, hail, explosion, vandalism, riots,
and others. It also provides personal liability coverage for damage
the policyholder or dependents cause to third parties. It also
provides additional living expenses, known as loss-of-use coverage,
if a policyholder must move while his or her dwelling is repaired.
It also can include coverage for property improvements. Possessions
can be covered for their replacement cost or the actual cash value
that includes depreciation.
Insurance that
pays the dollar amount needed to replace damaged personal property
or dwelling property without deducting for depreciation but limited
by the maximum dollar amount shown on the declarations page of the
policy.
Agreement between
a buyer and seller where the seller agrees to repurchase the
securities at an agreed upon time and price. Repurchase agreements
involving U.S. government securities are utilized by the Federal
Reserve to control the money supply.
A company’s best
estimate of what it will pay for claims.
Facilities, such
as assigned risk plans and FAIR Plans, that exist to provide
coverage for those who cannot get it in the regular market. Insurers
doing business in a given state generally must participate in these
pools. For this reason the residual market is also known as the
shared market.
The amount of
risk retained by an insurance company that is not reinsured.
The reinsurance
bought by reinsurers to protect their financial stability.
A method of
permitting the final premium for a risk to be adjusted, subject to
an agreed-upon maximum and minimum limit based on actual loss
experience. It is available to large commercial insurance buyers.
Net income
divided by total equity. Measures profitability by showing how
efficiently invested capital is being used.
An attachment to
an insurance policy that alters the policy’s coverage or terms.
The chance of
loss or the person or entity that is insured.
Management of the
varied risks to which a business firm or association might be
subject. It includes analyzing all exposures to gauge the likelihood
of loss and choosing options to better manage or minimize loss.
These options typically include reducing and eliminating the risk
with safety measures, buying insurance, and self-insurance.
Insurance
companies that band together as self-insurers and form an
organization that is chartered and licensed as an insurer in at
least one state to handle liability insurance.
The need for
insurance companies to be capitalized according to the inherent
riskiness of the type of insurance they sell. Higher-risk types of
insurance, liability as opposed to property business, generally
necessitate higher levels of capital.
Glossary of Insurance Terms
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