Comprehensive Insurance Principles and Policy
Structures
1. Depreciation: reduction in value, particularly due to wear and tear
2. Earned premium: the portion of premium paid in advance that now belongs to the insurer for providing coverage for a
specified period of time
3. Exposure units: used as a measure of the rating units or the premium base of a risk (exposure units multiplied by
the rate results in the premium)
4. Implied warranty: a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary
buyer's expectations
5. Inception: the date at which the insurance policy goes into ettect
6. Negligence: the failure to use the care that a reasonable, prudent person would under the same or similar circumstances
7. Obsolescence: depreciation in the value of a property due to becoming outdated
8. Statute: a written law passed by a legislative body
9. Insurable Interest: The insured would face a financial loss if insured property is damaged.
10. Financial (monetary interest): One of the 3 elements of insurable risk.
11. Blood (relatives): One of the 3 elements of insurable risk.
12. Business (business partners): One of the 3 elements of insurable risk.
13. Underwriting: reviewing apps. and info they contain. Risk selection process. Evaluates applications to determine
if a policy should be issued, as well as the terms, conditions and rates for that policy.
, 14. Loss Ratio: used to compare premium income to losses. Including claims paid and claim related expenses. (Incurred
losses + Loss adjusting expense) ÷ Earned premium = Loss ratio
15. Rates: Insurance rates are the amounts charged per unit of exposure.
16. Class Rating (Manual): Sets a PPU of insurance to applicants with a similar set of characteristics.
17. Individual Rating: Characteristics of insured units do not fit within the class ratings.
18. Judgement: Unable to construct a class because exposure units are so varied. Used for Ocean Marine
insurance.
19. Schedule: rates are developed by applying a schedule of charges and credits to some base rate to determine the
appropriate rate for an individual exposure.
20. Experience: Uses past loss experience to determine final premium.
21. Retrospective: a self-rating plan under which the actual losses during the policy period determine the final premium,
subject to a minimum and maximum premium.
22. Deposit: requires at inception of policy.
23. Merit: Based on factors that indicate the probability of a loss.
24. Loss Costs: A rating method developed by ISO that provides an insurer with that portion of a rate that does not include
provisions of expenses (other than adjusting expense) or profit.
25. Components: Factors that determine rates including loss reserves, loss adjusting expenses, operating expenses
and profits.
26. Hazard: a condition/situation that creates or increases the probability or extent of a loss from peril.
27. Physical Hazard: Condition of subject that creates or increases the chance of loss.
Structures
1. Depreciation: reduction in value, particularly due to wear and tear
2. Earned premium: the portion of premium paid in advance that now belongs to the insurer for providing coverage for a
specified period of time
3. Exposure units: used as a measure of the rating units or the premium base of a risk (exposure units multiplied by
the rate results in the premium)
4. Implied warranty: a legal term meaning that a product is suitable for its intended purpose and that it fits an ordinary
buyer's expectations
5. Inception: the date at which the insurance policy goes into ettect
6. Negligence: the failure to use the care that a reasonable, prudent person would under the same or similar circumstances
7. Obsolescence: depreciation in the value of a property due to becoming outdated
8. Statute: a written law passed by a legislative body
9. Insurable Interest: The insured would face a financial loss if insured property is damaged.
10. Financial (monetary interest): One of the 3 elements of insurable risk.
11. Blood (relatives): One of the 3 elements of insurable risk.
12. Business (business partners): One of the 3 elements of insurable risk.
13. Underwriting: reviewing apps. and info they contain. Risk selection process. Evaluates applications to determine
if a policy should be issued, as well as the terms, conditions and rates for that policy.
, 14. Loss Ratio: used to compare premium income to losses. Including claims paid and claim related expenses. (Incurred
losses + Loss adjusting expense) ÷ Earned premium = Loss ratio
15. Rates: Insurance rates are the amounts charged per unit of exposure.
16. Class Rating (Manual): Sets a PPU of insurance to applicants with a similar set of characteristics.
17. Individual Rating: Characteristics of insured units do not fit within the class ratings.
18. Judgement: Unable to construct a class because exposure units are so varied. Used for Ocean Marine
insurance.
19. Schedule: rates are developed by applying a schedule of charges and credits to some base rate to determine the
appropriate rate for an individual exposure.
20. Experience: Uses past loss experience to determine final premium.
21. Retrospective: a self-rating plan under which the actual losses during the policy period determine the final premium,
subject to a minimum and maximum premium.
22. Deposit: requires at inception of policy.
23. Merit: Based on factors that indicate the probability of a loss.
24. Loss Costs: A rating method developed by ISO that provides an insurer with that portion of a rate that does not include
provisions of expenses (other than adjusting expense) or profit.
25. Components: Factors that determine rates including loss reserves, loss adjusting expenses, operating expenses
and profits.
26. Hazard: a condition/situation that creates or increases the probability or extent of a loss from peril.
27. Physical Hazard: Condition of subject that creates or increases the chance of loss.
