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A term that applies to property and signifies both a relinquishing of it and the letting go of all legal rights to it, as well, with the intent to claim a total loss. Abandonment of property to an insurance company is something insureds are expressly prohibited from doing in most property polices.

Abandonment clause
A property policy provision that stipulates that the insurer need not accept any damaged property that the insured chooses to relinquish.
Absolute liability

The performance of an act so dangerous as to be sufficient to trigger liability regardless of the degree of negligence. Triggering explosives is often used as an example. Sending workers aloft for construction or repair at elevated heights is another. ``Strict liability'' is another term that is sometimes used.


An unforeseen, unintended, and unexpected event, which occurs suddenly and at a definite place. See Occurrence.

Accident Frequency

The rate of occurrence of accidents. Along with accident severity, it is taken into account in ratemaking.

Accident severity

The measure of the seriousness of a claim, measured in, for example, dollars. Along with frequency, it is taken into account in ratemaking.

Accident year experience

Measures premiums and losses relating to accidents which occurred during a 12-month period.

Acquisition cost

The expense undertaken to acquire new business. The concept applies to both agents and companies. The largest portion of an insurer's acquisition cost is agent's or sales representative's commission or bonus.

Act of God

Acts of nature ? the term was once widely used to distinguish between man-made events, i.e., fire, collision, and nature's rampages in wind and flood.

Active malfunction

In products insurance, a defect or malfunction in a product that damages the property of the user.

Actual cash value (ACV)

A method for placing value on property as of the time of its loss or damage. ACV may be determined as replacement cost, new, less depreciation. The market value of an item may be used to help determine actual cash value. Contrast with replacement cost.

Actual cash value appraisal

An appraisal to determine the actual cash value of a building and related personal property.


A person highly trained in mathematics and statistics who calculates rates and dividends, and provides other statistical information for an insurance company.

Additional insured

One who qualifies as ``insured'' under the terms of a policy even though not named as insured. Officers of a corporation may be included as insureds under the terms of a policy written in the name of the corporation.


A person who may act either on behalf of the insurance company or the insured in settling a claim. Employee adjusters work for an insurer; independent adjusters represent the insurance company on a fee basis; and public adjusters represent the insured on a fee basis.

Admitted Reinsurance

A company is "admitted" when it has been licensed and accepted by appropriate insurance governmental authorities of a state or country. In determining its financial condition a ceding insurer is allowed to take credit for the unearned premiums and unpaid claims on the risks reinsured if the reinsurance is placed in an admitted reinsurance company.

Adverse selection

The tendency of poorer than average risks to buy and maintain insurance. Adverse selection occurs when insureds select only those coverages that are most likely to have losses.

Adverse underwriting decision

Any decision made by an underwriter that is not favorable to the insured. Such decisions involve termination, declination, higher rates, or reduction in coverage. Another example is the placing of a risk in a residual market or with an unauthorized insurer.


One who solicits, negotiates or effects contracts of insurance on be-half of an insurer. His right to exercise various functions, his authority, and his obligations and the obligations of the insurer to the agent are subject to the terms of the agency contract with the insurer, to statutory law, and to common law.

Agent's appointment

The act by an insurer that grants an agent the authority to act as an agent for the insurer. In most states, agents must be licensed and appointed, prior to being allowed to sell insurance.

Aggregate deductible

A deductible provision in some property insurance contracts where all covered losses during a year are figured together and an insurer pays only when the aggregate deductible amount is exceeded.

Aggregate excess reinsurance

A type of excess reinsurance treaty that sometimes is called stop loss or excess of loss ratio reinsurance. The retention in this type of agreement is calculated based on all losses over the period of time that is stated in the treaty. The reinsurer is responsible for the amount of losses between the retention and the limit on the treaty.

Aggregate limit

The maximum amount an insurer will pay under a policy in any one policy period.

All risks

A property policy expression now out of fashion. It was used to designate contracts that promised coverage against "all risks of direct physical loss" in contrast to forms that covered for specific, named perils. The word "all" came to be perceived as open to broader interpretation than insurers intended and it was dropped in favor of the promise to cover "risks of physical loss." See Named perils and also Open perils.

Anniversary date

The anniversary of the original date of issue of a policy as shown in the declarations.

Annual aggregate deductible

A deductible applied annually to the total amount paid in claims during a policy period. Claims are generally subject to a per-occurrence deductible; the aggregate is the limit beyond which no further deductibles are applied.


A determination of the value of property for the purposes of determining the proper amount of insurance to be bought or in adjusting a loss.

Arbitration Clause

Language providing a means of resolving differences between the reinsurer and the reinsured without litigation. Usually, each party appoints an arbiter. The two thus appointed select a third arbiter, or umpire, and a majority decision of the three becomes binding on the parties to the arbitration proceedings.

Arbitration clause-I

The clause in an insurance policy that spells out how disagreements over a claim are settled.


The intentional setting afire of property.

Assumed liability

Liability assumed under contract or agreement. More commonly known as contractual liability.


A party who is a potential beneficiary of an insurance contract. The synonym "insured" is more commonly used.


Some policies (such as workers compensation) are written subject to an audit. Since workers compensation premium is based on the insured's payroll, the insurer is entitled to audit the insured's records at the end of the policy to verify that it has collected an adequate premium for the amount of payroll to which it was exposed.

Authorized insurer

An insurer granted permission by a state to sell specific lines of insurance within that state.

Automobile liability insurance

Insurance in which the insurer agrees to pay all sums for which the insured is legally obligated because of bodily injury or property damage arising from the ownership, maintenance, or use of an auto.


Glossary - A property policy provision that stipulates that the insurer need not accept any damaged property that the insured chooses to relinquish.

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