Glossary

Loss event refers to the total losses to the ceding company or to the reinsurer resulting from a single cause such as a windstorm.

Loss forecasting refers to predicting future losses through an analysis of past losses. Past loss data must usually span a sufficient number of years (5 or more) to achieve some degree of credibility. The time span is important because the most recent years' experience most closely approximates current exposure, yet the earlier years' losses have had more time to develop. The law of large numbers, exposure data, any anticipated changes in company operations or structure, inflation, workers compensation benefit changes, and any other relevant factors must be considered when forecasting losses.

A loss limit is a property insurance limit that is less than the total property values at risk but high enough to cover the total property values actually exposed to damage in a single loss occurrence. This approach is usually used when the insurer is unable to provide a limit equal to the total property values at risk or when reinsurance costs for a full blanket limit are prohibitive.

Loss limitation is an optional feature of a retrospective rating plan that limits or "caps" the amount of loss (usually at the $100,000 level, or more) that would otherwise be applied to the calculation of premium. An additional premium is charged for this feature by means of an "excess loss premium" (ELP) factor.

Loss loading is a factor applied to pure loss costs or expected losses to produce a premium rate. The multiplier is applied to an account for insurer overhead, profit, and contingencies that are in addition to anticipated loss amounts.

Loss mitigation underwriting (LMU) is the process of providing insurance coverage for existing litigation or for litigation that is imminent. Loss mitigation underwriting originated in the early 1980s when, after a massive fire suffered by the MGM Grand Hotel in Las Vegas, policy limits were insufficient to cover the huge losses sustained. In response, insurers offered a form of insurance designed to cover losses that had already occurred but whose magnitude had yet to be determined. In most instances, loss mitigation underwriting provides policies containing fixed limits of liability. However, in some situations, insurers offer LMU coverage arrangements in which the insurer's liability is unlimited.

Loss of consortium suits are a legal action often brought by the spouse of the injured worker that alleges the loss of spousal services including but not limited to companionship, help with household duties, and sexual relations. Parents or children of the injured worker can also bring suits of this type claiming the loss of services, typically companionship. Many jurisdictions have allowed these types of actions to be heard even when the worker is already receiving workers compensation benefits. Coverage for a lawsuit of this type is provided by the employers liability section of the workers compensation policy.

Loss of income coverage is a type of business interruption coverage that does not include a coinsurance clause but limits recovery to loss incurred during a specified period (typically 120 days) after the direct damage loss. Approximated by the "maximum period of indemnity coverage option" of the Insurance Services Office, Inc. (ISO), business income coverage forms (CP 00 30 and CP 00 32).

A loss payable clause is an insurance provision authorizing payment in the event of loss to a person or entity other than the named insured with an insurable interest in the covered property or, in some cases, jointly to the insured and the other person or entity. Under a typical loss payable clause, the insurer is under no obligation to make payment to the loss payee if payment for a loss can be denied to the insured. If the insurer makes any payments to the loss payee, the insurer obtains the loss payee's (subrogation) rights against any other party. Loss payable clauses are common in commercial auto and personal auto policies in which one or more vehicles are financed through a financial services company. The coverage afforded to the loss payee under this provision is "as its interest may appear." In other words, it will only pay the financial institution's actual loss sustained, even if the value of the vehicle is greater. Loss payable clauses are also commonly used in commercial property insurance policies to protect the interest of an entity that has extended credit or leased personal property to the insured.

The loss payee is a person or entity that is entitled to all or part of the insurance proceeds in connection with the covered property in which it has an interest. Often those asking to be named as loss payees have leased some type of equipment to the insured—a photocopy machine, for example. Several different loss payee clauses address different insurable interest situations. A loss payee is also common in a personal auto policy (PAP) in which the automobile is financed. The lending institution would be listed as the loss payee on the declarations page.