Glossary

Insurance to value is written in an amount approximating the value of the subject of insurance or that meets coinsurance requirements.

The insurance value chain is the sequence of activities an insurer and its partners perform to design, sell, underwrite, administer, service, and pay claims under an insurance policy. This generally involves product development, pricing, distribution, underwriting, policy issuance, billing, customer service, claims handling, and supporting functions such as reinsurance, technology, compliance, and data management. Viewing insurance as a value chain helps identify where value is created for policyholders, where costs or delays arise, and where operational improvements or technology can increase efficiency and customer satisfaction.

Insuratization is the process of using an insurance contract as a hedge against certain financial risks. Examples of such risks include the cost of raw materials, currency fluctuations, and investment portfolio volatility. At one time, insurance was considered applicable to only pure risk (loss or no loss). Increasingly, insurance is being used to hedge the risk of "no profit" as well.

An insured is the person(s) or organization(s) protected under an insurance contract.

Insured contract is a defined term common in liability policies that provides limited exceptions to the contractually assumed liability exclusion by stating that the exclusion does not apply to liability assumed in an "insured contract." The definition of the term varies, but in most cases, it will extend some coverage for liabilities assumed in an enforceable hold harmless provision of a commercial contract.

Insured fixed-price cleanup, under the traditional environmental cleanup model, refers to the situation where a contractor is hired to perform the cleanup, but the risk of cost overruns is borne largely if not entirely by the site owner or other entity(ies) originally responsible for the cleanup (owner). Under an IFC, the contractor guarantees a fixed price to cover all environmental regulatory costs, regardless of whether those costs increase due to unknown pollutants, regulatory changes, or other causes. The guarantee is typically backed not only by the contractor's own indemnification but also by a site-specific insurance policy. Thus, the contractor and insurer assume the risk of overruns before the owner, and the owner will need to pay nothing more unless all of the following protections fail: commutation account, insurance policy, and contractor indemnity.

An insured versus insured exclusion is found in directors and officers (D&O) liability policies (and to a lesser extent in other types of professional liability coverage). The exclusion precludes coverage for claims by one director or officer against another. The purpose of this exclusion is to eliminate coverage for four types of situations: (1) employment practices claims, (2) internal disputes/infighting, (3) claims involving collusion, and (4) claims by organizations against their directors and officers for imprudent business practices.

Insurer-sponsored agency captives are enhanced profit-sharing schemes structured as offshore captive facilities. They are the most popular and innocuous form of agency captives, typically created and sponsored by large multiline insurance companies. Participating agents and the sponsoring insurer each purchase one share of the captive's stock, which funds the captive's capital and surplus. The sponsoring insurer provides reinsurance, fronting, and ancillary services. Agents take a share of the captive's retention; the sponsoring insurer takes the rest. Participating agents commit to placing a minimum amount of business with the sponsoring insurer, which cedes the captive's percentage.

An insurer is a professional risk bearer, which is an organization that undertakes to indemnify insureds for losses and perform other insurance-related operations.

An insurance insolvency exclusion is found in the majority of insurance agents and brokers errors and omissions (E&O) liability policies. The exclusion precludes coverage for claims made against an insured agent/broker because an insurer with which the agent/broker placed coverage is unable to pay an otherwise covered claim due to the insurer's insolvency. While insurance agents are not generally liable for an insurer's failure to pay a loss resulting from an insurer's financial impairment, there is certainly the possibility of a customer bringing an action alleging that the agent/broker was negligent in recommending the insurer. More favorable versions of this exclusion (for the agent/broker) "except" (and thus cover) claims against the agent/broker when, at the time coverage was placed, the insurer had received an A.M. Best's rating equal to or higher than some specified rating (e.g., A– or B+). In addition, some insurers will agree to modify this exclusion by endorsement to make it inapplicable to the insolvency of certain specifically listed insurers or to insurers that have received a Demotech Rating equal to or higher than some specified rating (e.g., A). It is important to note that these requirements apply to the rating at the time the policy was placed, which means that the insured agent/broker should be diligent about checking ratings every year. The rationale behind these types of exceptions is that if an insured agent or broker had arranged coverage with an apparently solvent insurer (as evidenced by an acceptable Best's or Demotech rating), the insured should not be penalized by forfeiting coverage.