Glossary

The basic extended reporting period (BERP) is the extended reporting periods (ERPs) the 1986 Insurance Services Office, Inc. (ISO), claims-made commercial general liability (CGL) policy automatically provides to the insured when a claims-made policy is canceled, not renewed, renewed with a laser exclusion, or renewed with an advanced retroactive date. BERPs are also included in some claims-made professional liability policies. In professional liability policies, BERPs extend the reporting period for 30 to 60 days at no additional charge when the insurer cancels or nonrenews the policy. In a few instances, they are offered when the insured cancels or nonrenews the policy.

Basic limits refer to the minimum limits of liability that can be purchased by an insured.

The basic premium is the underwriting and administrative expense component of premium. It is amounts required for adjusting of expected losses. It is added to the pure premium to produce the standard premium. In life insurance, the basic premium also includes agent commissions.

The basic premium factor (BPF) is used in the retrospective formula to represent expenses of the insurer, such as acquisition, audit, administration, and profit or contingencies but not taxes.

Basic rate refers to the manual rate shown in an insurer's rate manual at basic limits before adjustment for such factors as increased limit of liability. This term is somewhat obsolete as respects rating manuals published by independent rating organizations since the advent of loss cost rating.

Basis point(s) refers to a way of expressing, using a base of 100, the increments of measurement between percentage points. For example, 50 basis points equal one-half of 1 percent; 200 basis points equal 2 percent. Ceding commissions, collateral costs, and other quantifiable data used in insurance and reinsurance agreements may be expressed in basis points.

Basis risk is the difference between an index and a specific portfolio of losses (relying on that index) as the underlying basis for a hedge. For example, insurer A's loss portfolio will not be the same as the index used to calculate the price of the security purchased to hedge the loss portfolio. Basis risk results from an imperfect hedge.

The basket aggregate is an aggregate loss limit applicable to multiple lines of coverage, such as liability and workers compensation.

A basket deductible is a single retained amount designed to fund losses from multiple risks. For example, property and general liability represent entirely different loss exposures. The traditional (and still most prevalent) method of allocating these risks between retention (deductible) and transfer (insurance) is through individual risk silos wherein each risk is evaluated separately without regard for the other. A basket deductible combines the risk profiles of each exposure into one retained amount. Theoretically, since the risks are totally different, they tend to offset each other, requiring less funding. Put another way, the whole is less than the sum of its parts.

A basket retention is a self-insured retention applicable to more than one category of risk, such as liability and workers compensation. Excess liability insurance then applies once retained losses for those lines of coverage (e.g., workers compensation and general liability) reach a certain specified level.