Glossary
of Insurance Terms
BALANCE SHEET
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Provides a snapshot of a company’s financial
condition at one point in time. It shows assets, including investments
and reinsurance, and liabilities, such as loss reserves to pay
claims in the future, as of a certain date. It also states a company’s
equity, known as policyholder surplus. Changes in that surplus
are one indicator of an insurer’s financial standing.
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BANK HOLDING COMPANY
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A company that owns
or controls one or more banks. The Federal Reserve has responsibility
for regulating and supervising bank holding company activities,
such as approving acquisitions and mergers and inspecting the
operations of such companies. This authority applies even though
a bank owned by a holding company may be under the primary supervision
of the Comptroller of the Currency or the FDIC.
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BASIS POINT
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0.01 percent of
the yield of a mortgage, bond or note. The smallest measure used.
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BEACH AND WINDSTORM PLANS
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State-sponsored insurance pools that sell property
coverage for the peril of windstorm to people unable to buy it
in the voluntary market because of their high exposure to risk.
Seven states (AL, FL, LA, MS, NC, SC, TX) offer these plans to
cover residential and commercial properties against hurricanes
and other windstorms. Georgia and New York provide this kind of
coverage for windstorm and hail in certain coastal communities
through other property pools. Insurance companies that sell property
insurance in the state are required to participate in these plans.
Insurers share in profits and losses. (See Fair
access to insurance requirements plans / FAIR plans; Residual
market)
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BINDER
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Temporary authorization of coverage issued prior
to the actual insurance policy.
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BLANKET COVERAGE
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Insurance coverage for more than one item of
property at a single location, or two or more items of property
in different locations.
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BODILY INJURY LIABILITY COVERAGE
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Portion of an auto insurance policy that covers
injuries the policyholder causes to someone else.
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BOILER AND MACHINERY INSURANCE
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Often called
Equipment Breakdown, or Systems Breakdown insurance. Commercial
insurance that covers damage caused by the malfunction or breakdown
of boilers, and a vast array of other equipment including air
conditioners, heating, electrical, telephone, and computer systems.
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BOND
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A security that
obligates the issuer to pay interest at specified intervals and
to repay the principal amount of the loan at maturity. In insurance,
a form of suretyship. Bonds of various types guarantee a payment
or a reimbursement for financial losses resulting from dishonesty,
failure to perform and other acts.
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BOND RATING
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An evaluation of
a bond’s financial strength, conducted by such major ratings agencies
as Standard & Poor’s and Moody’s Investors Service.
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BOOK OF BUSINESS
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Total amount of
insurance on an insurer's books at a particular point in time.
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BROKER
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An intermediary
between a customer and an insurance company. Brokers typically
search the market for coverage appropriate to their clients. They
work on commission and usually sell commercial, not personal,
insurance. In life insurance, agents must be licensed as securities
brokers/dealers to sell variable annuities, which are similar
to stock market-based investments.
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BURGLARY AND THEFT INSURANCE
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Insurance for the loss of property due to burglary,
robbery or larceny. It is provided in a standard homeowners policy
and in a business multiple peril policy.
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BUSINESS INTERRUPTION INSURANCE
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Commercial coverage that reimburses a business
owner for lost profits and continuing fixed expenses during the
time that a business must stay closed while the premises are being
restored because of physical damage from a covered peril, such
as a fire. Business interruption insurance also may cover financial
losses that may occur if civil authorities limit access to an
area after a disaster and their actions prevent customers from
reaching the business premises. Depending on the policy, civil
authorities coverage may start after a waiting period and last
for two or more weeks.
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BUSINESSOWNERS POLICY / BOP
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A policy that
combines property, liability and business interruption coverages
for small- to medium-sized businesses. Coverage is generally cheaper
than if purchased through separate insurance policies.
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