GLOSSARY
ACTUAL CASH VALUE A form of insurance that pays damages equal to the replacement value of damaged property minus depreciation.
(See Replacement cost)

ACTUARY An insurance professional skilled in the analysis, evaluation and management of statistical information. Evaluates insurance firm's reserves, determines rates and rating methods, and determines other business and financial risks.

ADDITIONAL LIVING EXPENSES Extra charges covered by homeowners policies over and above the policyholder's customary living expenses. They kick in when the insured requires temporary shelter due to damage by a covered peril that makes the home temporarily uninhabitable.

ADDITIONS AND ALTERATIONS Improvements made to a home (e.g., a new bathroom or a remodeled kitchen) that increase the home's value and that may require additional homeowners insurance coverage.
 
ADJUSTER An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.
 
ADMITTED ASSETS Assets recognized and accepted by state insurance laws in determining the solvency of insurers and reinsurers. To make it easier to assess an insurance company’s financial position, state statutory accounting rules do not permit certain assets to be included on the balance sheet. Only assets that can be easily sold in the event of liquidation or borrowed against, and receivables for which payment can be reasonably anticipated, are included in admitted assets. (See Assets)
 
ADVERSE SELECTION The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.
 
AFFINITY SALES Selling insurance through groups such as professional and business associations.
 
AGENCY COMPANIES Companies that market and sell products via independent agents.

AGENT Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.

ALEATORY CONTRACT A contract in which one party provides something of value to another party in exchange for a conditional promise, which is a promise that the other party will perform a stated act upon the occurrence of an uncertain event. Insurance contracts are aleatory because the policy owner pays premiums to the insurer, and in return the insurer promises to pay benefits if the event insured against occurs. Contrast with commutative contract.

ALIEN INSURANCE COMPANY An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company which does business in states outside its own.

ALLIED LINES Property insurance that is usually bought in conjunction with fire insurance; it includes wind, water damage and vandalism coverage.

ALL OTHER PERIL (AOP) DEDUCTIBLE Set amount that is applied to all covered losses other than hurricane losses. The second deductible applies only to hurricane losses. Both deductibles apply to Coverages A, B, C and D.

ALTERNATIVE DISPUTE RESOLUTION/ADR An alternative to going to court to settle disputes. Methods include arbitration, where disputing parties agree to be bound to the decision of and independent third party, and mediation, where a third party tries to arrange a settlement between the two sides.

ALTERNATIVE MARKETS Nontraditional mechanisms used to finance risk. This includes captives, which are insurers owned by one or more non-insurers to provide owners with coverage. Risk-retention groups, formed by members of similar professions or businesses to obtain liability insurance and self-insurance, are also included.

ANTITRUST LAWS Laws that prohibit companies from working as a group to set prices, restrict supplies or stop competition in the marketplace. The insurance industry is subject to state antitrust laws but has a limited exemption from federal antitrust laws. This exemption, set out in the McCarran-Ferguson Act, permits insurers to jointly develop common insurance forms and share loss data to help them price policies.

APPRAISAL A survey to determine a property’s insurable value, or the amount of loss.

ARBITRATION Procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.

ARSON The deliberate setting of a fire.

ASSETS Property owned, in this case by the insurance company, including stocks, bonds and real estate. Insurance accounting is concerned with solvency and the ability to pay claims. State insurance laws therefore require a conservative valuation of assets, prohibiting insurance companies from listing assets on their balance sheets whose values are uncertain, such as furniture, fixtures, debit balances and accounts receivable that are more than 90 days past due. (See Admitted assets)

ASSIGNED RISK PLANS Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. These are the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market. (See Residual Market)

ASSIGNMENT An agreement under which one party – the assignor – transfers some or all of his ownership rights in a particular property, such as a life insurance policy or an annuity contract, to another party – the assignee.