Insurance Glossary of Terms – Part 1: A to M
If you think Bordereaux play in France Ligue 1 or that Average is a term to describe your football team this season then read on for our glossary of insurance terms. Starting with A to M.
Ab initio
Latin for from the beginning.
Accident year
The calendar or accounting year in which a loss occurs.
Accreditation
The process by which a firm may obtain registration as a Lloyd’s broker.
Accredited Lloyd’s broker
A Lloyd’s broker.
Actual Total Loss
This term derives from section 57 of the Marine Insurance Act 1906 (MIA) and refers to situations in marine insurance where:
(a) the subject matter of the insurance is destroyed
(b) the subject matter of the insurance is so damaged as to be no longer be capable of still being described as the thing insured; or
(c) the insured is deprived of the subject matter of the insurance forever. Section 58 of the MIA adds that where there is no news of a missing ship then after a reasonable period an actual loss may be presumed.
Adjuster
See loss adjuster.
Adjustment premium
An additional or return premium that is payable in relation to a deposit premium depending on the performance of an insurance or reinsurance contract.
Agent
Someone who acts for another person (the principal) usually for reward. There are four main classes of agent that may be involved in the underwriting of insurance and reinsurance risks by Lloyd’s underwriters: members’ agents, managing agents, brokers and coverholders. In addition, there are Lloyd’s agents which are independent businesses that provide surveys and loss adjusting services to managing agents, insurance companies and others on a worldwide basis. Further in some situations one underwriter may act as the agent of other underwriters (see general underwriters’ agreement).
Aggregate
Total (limit of indemnity, premium, retention etc).
Aggregate excess of loss reinsurance
A form of excess of loss reinsurance in which the excess and the limit of liability are expressed as annual aggregate amounts.
Agreed value policy
An insurance contract under which the insurer agrees to pay the insured a stated amount in the event of the total loss of the property insured without any adjustment for depreciation or appreciation.
All risks
A property insurance which covers any accidental loss or damage that is not specifically excluded under the policy.
Appreciation
In the context of property insurance an increase in value of the property insured.
Approved person
An individual who has been approved by the Financial Conduct Authority (FCA) to perform a FCA controlled function for an authorised person.
Assured
Another name for an insured.
Attachment date
Another term for inception date, being the date on which an insurance or reinsurance contract comes into force.
Authorised person
A person (usually a firm) that has been approved by the Financial Conduct Authority (FCA) to carry on one or more FCA regulated activities.
Average
If the sum insured under non-marine insurance is expressed to be “subject to average” and that sum is less than the value of the subject matter of the insurance then any claim that is agreed under the policy will be reduced proportionately to reflect the under insurance. Section 81 of the Marine Insurance Act 1906 say that an insured shall be his own insurer as regards any under insurance. In marine insurance the term average may also refer to one of two types of loss, general average and particular average.
Avoidance of a contract ab initio
The cancellation of an insurance or reinsurance contract from its beginning by an insurer or reinsurer on the basis of the misrepresentation and/or non-disclosure of material facts. The result is that the insurer/reinsurer has no liability under the contract but must repay the premium to the insured/reassured.
Bailee
A person who holds the property of another person (the bailor) under a contract or agreement according to which the property held is to be returned to the bailor or delivered somewhere to his order. A bailee for reward is paid for his services.
Basis (of insurance) clause
A clause that makes the declarations contained in an insurance proposal form the “basis” of any contract of insurance that is made in consequence of the completion of that form. Such declarations are thereby converted into warranties with the result that if one of them is found to be untrue then the insurer may disclaim all liability under the relevant contract from the date of the breach, regardless as to whether the false declaration was material to the underwriting of the contract or causative of any loss. Basis of insurance clauses are not normally found in personal lines insurance contracts sold in the United Kingdom and, where they appear in other contracts, they may be qualified by the inclusion of a term in the proposal form that the declarations made in that document are true to the best of the knowledge and belief of the person making the declarations.
Beyond economic repair
Where the cost of repairing the insured property, eg a car, exceeds the market value of that property. In such circumstances the insurer will pay the insured the market value of the insured property at the date of loss, subject to the terms of the policy (assuming the insurer is not under any obligation to provide a replacement).
Binding authority
An agreement between a Lloyd’s managing agent and a coverholder under which the Lloyd’s managing agent delegates its authority to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate.
Bordereaux
A list of premiums payable and claims paid or due which is prepared by a coverholder for a managing agent or by a reassured for its reinsurer. Bordereaux are commonly produced on a monthly or quarterly basis. They breakdown block premium payments that are made to underwriters and detail claim payments made on behalf of or due from underwriters.
Broker
At Lloyd’s, brokers act as the agent of the insured or reinsured to arrange insurance or reinsurance with Lloyd’s syndicates. Brokers may be registered Lloyd’s Brokers who are able to enter into terms of business agreements with any Lloyd’s managing agent. Non-Lloyd’s brokers may also enter into terms of business agreements subject to the managing agent assessing that the broker meets certain minimum standards. Only brokers registered as Lloyd’s Brokers may refer to themselves as a Lloyd’s Broker. Many broking firms are also approved by Lloyd’s to act as a coverholder (See Coverholder).
Brokerage
The commission that is payable to a broker for placing an insurance or reinsurance contract with an insurer or a reinsurer. Compare fee for service. Although brokerage is payable by the insured as part of the gross premium the amount of brokerage is agreed by the insurer. The insured may request his broker to state the amount of his brokerage on a given placement. Similar considerations apply to reassureds under reinsurances. Sometimes the term brokerage may be used to refer the business of a broker.
Buy back
In the context of general insurance this refers to the purchase of cover in respect of an otherwise excluded peril by means of the payment of additional premium.
Cancellation clause
A clause in an insurance contract which permits an insurer and/or an insured to cancel the contract before it is due to expire. The clause may provide for a return of premium in respect of the unused portion of the policy.
Capacity
This term may refer to: (a) a member’s allocated capacity (b) syndicate allocated capacity (c) the total underwriting capacity of all syndicates combined; or (d) the underwriting capacity of an insurance company or reinsurance company.
Capital provider
As regards a Lloyd’s syndicate, its member(s). As regards a company, its shareholders.
Carrier (of risk)
An insurer or reinsurer.
Casualty
Refers to a loss, particularly the loss of a ship.
Casualty business
Another term for liability insurance.
Certificate of insurance
Depending on the context this term may refer to: (a) A document which evidences the existence of insurance cover but which does not detail all its terms which are contained in a separate policy of insurance. Certain certificates are required as a matter of law in the United Kingdom, for example for motor insurance. (b) A document that is issued by a coverholder which evidences the existence of insurance cover and details the terms of such cover. No policy of insurance is issued where such a certificate is issued.
Cession
A particular risk exposure that is transferred under a reinsurance treaty.
Claim
Depending on the context this term may refer to: (a) a demand made by a policyholder on his insurer(s) for payment or some other contractual benefit under an insurance policy; (b) a demand made by an insurer on its reinsurer(s) to be paid under a reinsurance contract; or (c) a demand made by a third party on a policyholder to be compensated for some injury, damage or loss for which the third party blames the policyholder. A claim is payable under an insurance or reinsurance contract if it is caused by an insured peril and it is not excluded under the terms of that contract.
Claimant
The person making a claim.
Claims made policy
A policy which only pays claims that are notified to the insurer during a specified period.
Claims notification clause
A clause in an insurance or reinsurance contract which sets out the procedure that the insured or reassured must follow in order to make a claim under the contract. Such clauses frequently provide for prompt notification of claims and events which may gives to claims in the future.
Class of business
A description of a type of insurance or reinsurance business based on the risks being covered. The Lloyd’s market underwrites eight main classes of insurance and reinsurance business: reinsurance, property, casualty, marine, energy, motor, aviation and life. Each of these main classes consist of a number of sub-classes. In accordance with PRA rules, all business written in the life class is written by separate life syndicates and the premium is held in separate premium trust funds.
Coinsurance
This may refer to either of the following situations: (a) Where two or more insurers underwrite the same risk with several liability such that each insurer is not bound to follow the decisions of any co-insurer unless it has agreed to do so. (b) Where the insured acts as its own insurer for a specified proportion of the sum insured.
Combined ratio
The claims and expenses of an insurer/reinsurer for a given period divided by its premium for the same period. It is normally expressed as a percentage with any figure in excess of 100% signifying a technical underwriting loss.
Commercial lines
Insurance which is sold to firms. This term is used in contrast to personal lines.
Constructive total loss
Section 60 of the Marine Insurance Act 1906 states that, subject to any policy provision, a constructive total loss arises where the subject matter of an insurance is reasonably abandoned to the insurer by the insured on account of its actual total loss appearing unavoidable or because it could not be preserved from actual total loss without an expenditure that would exceed its value. The term is sometimes used to refer to insured property, e.g. a car, which is damaged beyond economic repair.
Contract certainty
Refers to the situation where the terms of an insurance or reinsurance contract are agreed before the inception date of the contract rather than being negotiated afterwards.
Cover
Insurance or reinsurance as it applies to one or more specific risk exposures.
Cover note
A document issued by a broker pending the issue of a policy which confirms the arrangement of cover for the named insured/reassured. Motor insurance cover notes that are issued in the United Kingdom (which incorporate a certificate of insurance) are usually of short duration.
Coverholder
A company or partnership authorised by a managing agent to enter into a contract or contracts of insurance to be underwritten by the members of a syndicate managed by it, in accordance with the terms of a binding authority.
Declinature
The refusal of an insurer or reinsurer to offer terms of cover.
Deductible
The amount that is deducted from some or all claims arising under an insurance or reinsurance contract. The practical effect is the same as an excess: the insured or reassured must bear a proportion of the relevant loss. If that loss is less than the amount of deductible/excess then the insured or reassured must bear all of the loss (unless there is other insurance in place to cover the deductible). An increase in deductible should result in a reduction in premium.
Deposit premium
A premium that is payable at the inception (start) of an insurance or reinsurance contract and in respect of which an adjustment premium (usually an additional premium) is due depending on the performance of the contract including, possibly, the amount of the business that is ceded thereunder. Compare minimum premium.
Depreciation
The decrease in the value of an item due to age, use or wear and tear. Such devaluation is not covered under a contract of indemnity. However an insurer may agree to provide cover on “a new for old” basis which represents a modification of the principle of indemnity and avoids the need to determine rates and amounts of deprecation when settling claims.
Deterioration in reserves
Where the reserves of an insurer or reinsurer for prior years are insufficient to meet the estimated liabilities of one or more loss exposures and therefore require to be increased.
Direct business
Insurance placed with an insurer direct and not through an intermediary.
Duty of disclosure
The duty of every person seeking insurance or reinsurance to inform the insurer/reinsurer from whom a quotation for insurance/reinsurance is sought of every material fact. The duty arises when seeking new insurance/reinsurance, when seeking a variation of cover (but only as regards a change in risk where the carrier is the same as before) and at renewal (but only as regards a change in risk where the carrier is the same as before). The scope of the duty may be modified by the terms of a proposal form. Should a person seeking insurance/reinsurance fail to disclose a material fact then this may lead to the avoidance of the relevant insurance or reinsurance by the underwriter. The consequences of non-disclosure may be modified by the terms of the relevant insurance/reinsurance.
Earned premium
The proportion of premium that relates to a used period of cover.
Endorsement
A document that is attached to a slip, cover note or policy which evidences one or more changes in the terms of the insurance or reinsurance contract to which it refers.
Ex gratia payment
A payment made by underwriters “as a favour” or “out of kindness” without an admission of liability so as to maintain goodwill.
Excess
The amount or proportion of some or all losses arising under an insurance or reinsurance contract that is the insured or reassured must bear. If the loss is less than the amount of the excess then the insured/reassured must meet the cost of it (unless there is other insurance in place to cover the excess). Compare deductible and retention. Excesses may either be compulsory or voluntary. An insured which accepts an increased excess in the form of a voluntary excess will receive a reduction in premium.
Excess of loss
A type of reinsurance that covers specified losses incurred by the reassured in excess of a stated amount (the excess) up to a higher amount, for example £5 million excess of £1 million. An excess of loss reinsurance is a form of non-proportional reinsurance.
Exclusion
A term in an insurance or reinsurance contract that excludes the insurer or reinsurer from liability for specified types of loss. An exclusion may apply throughout a policy or it may be limited to specific sections of it. In certain circumstances an exclusion may be limited or removed altogether following the payment of an additional premium.
Extended reporting period
The period after the expiry of a claims made policy in which claims under that policy must be made if they are to be covered. It may be possible for an insured to extend this period on payment of an additional premium.
Fee for service
Where a broker is remunerated on the basis of a fee agreed with its client instead of brokerage. The benefit to the broker is that, subject to the terms of agreement, the fee will be payable whether or not cover is placed whereas brokerage is only payable in respect of the placement of cover.
Fidelity insurance
A type of insurance which is designed to protect a firm from losses caused by the dishonest acts of its employees.
Freedom of establishment
The right of an insurer located in one European Economic Area (EEA) member state to underwrite a risk located in another EEA member state by establishing a permanent presence in that EEA member state. (Please see the ‘Definition of risk location’ section on Crystal for clarification of the correct location for a risk.) This permanent presence can be in the form of a local branch, agency or subsidiary. At Lloyd’s, a permanent presence in another EEA member state is created by having local coverholders with full binding authority agreements and a local Lloyd’s General Representative. (A full binding authority agreement is one where the coverholder may enter into contracts of insurance without first consulting the syndicate.) Freedom of establishment business is that underwritten under a full binding authority where the coverholder and the risk are located in the same EEA member state outside the UK.
Freedom of services
The right to provide business services on a cross-border basis within the European Economic Area (EEA). For insurance contracts, this means that the contract can be underwritten in an EEA member state that is different from the member state where the risk is located. (Please see the ‘Definition of risk location’ section on Crystal for clarification of the correct location of a risk.) Freedom of services business consists of open market business written from the UK (with or without the involvement of a local intermediary), business written under a full binding authority where the coverholder is located in a different member state from where the risk is located and business that is written under a prior submit binding authority agreement. (A prior submit binding authority agreement is one where the coverholder does not have authority to enter into contracts of insurance without first consulting the syndicate that granted the binding authority).
General average
A loss that arises from the reasonable sacrifice at a time of peril of any part of a ship or its cargo for the purpose of preserving the ship and the remainder of its cargo together with any expenditure made for the same purpose. An example of a general average loss would include jettisoning cargo to keep a ship afloat and an example of general average expenditure would include towing a stricken vessel into port. An average adjuster calculates the value of each saved interest to each interested party which is then obliged to contribute towards the general average loss or expenditure proportionately. Subject to the terms of the policy, insurance will generally only apply if the loss was incurred to avoid or in connection with the avoidance of an insured peril.
General underwriters’ agreement
An agreement between insurers and reinsurers on a subscription risk specifying the terms on which the leading underwriter shall act as the agent of the following underwriters as regards the agreement of amendments to coverage terms.
Grace period
A short period during which cover under an annual policy may be extended beyond its expiry date to allow for the payment of a renewal premium. The privilege will be lost if the insured rejects the proposed renewal terms, by his actions or words. There are no grace periods in motor or marine insurance.
Gross claims
Claims under contracts of insurance underwritten by the members of a syndicate plus internal and external claims settlement expenses less salvage or other recoveries, but before the deduction of reinsurance recoveries.
Gross line
The amount of risk that an insurer or reinsurer is carrying before taking account of any applicable reinsurance that reduces that risk.
Gross premium
Original and additional inward premiums, plus any amount in respect of administration fees or policy expenses remitted with a premium but before the deduction of outward reinsurance premiums.
Hard market
When the availability of some or all classes of insurance or reinsurances is limited relative to demand for such insurance or reinsurance resulting in increased premiums and coverage restrictions.
Hazard
Something that causes an exposure to injury, loss or damage.
Hazardous pursuits
Certain sports and activities are termed hazardous pursuits and are excluded from travel insurances although it may be possible to have them included on payment of an additional premium.
Inception
Commencement or beginning (eg of cover).
Inception date
The date on which an insurance or reinsurance contract comes into force.
Incurred but not reported (IBNR) losses
Estimated losses which an insurer or reinsurer, based on its knowledge or experience of underwriting similar contracts, believes have arisen or will arise under one or more contracts of insurance or reinsurance, but which have not been notified to an insurer or reinsurer at the time of their estimation.
Incurred losses
The aggregate of the paid and outstanding claims of an insurer or reinsurer for a year of account or some other given period of time. These losses represent known losses to an insurer or reinsurer and, subject to issues of proof of liability and the determination of the final amount payable in the case of outstanding claims, are relatively certain.
Indemnity
The principle according to which a person who has suffered a loss is restored (so far as possible) to the same financial position that he was in immediately prior to the loss, subject in the case of insurance to any contractual limitation as to the amount payable (the loss may be greater than the policy limit). The application of this principle is called indemnification. Most contracts of insurance are contracts of indemnity. Life insurances and personal accident insurances are not contracts of indemnity as the payments due under those contracts for loss of life or bodily injury are not based on the principle of indemnity.
Indication
A non-binding statement by an underwriter of the likely level of premium that he would charge to underwrite a risk, subject to the provision of additional information. Compare quotation.
Insurable interest
If an insured wishes to enforce a contract of insurance before the Courts he must have an insurable interest in the subject matter of the insurance, which is to say that he stands to benefit from its preservation and will suffer from its loss. In non-marine insurances, the insured must have insurable interest when the policy is taken out and also at the date of loss giving rise to a claim under the policy. In life insurance the insured must have insurable interest must when the policy is taken out and in marine insurance the insured must generally have insurable interest at the date of loss giving rise to a claim under the policy.
Insurance
A contract whereby an insurer promises to pay the insured a sum of money or some other benefit upon the happening of one or more uncertain events in exchange for the payment of a premium. There must be uncertainty as to whether the relevant event(s) may happen at all or, if they will occur (eg death) as to their timing.
Insurance broker
An individual or firm that acts as agent for an individual, body or firm in arranging insurance cover and in presenting claims under such cover. At present only Lloyd’s brokers may arrange cover directly with or on behalf of underwriters in the underwriting room.
Insurance contract
Determines what insurance coverage is in place and determines the legal framework under which the content of an insurance policy is enforced.
Insurance intermediary
A person through whom an insurance contract is effected. It normally refers to an insurance broker and/or an agent of an insurer such as a coverholder.
Insurance policy
See policy.
Insured
A person who is insured under a contract of insurance. Where there is one insured this person may also be referred to as the policyholder.
Insured peril
A harmful event which is covered under a contract of insurance.
Insurer
A provider of insurance. If the insurance is underwritten at Lloyd’s the insurer(s) will be the members of one or more syndicates. If the insurance is not underwritten at Lloyd’s the insurer(s) will be one or more insurance companies. Some insurances may be underwritten by syndicates and insurance companies.
Intervening cause
An event that prevents a loss being attributable to another event by breaking the chain of causation. Compare proximate cause.
Investment income
That part of the income of an insurer or reinsurer that comes from the investment of premiums and reserves.
Jurisdiction clause
A clause in an insurance or reinsurance contract which states to which territory’s courts any contractual dispute shall be referred for resolution.
Key person insurance
A policy that protects a firm from loss caused by the death or disability of a ‘key person’ within the company.
Large Risks
An official term used in EEA insurance regulation. The formal definition of “Large Risks” is found in the EU’s 2nd Non-Life Insurance Directive (88/357). It can be summarised as meaning: (i) Risks classified as: Railway rolling stock Aircraft (including aircraft liability) Ships (sea, lake and river and canal vessels) (including liability) Goods in transit (including merchandise, baggage, and all other goods). (ii) Risks classified as Credit or Surety where the policyholder is engaged professionally in an industrial or commercial activity or in one of the liberal professions, and the risks relate to such activity. (iii) Risks classified as: Fire and natural forces Other damage to property General liability Miscellaneous financial loss in so far as the policyholder exceeds the limits of at least two of the following three criteria: – balance-sheet total: 6.2 million euros, – net turnover: 12.8 million Euros, – average number of employees during the financial year: 250. If the policyholder belongs to a group of undertakings for which consolidated accounts are drawn up, the criteria mentioned above is applied to the consolidated accounts.
Leading underwriter
The underwriter of a syndicate or insurance company who is responsible for setting the terms of an insurance or reinsurance contract that is subscribed by more than one syndicate or insurance company and who generally has primary responsibility for handling any claims arising under such a contract. Where an insurance or reinsurance contract that is underwritten by more than one syndicate Xchanging Claims Services normally acts as the representative of the following underwriters as regards the agreement of claims under the contract. In certain situations a managing agent of a following syndicate will be appointed together with Xchanging Claims Services to represent the following underwriters. However some matters require to be referred to all the following underwriters on risk and an insured may always insist that its claim is shown to each following underwriter.
Leading underwriter’s agreement
An agreement that allows for certain changes to the terms of an insurance or reinsurance contract to be agreed by the leading underwriter(s) without reference to the following underwriters.
Liability insurance
An insurance which covers the insured against third party claims or, in the case of employer’s liability insurance, claims by employees, subject to specified terms and conditions.
Life assurance
Another term for life insurance.
Life assured
The person whose life is insured under a life insurance.
Life insurance
A policy that pays a specified sum to beneficiaries upon the death of the life assured, or upon the assured surviving a given number of years, depending on the terms of the policy. Life insurance policies may be for fixed or indefinite term. See term life as regards fixed term policies.
Limit of indemnity
Another term for policy limit. It refers to the maximum amount payable under a policy of insurance or reinsurance, either overall or with reference to a particular section of a policy.
Line
The proportion of an insurance or reinsurance risk that is accepted by an underwriter or which an underwriter is willing to accept. When it refers to a line that is entered on a slip it is commonly expressed as a percentage of the limit of indemnity.
Lloyd’s
Depending on the context this term may refer to – (a) the society of individual and corporate underwriting members that insure and reinsure risks as members of one or more syndicates. Lloyd’s is not an insurance company; (b) the underwriting room in the Lloyd’s Building in which managing agents underwrite insurance and reinsurance on behalf of their syndicate members. In this sense Lloyd’s should be understood as a market place; or (c) the Corporation of Lloyd’s which regulates and provides support services to the Lloyd’s market.
Lloyd’s Agent
A firm that is appointed to conduct or arrange surveys of ships and cargoes for Lloyd’s underwriters, other insurers and commercial interests throughout the world. Many Lloyd’s agents also undertake non-marine surveys, act as loss adjusters and provide information about shipping movements and losses. There are over 300 Lloyd’s agents, 160 of whom have authority to settle claims on behalf of Lloyd’s underwriters and insurance companies.
Lloyd’s broker
A firm that is listed in the register of Lloyd’s brokers maintained under the Intermediaries Byelaw which is permitted to broke insurance business at Lloyd’s. A syndicate can generally only accept insurance business that has been broked or placed from or through a Lloyd’s broker.
Lloyd’s market
This term may refer to the place where business is transacted between managing agents and Lloyd’s brokers, or to the syndicates that provide cover at Lloyd’s.
Lloyd’s solvency test
A test that is undertaken annually to ensure that members of the Society have sufficient eligible assets to meet their underwriting liabilities. The test is undertaken at member level and also on an aggregate basis for all members taking in account the centrally held assets of the Society such as the New Central Fund. Any member that fails the solvency test at member level will be required to provide additional funds or cease underwriting. The centrally held assets of the Society must be sufficient to cover any shortfall of assets at member level.
Lloyd’s underwriters
This term may variously refer to – (a) the professional underwriters who are employed by managing agents to underwrite insurance and reinsurance business on behalf of the members of the syndicates that those agents manage. (b) the members of one or more syndicates that underwrite a particular policy; or (b) all members (of the Society) collectively.
Loss
This term generally refers to some injury, harm, damage or financial deteriment that a person sustains. Losses may be insured or uninsured. Whether a loss is covered by a policy or certificate of insurance depends on the terms of that document and local law.
Loss adjuster
A person who is appointed to investigate the circumstances of a claim under an insurance policy and to advise on the amount that is payable to the policyholder in order to settle that claim. Loss adjusters are generally appointed by underwriters but sometimes policyholders appoint their own loss adjusters to negotiate claims on their behalf.
Loss event
The event which causes a loss, for example a fire or hurricane.
Managing agent
An underwriting agent which has permission from Lloyd’s to manage a syndicate and carry on underwriting and other functions for a member.
Managing agents agreement
A standard form agreement between a member and the managing agent of a syndicate on which the member participates which sets out the powers of the managing agent and the obligations of the managing agent and the member towards one another. There are two forms of managing agent’s agreement: the managing agent’s agreement (general), which applies to every member that has a members’ agent and the managing agent’s agreement (corporate) which applies to every member that does not have a members’ agent. Copies of current versions of these agreements are annexed to the Agency Agreements Byelaw.
Market agreement
An agreement between all the underwriters in a certain section of the Lloyd’s market.
Material fact
This refers to any fact which would influence the judgment of a prudent underwriter in deciding whether to accept an insurance/reinsurance risk and the terms on which he would be willing to grant cover. See duty of disclosure.
Material representation
A statement that is made to an underwriter during the negotiation of cover or the amendment or renewal of cover which would have influenced the judgment of a prudent underwriter in deciding whether to accept an insurance/reinsurance risk and the terms on which he would be willing to grant cover.
Means
The minimum level of wealth that a member must demonstrate he, she or it has in order to underwrite at Lloyd’s. The means of all members must be held in approved form and must be maintained in value so long as the member has actual or potential outstanding underwriting liabilities.
Minimum premium
The minimum amount that is payable to an insurer or reinsurer as a premium in respect of a insurance or, more commonly, reinsurance contract which provides for a deposit premium. The minimum premium may be the same as the deposit premium or a different figure.
Misrepresentation (of risk)
A misstatement of fact that is made by the insured or his broker to an underwriter during the negotiation of the placement, amendment or renewal of cover which causes the underwriter to grant, amend or renew cover on an incorrect basis of fact. If the misrepresentation is material the underwriter may avoid the contract on the basis that the insured has breached his duty of utmost good faith. Compare duty of disclosure.
Moral hazard
Those personal characteristics of a prospective insured or its employees or associates that may increase the probability or size of an insurance loss.
