Please find below definitions of a few commonly used insurance terms.

Excess – An excess is the first amount payable by you in the event of a loss, and is the uninsured proportion of your loss.

Franchise – A franchise sets an amount (either a time limit or monetary amount) that a claim must exceed before a claim is to be paid. When the amount of the loss exceeds the franchise the claim will be paid in full from the ground up.

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, possible, the amount of the business that is ceded thereunder. Compare minimum 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 £1million. An excess of loss reinsurance is a form of non-proportional reinsurance.

Inception Date – The date on which an insurance or reinsurance contract comes into force.

Limit of Indemnity – The maximum amount payable under a policy of insurance or reinsurance, either overall or with reference to a particular section of a policy.

Indication – A non-binding statement by an underwriter of the likely level of premium that would be charged to underwrite a risk, subject to the provision of additional information.

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.

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 won loss adjusters to negotiate a claim on their behalf.

Material Fact – This refers to any fact which the insured knows or ought to know and which would influence the judgement of a prudent underwriter in deciding whether to accept an insurance or reinsurance risk and the terms on which he would be willing to grant cover.

Reinsurance – A contract under which a reinsurer agrees to pay specified types and amount of underwriting loss incurred by an insurer or another reinsurer in return for a premium. Reinsurance serves to ‘lay-off’ risk. Reinsurance may be proportional or non-proportional and may take the form of a cover in respect of an individual risk exposure or cover in respect of multiple risk exposures.

Subrogation – the right of a insurer which has paid a claim under a policy to step into the shoes of the insured so as to exercise in his name all rights he might have with regard to the recovery of the loss which was the subject of the relevant claim paid under the policy up to the amount of that paid claim.

Under Insurance – Where the sum insured does not represent the true value of the property insured. See Average for an explanation of the consequences of under insurance.

Ab Initio – Latin for from the beginning.

Adjustment Premium – An additional or return premium that is payable in relation to a deposit premium depending on the performance or an insurance or reinsurance contract.

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 or depreciation or appreciation.

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.

Binding Authority – An agreement between a managing agent and a coverholder under which the managing agent delegates its authority to enter into a contract or contracts of insurance.

Brokerage – The commission that is payable to a broker for placing an insurance or reinsurance at Lloyd’s:  insurance brokers and reinsurance brokers. Some brokers act both as insurance brokers and reinsurance brokers.