Insurance: Glossary

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Adverse Selection – Tendency of persons who present a poorer-than-average risk to apply for, or continue, insurance. If not controlled by underwriting, it results in higher-than-expected loss levels.

Agent – Licensed person or organization authorized to sell insurance by and on behalf of an insurance company; the intermediary between the insurer and the insured client.

Beneficiary – Person who receives a life insurance benefit in the event of the policyholder’s death.

Broker – Licensed firm or individual that designs, negotiates, and services insurance programs on behalf of the insurance buyer.

Claim – Request for payment under terms of an insurance contract when an insured event occurs.

Claims Processing – System and procedures that link the occurrence of an insured event with a payout. Processing should be quick and efficient so payouts can be made as quickly as possible.

Compulsory Cover – Insurance that an individual is required to purchase, either because of government mandate (e.g., third party liability auto insurance) or as a condition for accessing another service (e.g., credit life insurance that is required when an individual takes a loan). Compulsory cover can control adverse selection and significantly reduce administrative costs.

Covariant Risk – Peril that affects a large number of the policyholders at the same, e.g., an earthquake; or several risks that consistently occur together (at the same time or under the same circumstances).

Cover or Coverage – Scope of protection provided under an insurance contract.

Death Risk – The chance that a borrower will die with a loan outstanding.

Health Insurance – Coverage for illness, accidents and other health-related risks.

Insurance – System under which individuals, businesses, and other entities, in exchange for a monetary payment (a premium), are guaranteed compensation for losses resulting from certain perils under specified conditions.

Insurers – Commercial regulated and licensed insurers with no particular focus on the low income market.

Insurance Supervisor – Refers to either the insurance and reinsurance regulator or the insurance and reinsurance supervisor in a jurisdiction.

Insurance Intermediary – Any natural person or legal entity that engages in insurance intermediation. Intermediaries are generally divided into separate classes. The most common types are “independent intermediaries” who represent the buyer in dealings with the insurer (also known as “independent brokers”) and “agents” (which generally include multiple agents and sub-agents) who represent the insurer.

Life Insurance – Coverage providing for payment of a specified amount on the insured’s death, either to the deceased’s estate or to a designated beneficiary; or in the case of an endowment policy, to the policyholder at a specified date.

Life Savings – Life insurance product with the benefit linked to the amount of savings that a person has in an account. Popularized by credit unions as a means to promote savings, premiums on this group policy are paid by the financial institution to an insurer based on a multiple of the total value of savings accounts.

Microinsurers – A microinsurer is an insurer that is either entirely focused on the low-income market or an institution that has a specific product line targeted at this market. Some microinsurance providers are small or informal; others are large, commercial or government-backed insurers.

Moral Hazard – Occurs when insurance protection creates incentives for individuals to cause the insured event; or a behavior that increases the likelihood that the event will occur, for instance bad habits such as smoking in the case of health insurance or life insurance.

Policyholder – Party to whom the contract of insurance is issued by the insurance company.

Premium – Amount paid by the policyholder for coverage under the contract, usually in periodic installments.

Property Insurance – Provides financial protection against loss or damage to the insured’s property caused by such perils as fire, windstorm, hail, etc.

Regulated Microinsurer – Licensed by the insurance supervisor to operate as an insurer with a focus on the lower income market either in full or as a product line.

Regulation – Government-defined requirements for an insurer, such as minimum capital requirements and necessary expertise; also provides consumer protection through the oversight of insurers, including pricing policies, form design and appropriate sales practices.

Reinsurance – Insurance that is purchased by insurance companies for their own protection. The risk of loss is spread so that a disproportionately large loss under a single policy doesn't fall on one company. Reinsurance enables an insurance company to expand its capacity; stabilize its underwriting results; finance its expanding volume and secure catastrophe protection against shock losses.

Term Insurance – Life insurance payable to a beneficiary only when the insured person dies within a specified period.

Underwriting – Process by which an insurance company evaluates and selects risks to be insured and determines terms and conditions under which they will accept the risk.

Unregulated Providers – These are subdivided into two categories: a) formal providers (established under any other law/regulation) such as cooperatives or microfinance institutions, and b) the entirely informal providers which are under no legal provision at all, such as informal funeral societies.

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