Accident

An event that is unforeseen, unexpected, and unintended. **

Accidental death benefits

Benefits paid in case of death resulting from an accident. Since total benefit is usually doubled for accidental deaths it is common to say that a life insurance policy contains a "double indemnity provision". Sometimes, however, the cover is not integrated in the policy and is sold as a separate optional rider instead. +

Accrual accounting

The accounting methodology that recognises income in the period that it is earned even if such income is received in another period. Similarly, it recognises expenses in the period incurred even if such expenses are paid in another period. ***

Accrued liabilities reserve (ALR)

A reserve that provides for the net actuarial present value of accrued future expenses, claims, savings, and interest which are over and above those liabilities provided for in other reserves such as unearned premium, incurred but not reported claims, and claims in course of settlement. ***

Acquisition costs

Costs incurred by an insurer and its agents in attracting customers. These costs typically include: Sales force salaries and overhead, marketing and advertising, and other costs incurred prior to when a prospect agrees to purchase insurance. **+

Actual-to-expected analysis

Regular monitoring of an organisation’s or insurance programme’s actual performance and comparing it to the projected performance on one or more metrics. +

Actuarial present value (APV)

In plain language, actuarial present value refers to the estimated current value of a monetary amount which may be payable or receivable in the future. In calculating the current value, the actuary discounts the future amount to the present day by incorporating the time value of money (for example, considering that investments earn interest, dividends, or appreciate in value) and the probabilities and timing of all events that determine whether or not the said amount will actually materialise. ****

Actuary

A technical expert in insurance and applied mathematics, who applies theories of probability, economics, and finance to the business of insurance and is responsible for the calculation of premiums, reserves, and other valuations. ****

Admitted assets

Assets that are admitted by a regulator for purposes of valuing the financial strength of an insurer/microinsurer. Such assets are usually of good quality and can be easily sold in the event of liquidation and / or can be borrowed against.***

Advance premium

See unearned premium.

Adverse selection

Adverse selection refers to the tendency of higher risk individuals to seek out more insurance coverage on average in anticipation of a greater probability of experiencing the insured event(s). ****

Age requirement

The age-range within which an individual may qualify for insurance coverage. +

Agent

An insurance company representative who solicits, negotiates or effects contracts of insurance, and provides service to the policyholder for the insurer, usually for a commission on the premium payments. **

Aggregate stop-loss (aggregate excess) reinsurance

A type of reinsurance cover designed to protect an insurance programme in periods when total incurred claims costs exceed the expected claims cost for the period by a pre-defined threshold. +

Annuity

An annuity is a contract sold by insurance companies. In simple terms, one pays a sum of money to an insurer (typically this is a retirement savings fund) who then makes guaranteed periodic payments to a designated annuitant (usually the purchaser). The pattern and condition of these payments is defined when the annuity is purchased. +

Anti-selection

See adverse selection. *

Assessment spiral

An assessment spiral, also called a death spiral, occurs when participation in a programme (risk pool) keeps decreasing as premium costs keep increasing. Those exposed to lowest risk drop out first as the premium they pay is not commensurate with the protection that they get, while the higher risk individuals remain. The assessment spiral is thus a series of assessments followed by premium increases which in turn are followed by even more dropouts of the remaining lowest risk participants. Eventually, the programme collapses. ****

Asset and liability management

A process of projecting future liability streams of an insurance programme (i.e. expected benefit payouts, surrenders, and other fund uses such as expenses), and then reshuffling investments of the assets that back up reserve funds in such a way so that future earnings and maturities are timed to coincide with these projected payouts. The process is not perfect but it helps to ensure sufficient liquidity while optimising investment earnings within the constraints of future uses of the funds. +

Asset class

A category of assets such as real estate, stocks, bonds, etc. ***

Association group

A group formed from members of a trade union or professional association for the purpose of accessing insurance under one group insurance contract. See also group insurance. +

Basis risk

For index-based insurance, it is the risk that some affected insureds will be compensated too little or not at all while others with a only small loss or no loss will be overly compensated. This happens because compensation is not based on the each insured’s actual loss but on an index formula which is a proxy for estimating the average losses of all insureds. ****

Beneficiary

The person or financial instrument (for example, a trust fund), named in the policy as the recipient of insurance money in the event of the occurrence of an insured event. **

Benefits

The amount payable by the insurer to a claimant or beneficiary upon the occurrence of the insured event. *

Broker

An intermediary between insurers and distribution channels, a broker’s functions can range from those of an agent’s to designing products and pre-processing claims. Unlike an agent, the broker is licensed in some countries to deal with several insurers and is permitted to take on all or a portion of the administration. In a legal sense and from a market perspective, the broker usually seeks to improve value for the party seeking insurance by assuming some of the insurer’s functions and negotiating a better deal from the insurer. +

Cancellation

The discontinuance of an insurance policy before its normal expiration date. **

Capital adequacy testing

Actuarial method of projecting the future business results of an insurer under various adverse scenarios for the purpose of determining the adequacy of capital which will enable it to meet its obligations under any plausible scenario. ***

Capital and surplus requirements

The amount of assets required by a regulator or prudent person to transact insurance. This amount should ideally be calculated by an actuary, be based on the actual business currently in force, and consider the quality of assets. In many countries the capital and surplus requirements are specified in the insurance regulations. +

Capitation

Method of payment whereby a physician or hospital is paid a fixed amount for each person in a particular plan regardless of the frequency or type of service provided. **

Cash premium

Premium received during an accounting period, whether or not it is earned during the period. ****

Cede

To transfer all or a portion of the insurance risk assumed by an insurance programme to another party such as a licensed insurer or reinsurer. +

Ceding company

A company that cedes insurance risk to one or more risk-bearing entities such as insurers or reinsurers. +

Claim

Following a loss due to occurrence of an insured event, a claim is a request for compensation by an insured party or beneficiary. The claim is payable if it is valid per the terms of the insurance contract or per the internal rules and policies of a self-insured programme. +

Claims adjustment costs

The administrative expenses related to adjudicating and organising payment of benefits to the insured. ***

Claims in course of settlement (CICS)

Claims that have been submitted to the insurer and are still under process of adjudication. ***

Claims incidence

For a sample of insureds for a particular period, it is the number of claims or claimants divided by the number of insureds. This is a statistic often used by actuaries as an estimate for the true underlying probability that an insured from the sample will make a claim. ****

Claims processing

The system and procedures that links the occurrence of an insured event with a payout. It is extremely important that microinsurers minimise the time spent in processing claims so that payouts can be made as quickly as possible. *

Claims rejection

A claim is rejected by an insurance programme if it has been disqualified for payment under the terms of the insurance contract. A partial rejection, such as for health insurance, occurs when the actual paid claim is less than the original amount claimed. +

Claw backs

Commission paid out to an agent and retrieved by the insurer due to policy cancellation of the original commission resultant policy prior to full payment of the policy by the policyholder. **

Client

Insured participants in a microinsurance scheme which is not owned by the insureds. In this booklet, clients are referred to as insureds, which is a more general term. ****

Client education

Since the target market may not understand how insurance works and may have some biases against insurance, the delivery of microinsurance may require a training component to teach clients how insurance works and how it might benefit them. *

Co-payment

The percentage of an incurred cost that is paid by the insured (see also coinsurance and deductible). A co-payment could be either a deductible and/or coinsurance. ****

Coinsurance

In the most general sense, coinsurance refers to the insured retaining a portion of the insured risk. It can take many forms, but usually it means that the insured will have to pay a portion of the incurred expense. ****

Commercial insurer

An insurance company engaged in the business of insurance for the purpose of making profits. ***

Commission

The part of an insurance premium paid by the insurer to an agent for his or her services in procuring and servicing the insurance contract. *

Complaint system

An important fraud prevention strategy, a complaint system is a mechanism to actively solicit customer complaints that bypass primary points of contact such as loans officers or insurance agents. +

Comprehensive medical expense insurance

Insurance that provides coverage, in one policy, for basic hospital expense and major medical expense. **

Compulsory cover

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

Contingency reserve

A reserve to temporarily retain profits or to absorb statistical fluctuations in claims. This is practiced by only some insurers. ***

Cost containment

Reduction of inefficiencies in the provision, consumption, allocation, production or servicing of insurance services. For example, inefficiencies can occur when health services are used inappropriately; when insurance policy servicing could be delivered in a less costly manner; or when using a different combination of resources could reduce costs. **

Covariance

The tendency for either many households to be affected by a risk at the same time or several risks to consistently occur together (at the same time or under the same circumstances). **

Covariant claims

Claims that arise from a co-variant risk event. A large number of claims may be made to an insurer from a single occurrence of such an event. ****

Covariant risk

A risk, or combination of risks, that effects a large number of the insured items/people at the same, for example an earthquake, or a major flood. **

Covariant risk event

A risk event that affects a large number of persons or assets at the same time. For example, an earthquake affects all within the region where it occurs although the degree of the effect is variable. In contrast, random risk events such as traffic accidents affect only one or a few persons when they occur. ****

Coverage

The scope of protection provided under a contract of insurance, and any of several risks covered by a policy. *

Coverage rate

Loosely speaking, it is the proportion of eligible persons in a target market participating in an insurance scheme at a given point in time. The term is often used interchangeably with participation rate and penetration rate. +

Coverage term

The length of time coverage is in effect before it must be renewed. This applies mainly to term products. Some types of insurances need not be renewed; these are generically called permanent insurance. ****

Credibility factor

A statistical measure or weight ranging from 0% to 100% which is used to calculate prospective premium rates as a weighted average of past claims experience and wider industry experience or theory. Credibility factors are based on actuarial calculations and should ideally be calculated by actuaries. +

Credibility theory

Credibility theory is a branch of actuarial science that deals with determining the extent that past experience may be used to calculate the prospective premium rates for the same or a similar set of insured risks that generated the experience. +

Credit insurance

See loan insurance.

Credit life insurance

Credit life is insurance coverage designed to extinguish the outstanding indebtedness of a borrower that dies while indebted. The purpose is to protect both the borrower’s dependents or estate and the lender. There are many types of variations from this basic theme, such as expansion of coverage to include the life of a borrower’s spouse, higher coverage amounts than the outstanding loan, and insuring other risk events such as borrower disability. Credit life is sold either on an individual or group basis. +

Data repository

A data warehouse or database designed for accumulating and managing large quantities of data for an extended period or permanently. ****

Death risk

Generally, death risk is the risk that an insured person, or animal in the case of livestock insurance, will die. Lenders also use the term to mean "the chance that a borrower with an outstanding loan will die". +

Deductible

Also known as excess in some countries, it is the amount that must be deducted from a claim (or from a cumulative claim amount) before the insurer will step in and pay a portion of the remaining amount. +

Delegated underwriting

The delegation of the insurance underwriting decision to a lender, on loans made by that lender. "Contract underwriting" is a variant of delegated underwriting. **

Disability

Physical or mental condition that prevents a person from performing one or more occupational duties temporarily (short-term), permanently (long-term), and / or totally (total disability). **

Disability benefit

A feature added to some life insurance policies providing for waiver of premium, and sometimes payment of monthly or lump sum income, if the policyholder becomes temporarily, totally and / or permanently disabled. **

Dismemberment

Accidental loss of limb or sight. **

Distribution channel

A distribution channel refers to a method of insurance delivery to a target market. **+

Distributor

Institution that handles the sales and servicing of insurance policies, but does not necessarily produce the products themselves, or retain the risk of the insurance policies. **

Dropout rate

For a given period or sample, the dropout rate is the ratio of those clients or members that did not renew their coverage (or remain in the programme) to those that are eligible to renew (eligible to remain). The dropout rate is the opposite of the renewal rate and persistency ratio. ****

Earned premium

The premium income in a period minus change in unearned premium reserve for the same period. A premium payment is made to purchase insurance cover for a defined period. Accrual accounting principles require that the premium is earned over the duration of that period, and in a pattern that reflects the expected incurred expenses and claims over the period. Thus, at any point during that period, the portion of the premium that has been earned to that point is called the earned premium. ****+

Eligibility

The criteria by which one is able to purchase an insurance policy; intended to control adverse selection (for example, there may be age restrictions that prevent people above or below a certain age from accessing insurance). *

Endowment

A payment made under an endowment plan if the insured survives to a specified period, or more commonly, survives to the maturity date of the plan. +

Endowment insurance

An insurance plan which pays certain amounts if the insured survives to a specified date before maturity, or if the insured dies before plan maturity, or if the insured survives up to plan maturity. The endowment benefits need not match the death benefits although this is most common. +

Estate

The assets and liabilities of a person left at death. **

Exceptions

See exclusions.

Excess

Excess is the term used for a deductible in some countries (see also deductible). +

Excess risk

The amount of risk in excess of the limit that an insurance programme or insurer is willing to retain for prudential reasons. +

Exclusions

Exclusions are conditions or circumstances under which the insurance programme will not provide benefits. Also known as exceptions. **+

Expense ratio

See incurred expense ratio and paid expense ratio.

Experience

The record of claims made or paid within a specified time period. ***

Experience rating

The process of determining the premium rate for a group risk, wholly or partially on the basis of that group's experience. **

Experience refund

Amount returned by an insurer to a group policyholder when the financial experience of a particular group (or class to which the group belongs) has been more favourable than anticipated. **

Exposure

See risk exposure.

Face value

Amount to be paid out by an insurance policy if either the insured event occurs (of for endowment policies if the policy matures). *

FAQ sheets

A list of Frequently Asked Questions used to train field staff how to respond to customer queries; helps to standardise information delivery across branches. *

Fixed term annuity

A contract that provides a periodic benefit payable for a specified period of time regardless of whether the annuitant (recipient) is alive or deceased. ****

Flat schedule

A type of group insurance schedule under which everyone is insured for the same benefits regardless of salary, position, or other circumstances. **

Fraud

Intentional perversion of truth in order to induce another to part with something of value. *

Grace period

A specified period after a premium payment is due, in which the insured may make such payment, and during which insurance coverage continues. *+

Gross earned premium

Earned premium without any deductions such as commissions and other expenses. Gross earned premium represents the portion of the premium that should have financed all past incurred claims, expenses, and other accrued liabilities from date of coverage for which the premium was paid to the accounting date for which the earned premium is calculated. Mathematically, it is the difference between the premium payment and the unearned premium as of the accounting date for which it is calculated. ****

Group insurance

Group insurance is insurance on a group of individuals, which may either self-insure or purchase cover from an insurer. If purchased from an insurer, one master policy is issued on behalf of the group such as an employer on behalf of its employees, an association or co-operative on behalf of its members, or a microfinance institution on behalf of its clients. A key principle for group insurance to succeed is that the group has formed for a purpose other than to access insurance. +

Group life insurance

Group life insurance is life insurance on a group of individuals which either self-insures or purchases cover from an insurer. If purchased from an insurer, it usually requires only minimal underwriting and no medical examination for each individual. The insurer issues one master policy on behalf of the group such as an employer on behalf of its employees, an association or co-operative on behalf of its members, or a microfinance institution on behalf of its clients. A key principle for group life insurance to succeed is that the group has formed for a purpose other than to access life insurance. +

Health insurance

Coverage that provides benefits as a result of sickness or injury. Policies include insurance for losses from accident, medical expense, disability, or accidental death and dismemberment. **

Health maintenance organisation (HMO)

Organisation that provides a wide range of comprehensive health care services for a specified group for a fixed periodic prepayment. **

Home service

Form of insurance distribution system in which all aspects of insurance provision (marketing, sales, premium collections, claims verification and distribution) are performed by a roaming agent who visits customers in their homes or place of work. Home service distribution was popular in North American and Western European countries in the early 1900's. **

Hospital indemnity insurance

Health insurance that provides a stipulated daily, weekly, or monthly payment to an insured person during hospital confinement, without regard to the actual confinement expense. **

Incurred but not reported reserve (IBNR)

IBNR is a reserve providing for the claims that have been incurred but have not yet been reported to the insurer at the end of the accounting period. ****

Incurred claims

Incurred claims are those where the insured event has happened, and for which the insurer may be liable if a claim is made. An insurer is usually not aware of all incurred claims at a particular point in time or for a current accounting period. To estimate incurred claims for a current accounting period, the following estimate is made: benefits paid during the period plus the change in reserves set aside for benefits to be paid after the period. Reserves typically include incurred but not reported claims, claims in course of settlement, and accrued liabilities reserve. ****

Incurred expense ratio

The incurred expense ratio is defined as incurred expenses for a given time period, divided by the earned premium, or contributions for mutuals, for the same period. It should not be confused with paid expense ratio which is different. +

Incurred expenses

Incurred expenses for a given period are those that should be charged to the period according to accrual accounting principles and methods. For microinsurance programmes, these should include all actual expenses incurred in a period, including amortisation of equipment, depreciation, and commissions, and should not be reduced for subsidies and grants. Incurred expenses may or may not be equal to cash expenses for the same period. ****

Independent risk events

Two risk events X and Y are said to be independent if the occurrence or non-occurrence of one of the events does not affect the probability of occurrence or non-occurrence of the other event. +

Individual insurance

A policy that provides protection to a policyholder and/or his or her family; sometimes called personal insurance as distinct from group and blanket insurance. **

Industrial life insurance

One name for life insurance policies sold to middle and low-income customers in small policy amounts with weekly or monthly premium collection at the policy owner's home. **

Institutional risk

Institutional risk refers to the risk that party X faces by partnering with institution Y. The risk is that Y will not deliver as per agreement due to internal mismanagement of Y, or because of events affecting Y that are beyond the control of X. +

Insurable interest

A party is said to have an insurable interest in X (a person, object, or something else) if a loss of X or damage to X would result in an emotional, financial, or other type of significant loss to that party. +

Insurable risk

The conditions that make a risk insurable are a) the peril insured against must produce a definite loss not under the control of the insured, b) there must be a large number of homogeneous exposures subject to the same perils, c) the loss must be calculable and the cost of insuring it must be economically feasible, d) the peril must be unlikely to affect all insured’s simultaneously, and e) the loss produced by a risk must be definite and have a potential to be financially serious. **

Insurance

A risk management system under which individuals, businesses, and other organisations or entities, in exchange for payment of a sum of money (a premium), offers an opportunity to share the risk of possible financial loss through guaranteed compensation for losses resulting from certain perils under specified conditions. **

Insured

The policyholder - the individual(s), businesses, other organisations or entities protected by an insurance policy in case of a loss or claim. **

Insured event

The trigger event that leads to the submission of a claim (for example, death of the policyholder). *

Insurer

The party to the insurance contract who promises to pay losses or benefits. **

Investment maturity

An investment that has become due for payment to the investor. ***

Lapse

The termination or discontinuance of an insurance policy due to non-payment of a premium. *

Lapsed policy

A policy terminated for non-payment of premiums. *

Law of large numbers

Concept that the greater the number of exposures (for example, lives insured), the more closely will actual results approach the results expected from an infinite number of exposures. Thus, the larger the number of people in the insured risk pool, the more stabile the likely results of risk event occurrences. *

Life expectancy

The average number of years of life remaining for a group of people of a given age according to a particular mortality table. **

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

A life insurance product with the benefit linked to the amount of savings that a person has in an account. Popularised 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.*

Limited policy

A contract that covers only certain specified diseases, accidents, or other losses. **

Limited-pay whole life insurance

A plan of insurance for life, which provides cover until death, but with premiums payable for only a fixed term such as 15, 20, 25 years or up to a certain age. +

Loading

The amount that must be added to the pure premium for expenses, profit, and a margin for contingencies. *

Loan insurance

Insurance coverage that repays the outstanding balance on loans in default beyond a specified period, regardless of the cause of default. Also called credit insurance but not to be confused with outstanding balance life insurance. **

Management information system

Computerised and manual methods for keeping track of the data required for designing, delivering and monitoring the performance of insurance products. *

Mandatory insurance

See compulsory cover.

Market research

Techniques used to determine a) the strength and characteristics of the demand for insurance, and b) information about insurance and insurance substitutes available in both the formal and informal markets. *

Master policy

A policy that is issued to an employer or trustee, establishing a group insurance plan for designated members of an eligible group. **

Member

Insured participants in an insurance scheme which is owned by the insureds. ****

Membership fees

Some member-owned programmes charge an initial and/or a periodic fee. ***

Moral hazard

Hazard arising from any non-physical, personal characteristic of a risk that increases the possibility of loss or may intensify the severity of loss for instance bad habits or low integrity. An example might include failing to properly care for an insured goat because it is insured, thereby increasing the chance it will die of disease. **

Morbidity

The relative incidence of disease. **

Mortality rate

For a given period such as a year, the mortality rate for a group of insured persons is defined as the number of deaths in the period divided by the number of risk exposures in the period. The rate can be calculated for a group of insureds by age, gender and other such groupings; most common is by age and gender. +

Mortality table

An actuarial table, based on mortality statistics over a number of years, showing how many members of a group, starting at a certain age, will be alive at each succeeding age. To be appropriate for a specific group, it should be based on the experience of individuals having common characteristics, such as sex or occupation. *

Mutual insurer

Insurance in which the ownership and control is vested in the policyholders, who elect a management team to conduct day-to-day operations. **

Mutual schemes

An insurance scheme where the insured persons are also the owners of the scheme. ***

Net earned premium

Earned premium from which the various components such as commissions have been deducted. Net earned premium represents the portion of the premium that should have financed all past incurred claims from date of coverage for which the premium was paid to the accounting date for which the earned premium is calculated. As such, it can be used as a proxy for estimating past incurred claims for that period, but will be inaccurate to the extent that the product was mispriced, due to statistical fluctuations, and others. ****

Net income

The earned premium in the applicable period plus investment income in the period plus other income in the period minus incurred claims in the period minus incurred expenses in the period. ***

Net premium

Sometimes the terms risk premium and net premium are used interchangeably. More precisely, net premium is the portion of the gross premium that is used to fund claims, and this is made up of two components: expected claims and risk premium. The risk premium portion ensures that there is an increased chance of having sufficient net premium to fund all incurred claims in the period for which the premium was paid. +

Non-contributory plan

Group insurance plan under which the holder of the master policy does not require the insured to share in the cost of the policy. **

Non-permanent subsidies

Subsidies that are scheduled to stop at some future period. ***

Option

When an insurance company gives the policyholder the right to make some choice in the future that the company guarantees to honour. A common type is the continuation option, whereby policyholders can continue an insurance cover after the original period has concluded. *

Outsourcing

The practice of subcontracting work to outside individuals or firms. Many insurance activities are effectively and efficiently outsourced, such as sales and service, actuarial evaluation, and even some risk (to reinsurance). **

Outstanding balance life insurance

Insurance coverage that repays the outstanding balance on loans in default due to death of the borrower. Occasionally, partial or complete disability coverage is also included (see credit life insurance).**

Paid expense ratio

The paid expenses ratio refers to the amount paid out for expenses during a given time period, without regard to when these expenses were incurred, divided by the amount of gross premium (or contributions) received for the same period. It is not be confused with incurred expense ratio which is different. +

Partial disability

A disability that prevents a person from performing one or more functions of his or her regular economic activity. **

Participation rate

An alternative term used for coverage rate or penetration rate. ****

Partner-agent model

A method used by organisations to deliver insurance. The insurer maintains the risk and contracts with a partner or agent to deliver the product and/or administrative services to the target market. ****

Pay-out period

The period during which one receives the income from an annuity contract. **

Payment delay

Average days from the submission of an insurance claim to payment of that claim.**

Penetration rate

An alternative term used for coverage rate or participation rate. ****

Performance ratios

Key figures used to monitor the performance (financial and other types of indicators) of insurance programmes and insurers. *+

Persistency ratio

The persistency ratio is analogous to the renewal ratio indicator and is defined as the number of insureds from a cohort continuing their coverage at a later date divided by the number of insureds from the same cohort with coverage in period X. ****

Pilot test

The implementation of a new product in selected branches for an initial period of time to ensure that the product design and implementation strategy works well before rolling it out to all branches. *

Policy

The printed or legal document issued to the policyholder by the company stating the terms and conditions of the insurance contract. **

Policy term

The period for which an insurance policy provides coverage. **

Policy-years

The average number of policies during each sub-period of an experience rating investigation multiplied by the length of the sub-period in years (for example, a quarter is ¼ of a year). *

Policyholder

A person or entity that pays a premium to an insurance company in exchange for the coverage provided by an insurance policy. *

Portfolio insurance

A method for lenders used to manage the mortality risk of borrowers affecting their loans portfolio, it is insurance coverage that reimburses the lender for a portion of a deceased borrower’s outstanding loan balance. +

Positive selection

The design of an insurance product so that low risk individuals subscribe to it, such as only insuring persons who have been deemed eligible for microenterprise loans since they are presumably healthy enough to run their own businesses. *

Pre-existing condition

A physical and/or mental condition of an insured that first manifested itself prior to insurance coverage. *+

Premium

One or more payments required to activate insurance coverage and keep it in force. *+

Premium income

Premium income is any type of premium received from sale of insurance products. This term should be not be used interchangeably with cash premium since the latter term literally refers to premium received as cash during an accounting period. ****

Primary insured

The primary insured refers to the party that applied for insurance and was accepted for coverage. A secondary insured is a second party that is also covered under the primary insured’s coverage, such as the dependent members of the primary insured’s household. The amount and conditions of coverage are usually different for the secondary insured. +

Primary insurer

The primary insurer is the institution that directly assumes the insurance risk and retains at least a portion of it. This may be a licensed insurer or some type of institution, such as a community risk fund. +

Principal insured

See primary insured.

Probability

Probability is a mathematical quantity representing the likelihood that an event will occur within a specified period of time. +

Product manufacturing

The process of determining the product’s features, such as the insured event, the waiting period, exclusions, the term, the benefit and the price. *

Product servicing

Product servicing refers to all servicing following enrolment such as assistance with filing claims, changing designated beneficiaries, registering complaints, providing information updates, and any other types of interactions or transactions with the insured. +

Proof of loss

Documentation presented to the insurance company by the insured in support of a claim so that the insurer can determine its liability under the policy. *

Property insurance

Insurance providing financial protection against the loss of, or damage to, real and personal property caused by such perils as fire, theft, windstorm, hail, explosion, riot, aircraft, motor vehicles, vandalism, malicious mischief, riot and civil commotion, and smoke. **

Protection

Ability of an insurance product to provide compensation for losses incurred. Protection can be full or partial. **

Pure premium

See risk premium.

Random fluctuations

The occurrence of insured random events do fluctuate naturally so that within a specified period of time the number of claims and amount of claims are naturally lower or higher than statistically calculated expected values. The magnitude of random fluctuations decreases as the number of insured in a programme increases. As well, the smaller the probability of the insured events, the greater the magnitude of fluctuations. Increased magnitude of claims fluctuations for a programme reflects increased uncertainty and thus requires greater premium loadings. +

Rate-making

The process of estimating the expected costs involved in providing insurance coverage in order to set appropriate premium rates. **

Recurring premium

The payment for insurance that occurs in instalments, such as monthly or quarterly payments, as opposed to single premiums, which are paid at the beginning of the term to cover the whole period. *

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. *

Reimbursement

Reimbursement refers to claims payment by an insurance programme after the insured has already paid for the loss with savings or by some other means. This is most commonly observed for health insurance claims which reimburse the insured wholly or partially for expenses incurred while undergoing medical treatment, using receipts and provider billings as a basis. **+

Reinsurance

Reinsurance is essentially insurance protection purchased for insurance programmes. Often, it is not wise for an insurance programme to retain all of the risk it assumes since random fluctuations in claims, covariant events, or natural catastrophes could bankrupt the programme. Some types of reinsurance amount to direct cession of a portion of the primary underwritten risk (also called co-insurance or risk-sharing), while others are additional protection without the reinsurer assuming any portion of the primary risk such as catastrophe insurance. +

Renewal rate

For a sample of insureds with term coverage, the renewal rate is the ratio of insureds that renew their coverage to those that are eligible to renew. In other words, the renewal ratio measures the proportion of insured that stay enrolled in an insurance programme after their coverage term expires. +

Reporting delay

Average number of days from the occurrence of the insured event to the submission of the completed claim covering that event. **

Reserve

A fund or an accounting provision which is set aside to fund the future net liabilities of a microinsurance programme. ****

Rider

An amendment to an insurance policy that modifies the policy by expanding or restricting its benefits or excluding certain conditions from coverage. **

Risk

A risk is defined as exposure to events that may possibly result in losses. In insurance parlance it is also used to refer to insured persons or assets. +

Risk classification

The process by which a company decides how its premium rates for insurance should differ according to the risk characteristics of individuals or items insured (for example, by age, occupation, sex, state of health) and then applies the resulting rules to individual applications (see underwriting). **

Risk exposure

The possibility of financial loss based on the probability of an event occurring. **

Risk management

Systematic process for the identification and evaluation of pure loss exposures faced by an organisation or individual, and for the selection and implementation of the most appropriate techniques for treating such exposures. **

Risk pool

From an insurer’s perspective, a risk pool is a collection of sold insurance contracts with similar risk characteristics and grouped together as one financial account. It can also be used to describe a fund that has been set up between two or more insurers to co-share risk. At a community level, a risk pool is a fund to which several contribute regularly and seek compensation for certain types of losses- in other words, it is a self-insured programme. ****

Risk pooling

Spreading of losses incurred by a few over a larger group, so that in the process, each individual group members' losses are limited to the average loss (premium payments) rather than the potentially larger actual loss that might be sustained by an individual. Risk pooling effectively disperses losses incurred by a few over a larger group. **

Risk premium

The portion of the premium that is used to fund claims and is equal to the expected claims. **

Risk-based capital

An amount of capital calculated based on the insurance business an insurer has assumed. The amount of capital should theoretically be sufficient to protect the insureds from various classes of risks that could threaten the company. To protect from catastrophic events and other types of covariant risks, the insurer must also buy appropriate reinsurance. ****

Risk-managing financial services

Besides insurance, emergency loans and accessible savings accounts can help low-income persons to manage their risks. *

Screening

Also known as underwriting, the process by which insurance applicants are filtered. For example, applicants may be required to sign a "declaration of health" asserting their good health. High-risk individuals may be excluded or charged more. *

Secondary insured

A secondary insured is a second party that is also covered under the primary insured’s coverage (see primary insured). The amount and conditions of coverage are usually different for the secondary insured. +

Self-administration

Maintenance of all records and assumption of responsibility, by a group policyholder, for those covered under its insurance plan. Responsibilities include preparing the premium statement for each payment date and submitting it with a check to the insurer. The insurance company, in most instances, has the contractual prerogative to audit the policyholder's records. **

Service provider

An organisation that provides a service which could be administrative, data processing, claims management or any other function required to deliver insurance. They may be the insurer or another organisation bearing no risk. ***

Settlement

Payment of the benefits specified in an insurance policy. **

Stand-alone risk-bearing microinsurer

A microinsurer that retains all the insured risk. ***

Stop-loss policy

An agreement from a reinsurer to cover total claims over a certain agreed upon value of an aggregate pool of policies. **

Sum assured

See total insured benefit.*

Surrender payouts

The amount of money which the policyholder will receive as a refund if the insured cancels the coverage. ***

Take up rate

With voluntary insurance, the percentage of possible customers who do purchase the coverage. *

Technical provision

Some prefer to use the term technical provision for reserve (see reserve). ****

Tender offer

A method of objectively analysing prospective insurance partners or consultants whereby the MFI clearly identifies what activities or interventions it requires and then requests qualified candidates to bid on fulfilling those activities. *

Term insurance

An insurance plan that covers an insured person or asset for only a certain period of time (term). **+

Term life

Life insurance under which the benefit is payable only if the insured dies during a specified period. No benefit is payable if the insured is alive at the end of that period. ***

Term of cover

The period within which the insured event must occur for a claim to become payable; could be either a fixed term (for example, one year, five years) or whole life. *

Third party administrator

A party outside the original contracting parties of the insured and the insurance companies that handles an administrative function of the insurance transaction. For example, in the case of health insurance, claims processing may be handled by a third party administrator (TPA). ***

Time limit

The period of time during which a notice of claim or proof of loss must be filed. **

Total disability

A disability that prevents a person from performing any and all occupational duties. The exact definition varies among policies. **

Total insured benefit

Also referred to as the total sum assured, this is the sum of all individual benefits. *

Trend analysis

A method of evaluating the organisation’s performance over time to see if key indicators such as profitability and claims ratios are improving or worsening; in analysing trends, careful attention should be given to seasonal fluctuations. *

Underwriter

a) A company that receives the premiums and accepts responsibility for the fulfilment of the policy contract; b) The company employee who decides whether or not the company should assume a particular risk or c) The agent who sells the policy. **

Underwriting

A process of selecting risks for insurance and determining in what amounts and on what terms an insurance programme will accept the risk. **+

Unearned premium

The portion of a premium that a company has collected but has yet to earn because the policy still has unexpired time to run. **

Uninsurable

High-risk persons, items, or activities, which fall outside the parameters of risks of standard underwriting practices. **

Unit costing

A method of allocating income and expenses, including a proportion of overhead costs, to specific products or services to assess their profitability; may also include disaggregating costs for different steps in the product delivery process to identify inefficiencies. *

Universal life insurance

Unlike traditional cash-value policies (see also whole life), universal life policy returns were freed from long-term, fixed-rate contracts and replaced with policies whose returns were tied to short-term interest rates and periodically adjusted. The insurer can also change mortality and expense assumptions at any time, unlike in whole life policies where these are fixed throughout. In addition, the policyholder can change the amount of premium payments and change the coverage, and may even have the option of specifying how the built up equity is invested. **+

Verification

The process by which claims are determined as being valid, for example, for life insurance requiring a death certificate and/or attending the funeral of the deceased. Verification needs to balance two objectives: a) to provide proof that the insured event occurred from two independent parties, b) without causing undue hardship for beneficiaries. Also known as claims validation, claims underwriting or adjusting. *

Voluntary cover

Allows consumers to chose the amount, term and type of insurance that they want; contrasted with mandatory or compulsory insurance. *

Waiting period

The length of time an insured must wait before one’s coverage becomes effective. Designed to control adverse selection for life insurance, for example, a waiting period reduces the risk that someone who knows he/she is about to die will purchase the insurance. For some life insurance plans, however, coverage for accidental death is provided during the waiting period. *+

Whole life insurance

A plan of insurance for life, with premiums payable for a person's entire life. **

Written premium

When an insurer assumes a term contract, premiums expected to be received over the life of the contract are called gross written premium. After reinsurance premium is deducted from this it is called net written premium. ****