C – Glossary of Insurance Terms

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C – Glossary of Insurance Terms
This page provides a glossary of insurance terms and definitions that are commonly used in the insurance business. New terms will be added to the glossary over time.

The definitions in this glossary are developed by the NAIC Research and Actuarial Department staff based on various insurance references. These definitions represent a common or general use of the term. Some words and/or phrases may be defined differently by other entities, or used in a context such that the definition shown may not be applicable. naic.org

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Calendar Year Deductible – in health insurance, the amount that must be paid by the insured during a calendar year before the insurer becomes responsible for further loss costs.

Capital and Surplus – a company’s assets minus its liabilities.

Capital and Surplus Requirement – statutory requirement ordering companies to maintain their capital and surplus at an amount equal to or in excess of a specified amount to help assure the solvency of the company by providing a financial cushion against expected loss or misjudgments and generally measured as a company’s admitted assets minus its liabilities, determined on a statutory accounting basis.

Capital Gains (Loss) – excess (deficiency) of the sales price of an asset over its book value. Calculated on the basis of original cost adjusted, as appropriate, for accrual of discount or amortization of premium and for depreciation.

Capitation Arrangement – a compensation plan used in connection with some managed care contracts where a physician or other medical provider is paid a flat amount, usually on a monthly basis, for each subscriber who has elected to use that physician or medical provider. Capitated payments are sometimes expressed in terms of a “per member/per month” payment. The capitated provider is generally responsible, under the conditions of the contract, for delivering or arranging for the delivery of all contracted health services required by the covered person.

Captive Agent – an individual who sells or services insurance contracts for a specific insurer or fleet of insurers.

Captive Insurer – an insurance company established by a parent firm for the purpose of insuring the parent’s exposures.

Carrying Value (Amount) – the SAP book value plus accrued interest and reduced by any valuation allowance and any nonadmitted adjustment applied to the individual investment.

Cash – a medium of exchange.

Cash Equivalent – short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Investments with original maturities of three months or less qualify under this definition.

Casualty Insurance – a form of liability insurance providing coverage for negligent acts and omissions such as workers compensation, errors and omissions, fidelity, crime, glass, boiler, and various malpractice coverages.

Catastrophe Bonds – Bonds issued by an insurance company with funding tied to the company’s losses from disasters, or acts of God. A loss exceeding a certain size triggers a reduction in the bond value or a change in the bond structure as loss payments are paid out of bond funds.

Catastrophe Loss – a large magnitude loss with little ability to forecast.

Ceded Premium – amount of premium (fees) used to purchase reinsurance.

Ceding Company – an insurance company that transfers risk by purchasing reinsurance.

Centers for Medicare & Medicaid Services (CMS) – U.S. governmental agency responsible for the licensing of federally qualified HMOs. This was formerly the Health Care Financing Administration.

Change in Valuation Basis – a change in the interest rate, mortality assumption or reserving method or other factors affecting the reserve computation of policies in force.

Chartered Life Underwriter (CLU) – a professional designation awarded by the American College to persons in the life insurance field who pass a series of exams in insurance, investment, taxation, employee benefit plans, estate planning, accounting, management, and economics.

Chartered Property Casualty Underwriter (CPCU) – a professional designation awarded by the American Institute of Property and Casualty Underwriters to persons in the property and liability insurance field who pass a series of exams in insurance, risk management, economics, finance, management, accounting, and law. Designates must also have at least three years experience in the insurance business or related field.

Claim – a request made by the insured for insurer remittance of payment due to loss incurred and covered under the policy agreement.

Claims Adjustment Expenses – costs expected to be incurred in connection with the adjustment and recording of accident and health, auto medical and workers’ compensation claims.

Claims-made Form – A type of liability insurance form that only pays if the both event that causes (triggers)the claim and the actual claim are submitted to the insurance company during the policy term

Class Rating – a method of determining rates for all applicants within a given set of characteristics such as personal demographic and geographic location.

Coinsurance – A clause contained in most property insurance policies to encourage policy holders to carry a reasonable amount of insurance. If the insured fails to maintain the amount specified in the clause (Usually at least 80%), the insured shares a higher proportion of the loss. In medical insurance a percentage of each claim that the insured will bear.

Collar – an agreement to receive payments as the buyer of an Option, Cap or Floor and to make payments as the seller of a different Option, Cap or Floor.

Collateral Loans – unconditional obligations for the payment of money secured by the pledge of an investment.

Collateralized Bond Obligations (CBOs) – an investment-grade bond backed by a pool of low-grade debt securities, such as junk bonds, separated into tranches based on various levels of credit risk.

Collateralized Mortgage Obligations (CMOs) – a type of mortgage-backed security (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches) with the advantage of predictable cash flow patterns.

Combinations – a special form of package policy composed of personal automobile and homeowners insurance.

Combined Ratio – an indication of the profitability of an insurance company, calculated by adding the loss and expense ratios.

Commencement Date – date when the organization first became obligated for any insurance risk via the issuance of policies and/or entering into a reinsurance agreement. Same as “effective date” of coverage.

Commercial Auto – coverage for motor vehicles owned by a business engaged in commerce that protects the insured against financial loss because of legal liability for motor vehicle related injuries, or damage to the property of others caused by accidents arising out of the ownership, maintenance, use, or care-custody & control of a motor vehicle. This includes Commercial Auto Combinations of Business Auto, Garage, Truckers and/or Other Commercial Auto.

Commercial Earthquake – earthquake property coverage for commercial ventures.

Commercial Farm and Ranch – a commercial package policy for farming and ranching risks that includes both property and liability coverage. Coverage includes barns, stables, other farm structures and farm inland marine, such as mobile equipment and livestock.

Commercial Flood – separate flood insurance policy sold to commercial ventures.

Commercial General Liability – flexible & broad commercial liability coverage with two major sub-lines: premises/operations sub-line and products/completed operations sub-line.

Commercial Mortgage-Backed Securities – a type of mortgage-backed security that is secured by the loan on a commercial property.

Commercial Multiple Peril – policy that packages two or more insurance coverages protecting an enterprise from various property and liability risk exposures. Frequently includes fire, allied lines, various other coverages (e.g., difference in conditions) and liability coverage. Such coverages would be included in other annual statement lines, if written individually. Include under this type of insurance multi-peril policies (other than farmowners, homeowners and automobile policies) that include coverage for liability other than auto.

Commercial Package Policy – provides a broad package of property and liability coverages for commercial ventures other than those provided insurance through a business owners policy.

Commercial Property – property insurance coverage sold to commercial ventures.

Commission – a percentage of premium paid to agents by insurance companies for the sale of policies.

Community Rating – a rating system where standard rating is established and usually adjusted within specific guidelines for each group on the basis of anticipated utilization by the group’s employees.

Company Code – a five-digit identifying number assigned by NAIC, assigned to all insurance companies filing financial data with NAIC.

Completed Operations Liability – policies covering the liability of contractors, plumbers, electricians, repair shops, and similar firms to persons who have incurred bodily injury or property damage from defective work or operations completed or abandoned by or for the insured, away from the insured’s premises.

Comprehensive (Hospital and Medical) – line of business providing for medical coverages; includes hospital, surgical, major medical coverages; does not include Medicare Supplement, administrative services (ASC) contracts, administrative services only (ASO) contracts, federal employees health benefit plans (FEHBP), medical only programs, Medicare and Medicaid programs, vision only and dental only business.

Comprehensive General Liability (CGL) – coverage of all business liabilities unless specifically excluded in the policy contract.

Comprehensive Personal Liability – comprehensive liability coverage for exposures arising out of the residence premises and activities of individuals and family members. (Non-business liability exposure protection for individuals.)

Comprehensive/Major Medical – policies that provide fully insured indemnity, HMO, PPO, or Fee for Service coverage for hospital, medical, and surgical expenses. Coverage excludes Short-Term Medical Insurance, the Federal Employees Health Benefit Program and non-comprehensive coverage such as basic hospital only, medical only, hospital confinement indemnity, surgical, outpatient indemnity, specified disease, intensive care, and organ and tissue transplant coverage.

Concurrent Causation – property loss incurred from two or more perils in which only one loss is covered but both are paid by the insurer due to simultaneous incident.

Conditions – requirements specified in the insurance contract that must be upheld by the insured to qualify for indemnification.

Condos – homeowners insurance sold to condominium owners occupying the described property.

Construction and Alteration Liability – covering the liability of an insured to persons who have incurred bodily injury or property damage from alterations involving demolition, new construction or change in size of a structure on the insured’s premises.

Contingency Reserves – required by some jurisdictions as a hedge against adverse experience from operations, particularly adverse claim experience.

Contingent Liability – the liability of an insured to persons who have incurred bodily injury or property damage from work done by an independent contractor hired by the insured to perform work that was illegal, inherently dangerous, or directly supervised by the insured

Continuation of Care Requirement – statutory or contractual provision requiring providers to deliver care to an enrollee for some period following the date of a Health Plan Company’s insolvency.

Continuing Care Retirement Communities – senior housing arrangements that in addition to housing include some provision for skilled nursing care.

Contract Reserves – reserves set up when, due to the gross premium structure, the future benefits exceed the future net premium. Contract reserves are in addition to claim and premium reserves.

Contractual Liability – liability coverage of an insured who has assumed the legal liability of another party by written or oral contract. Includes a contractual liability policy providing coverage for all obligations and liabilities incurred by a service contract provider under the terms of service contracts issued by the provider.

Convertible Term Insurance Policy – an insurance policy that can be converted into permanent insurance without a medical assessment. The insurer is required to renew the policy regardless of the health of the insured subject to policy conditions.

Coordination of Benefits (COB) – provision to eliminate over insurance and establish a prompt and orderly claims payment system when a person is covered by more than one group insurance and/or group service plan.

Copay – a cost sharing mechanism in group insurance plans where the insured pays a specified dollar amount of incurred medical expenses and the insurer pays the remainder.

Corrective Order – commissioner’s directive of action to be completed by an insurer.

Covered Lives – The total number of lives insured, including dependents, under individual policies and group certificates.

Credit – individual or group policies that provide benefits to a debtor for full or partial repayment of debt associated with a specific loan or other credit transaction upon disability or involuntary unemployment of debtor, except in connection with first mortgage loans.

Credit – Assumption Agreement – an insurance certificate issued on an existing insurance contract indicating that another insurer has assumed all of the risk under the contract from the ceding insurance company.

Credit – Credit Default – coverage purchased by manufacturers, merchants, educational institutions, or other providers of goods and services extending credit, for indemnification of losses or damages resulting from the nonpayment of debts owed to them for goods or services provided in the normal course of their business.

Credit – Involuntary Unemployment – makes loan/credit transaction payments to the creditor when the debtor becomes involuntarily unemployed.

Credit Accident and Health (group and individual) – coverage provided to or offered to borrowers in connection with a consumer credit transaction where the proceeds are used to repay a debt or an installment loan in the event the consumer is disabled as the result of an accident, including business not exceeding 120 months duration.

Credit Disability – makes monthly loan/credit transaction payments to the creditor upon the disablement of an insured debtor.

Credit Health Insurance – policy assigning creditor as beneficiary for insurance on a debtor thereby remitting balance of payment to creditor should the debtor become disabled.

Credit Involuntary Unemployment – credit insurance that provides a monthly or lump sum benefit during an unpaid leave of absence from employment resulting from specified causes, such as layoff, business closure, strike, illness of a close relative and adoption or birth of a child. This insurance is sometimes referred to as Credit Family Leave.

Credit Life Insurance – policy assigning creditor as beneficiary for insurance on a debtor thereby remitting balance of payment to creditor upon death of debtor.

Credit Personal Property Insurance – insurance written in connection with a credit transaction where the collateral is not a motor vehicle, mobile home or real estate and that covers perils to the goods purchased through a credit transaction or used as collateral for a credit transaction and that concerns a creditor’s interest in the purchased goods or pledged collateral, either in whole or in part; or covers perils to goods purchased in connection with an open-end transaction.

Credit Placed Insurance – insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss, expense or damage to property as a result of fire, theft, collision or other risks of loss that would either impair a creditor’s interest or adversely affect the value of collateral. “Creditor Placed Home” means “Creditor Placed Insurance” on homes, mobile homes and other real estate. “Creditor Placed Auto” means insurance on automobiles, boats or other vehicles.

Credit Risk – part of the risk-based capital formula that addresses the collectability of a company’s receivables and the risk of losing a provider or intermediary that has received advance capitation payments.

Creditor-Placed Auto – single interest or dual interest credit insurance that is purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss to property that would either impair a creditor’s interest or adversely affect the value of collateral on automobiles, boats, or other vehicles.

Creditor-Placed Home – single interest or dual interest credit insurance purchased unilaterally by the creditor, who is the named insured, subsequent to the date of the credit transaction, providing coverage against loss to property that would either impair a creditor’s interest or adversely affect the value of collateral on homes, mobile homes, and other real estate.

Crop – coverage protecting the insured against loss or damage to crops from a variety of perils, including but not limited to fire, lightening, loss of revenue, tornado, windstorm, hail, flood, rain, or damage by insects.

Crop-Hail Insurance – coverage for crop damage due to hail, fire or lightning.

C – Glossary of Insurance Terms
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