Insurance Terms Part 1

Cut through the insurance jargon

Find out the meaning of some technical insurance terms here.

Actuary

Actuaries use mathematics and statistics to evaluate the risk of something happening, how much it costs to finance that risk, and how much your premium should cost. They help insurance companies design insurance cover, and advise them on the level of financial reserves needed to meet claims.

Assessor

Also known as a loss adjuster. When you lodge your claim, the assessor who is acting for the insurer, helps approve the claim by checking the details to see if it’s valid and meets the terms and conditions of your policy. Sometimes the assessor will need to ask more questions, inspect the property, or talk to whoever else is involved in the claim, such as another driver, a neighbour, or police.

APRA

The Australian Prudential Regulatory Authority is the prudential regulator of Australia’s financial services industry. It oversees insurers and other financial services businesses such as banks, life insurers and superannuation funds. It regulates these companies to make sure they manage their risks in a way that ensures they can pay policyholder claims and minimise the likelihood of financial losses. To learn more visit www.apra.gov.au.

ASIC

The Australian Securities and Investments Commission is the corporate, markets and financial services regulator. It ensures financial markets are fair and transparent, supported by confident and informed investors and consumers. It also enforces the law, including the Insurance Contracts Act 1984. ASIC’s consumer website is: www.moneysmart.gov.au.

Accidental damage

This form of insurance cover is for an unintentional one-off incident that causes damage to your property or its contents. For example, accidentally spilling red wine over your new white carpet. It doesn’t cover general wear and tear, or damage that occurs over a long time.

Agreed value

The amount for which you and your insurer agree to insure your motor vehicle. You might choose this if your vehicle is fairly new, has modifications, is in better-than-normal condition or has extras not factored into its normal market value. Agreed value policies are usually more expensive than market value policies. Deciding between them depends on your financial circumstances, the value you place on your car, the level of risk you’re willing to accept and the certainty you need, and other factors such as whether your vehicle is under finance.

Asset

An asset in insurance terms is something with monetary value that is covered by an insurance policy, such as a car or a property. Under that policy, the insurer must compensate the policyholder (in accordance with the policy’s terms and conditions) if the asset is damaged or destroyed and the policyholder makes a claim.

Australian Financial Complaints Authority (AFCA)

This is an external dispute resolution service that is not for profit and provides free, fair and impartial services to consumers and financial service providers such as insurers where they are unable to resolve their disputes. Click here for more information on resolving disputes.

Benefit

This is what you receive from your insurer when your claim is agreed and processed. You may have the damage to your property repaired, or the insurer may give you the money. It’s often called a settlement or payout.

Broker

An insurance broker is a specialist who works for you to find the most appropriate insurance products to suit your needs. Brokers know the market well, so on your behalf they get the quotes, read the fine print, negotiate deals and explain what it means for you. They’re especially useful if you are in the market for a few insurance products or have more complex requirements.

Building Code of Australia (building standards)

A nationally accepted and uniform set of technical requirements for all areas of building, which allows for variations of climate, geography and geology. For more information visit: http://www.abcb.gov.au.

Business days

The official working days of a week, excluding public holidays.

Claim

A claim is the request you make for compensation from your insurer if you suffer a loss that is covered by your insurance policy.

Compensation

Compensation is what you receive for a loss or as a result of a loss. It could be in the form of money, services, a replacement item or repairs. To receive compensation from your insurer for your loss, the assessor must decide it is a valid claim that falls under your policy.

Coverage

Coverage is what’s included in your insurance policy. In property insurance, coverage includes the risks that you are insured against, the properties covered, the locations covered, the people insured, and the limits of compensation.

Capital

Insurance companies have to set aside sufficient amounts of money so they can pay all of their liabilities including claims. APRA requires insurance companies to meet prudential capital requirements. Capital is usually comprised of insurance premiums and shares, and the company’s investments and other assets.

Cooling-off period

Allows you to cancel your policy if you change your mind about your purchase and have any money you have paid refunded. You have a minimum 14-day cooling-off period for most general insurance products.

Certificate of Currency

A formal document providing evidence that an insurance policy has been issued by an insurer confirming the details of the type of insurance cover, its value, any exclusion or excess limits, and the period of the insurance cover (how long it is in force). This document is often required by third parties to verify that an individual or organisation is insured. It serves as evidence that a valid insurance policy is in place. It is issued by an insurer once a premium is paid. Examples of when a Certificate of Currency might be needed to: obtain a license to work as a tradesperson, on a construction site, to demonstrate compliance with contractual obligations, when applying for a loan and for various business and professional activities where proof of insurance is required.

Cash settlement

The amount an insurer may offer you to settle and close your claim instead of repairing or rebuilding your insured asset.

Duty of Disclosure

When you apply for an insurance policy, or renew or extend your existing policy, you have to tell the insurer everything about you and your situation that is relevant or could reasonably be expected to be relevant to the insurer’s decision to insure you. You don’t need to disclose something you don’t know, that reduces the insurer’s risk, that is common knowledge, that the insurer knows or ought to know, or something that’s not relevant or the insurer has told you that you don’t need to disclose. With insurance, honesty is the best policy.

Discount

A reduction in your premium that an insurer may offer in certain circumstances, such as having linked policies, more than one policy with the same company, customer loyalty or a history of not making claims.

Defined events

Also known as insured events and refers to a policy that specifically lists the events that you are covered for. These sorts of events could include fire, storm and damage by burglars among other events. Anything not listed as a defined event will not be covered under this type of policy.

Duty of Utmost Good Faith

Each party to the insurance contract – the policyholder, the insurer and a third party beneficiary (a person who is entitled to the benefits of the insurance policy) – must act with fairness and honesty in their dealings with one another. An example of this would be insured policyholder’s obligation to make full disclosure of all relevant facts when taking out the insurance in line with their duty of disclosure. An example for an insurer would be to respond to a claim made under a policy in a timely fashion.

Excess

Excess (also called deductible) is the amount of any loss or damage that you must pay before your insurance policy starts to kick in. In effect, you are accepting a small part of the financial risk yourself. Your excess is stated on your certificate of insurance. You can often negotiate a cheaper premium if you accept a higher excess.

Embargo

Insurers may place embargoes on the purchase of new insurance policies or changes to existing policies to prevent people buying insurance when risk is elevated or a natural disaster is imminent like bushfire, flood or cyclone and then cancelling the insurance policy after the risk passes.

If an insured risk is imminent, the probability of that risk occurring and therefore a claim being lodged is high. Insurers would need to calculate a premium that reflects this elevated risk, rather than averaging the risk over an entire year.

However, not all insurers impose embargoes, there may be insurers who have not placed an embargo, and property owners may be able to find cover.

Financial hardship

Financial hardship means a reasonable inability to meet debts, contracted payments, bills or daily living expenses due to life circumstances, such as losing your job or suffering from an illness. In relation to insurance it means you are unable to meet your obligations to pay your premium to an insurer.

Financial loss

Financial loss is;
a) the damage or destruction of an asset that has a financial value.
b) a type of insurance that covers liability claims from a loss that is solely financial – that is, it does not cause injury or property damage. For example, professional liability insurance.

Fraud

Fraud is when someone deliberately lies or exaggerates details in a claim to get money or compensation dishonestly.

Insurance Terms and their meanings from https://insurancecouncil.com.au/resource/abcs-of-general-insurance-2/

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