The End of Insurance as We Know It

by Rob Galbraith

Occurs when an insurance carrier refuses to cover a claim because it does not meet the criteria for being a covered loss

  Department of Insurance (DOI)

  A general term for a state-based insurance regulator in the United States

  Directors & Officers (D&O)

  A form of commercial insurance available to directors and offices of an enterprise to cover legal liability that make result from their position with the organization

  dollar deductible

  A deductible that is expressed as a fixed dollar amount

  dongle

  A hardware device common in early implementations of telematics where a physical device needed to be plugged into a port in a vehicle in order to record statistics from the event data recorder

  driving activity

  The presence of accidents and moving violations (tickets) for a given driver or household

  earned premium

  Premium for coverage already provided that carriers can book as revenue

  endorsements

  Amendments to standard policy forms that can be added separately and become part of the overall contract

  Errors & Omissions (E&O)

  A type of commercial insurance coverage for professionals such as doctors, lawyers, accountants, and engineers to cover their liability exposure in the provision of advice and services (also called Professional Liability coverage)

  estimate

  An assessment of financial loss and the cost to repair it

  event data recorders (EDR)

  A device used in vehicles to record information about the speed, distance, acceleration, time in use and more

  excess and surplus (E&S)

  A market for insurance that goes beyond what is available in the admitted market; typically products sold are for specialty risks or hard-to-place markets and are not regulated

  exclusive agent

  An insurance agent that represents a single carrier

  exclusions

  Insurance policy contract language that specifies any items, perils and other terms and conditions that are not covered by the policy

  exhausted

  An insurance term used to describe the scenario when policy limits have been reached

  expense ratio

  A ratio of all underwriting expenses not related to adjusting losses divided by written premium (trade basis) or earned premium (statutory basis)

  exposure

  An insurance term that describes susceptibility to financial loss

  extract, transform and load (ETL)

  A process by which raw transactional data is manipulated and stored as analytical data

  file-and-use

  A regulatory scheme common in many states where new rates, forms and rules must be filed by carriers before being used, but do not require prior approval in order to be implemented

  first notice of loss (FNOL)

  The first report of a claim to an insurance carrier

  first party

  Refers to an individual or entity that is a party to the insurance contract between insured and insurer

  float

  The amount of money at any given time held by carriers after being collected as premium before being paid out as losses or expenses

  frequency

  A measure of the probability or likelihood of a claim occurring, measured as the number of claims divided by the number of exposures

  full stack

  An insurance carrier writing in an admitted market and meeting all of the necessary legal requirements in terms of holding capital, writing policies, etc.

  gamification

  The transition of processes into interactive feedback loops similar to what customers experience when playing video games

  generalized linear modeling (GLM)

  A class of statistical techniques including linear regression that is commonly used in actuarial science

  good faith

  A legal concept that applies when an insurance carrier follows all of its responsibilities in handling a claim

  hurricane deductible

  A deductible that applies when a loss occurs due to a hurricane event; each jurisdiction or policy may have slightly different definitions for when a hurricane deductible applies

  in force

  An insurance term that indicates a policy is active

  inception date

  The date which an insurance policy first became active

  incumbents

  A broad term including any existing entities currently doing business in the insurance space

  incurred but not reported (IBNR)

  A class of losses that have already happened but have not yet been reported to the insurer

  indemnification

  A key insurance principle that holds those who suffer harm that is covered under an insurance contract should be put back as close to their pre-loss state as possible, no better and no worse

  independent agent

  An insurance agent that represents multiple carriers

  information architect

  A professional who is responsible for designing and implementing strategies that help organizations make the most efficient use of their data as possible

  insolvency

  Occurs when an insurance carrier does not have enough loss reserves to cover all of its anticipated claims and is shut down by regulators

  insurable interest

  A common requirement in insurance that the person who is insuring an exposure actually own or have a financial stake; generally speaking, insureds or claimants cannot receive payment for losses when they do not have an insurable interest even if damage would otherwise be covered

  insurance-linked securities (ILS)

  A class of financial investments, including catastrophe bonds, that are linked in some fashion to the insurance market

  insurance to value (ITV)

  An insurance concept that an item must be covered to its current replacement cost value in order to receive full coverage in the event of a loss; if an item (usually a property) is insured for less than 100% to value the amount recovered will not be sufficient to fully replace that item

  insured

  The party or parties that are covered by an insurance contract with a carrier

  insurer

  The party, usually a carrier, that is providing the coverage to an insured in an insurance contract

  insurtech

  A broad term that includes the development and adoption of technology in the insurance sector

  Internet of Things (IoT)

  A broad terms that describes a wide range of devices ranging in sophistication that can connect to the Internet

  investment income

  The amount of money earned by insurance carriers on their portfolio of investment holdings

  issue

  The delivery of an insurance policy from an insurer to an insured

  key performance indicators (KPIs)

  A set of metrics used by organizations to evaluate their performance

  law of large numbers

  A statistical concept that holds that the larger a set of exposures with an expected distribution of losses, the more likely that actual losses will match the expected losses over time

  legacy systems

  An information technology (IT) platform that was built decades ago and is based on outdated technologies that are difficult and costly to integrate or manipulate

  liability

  A legal responsibility that often is covered by insurance to avoid the potential for a large financial loss such as injuring another person in a car accident or through business operations

  line of business

  An insurance term that refers to the type of product, e.g., auto, homeowners, small commercial

  liquidity

  The amount of cash on hand and ease of turning assets into cash quickly

  long-tail

  The length of time needed to resolve claims, measured in years or
decades

  loss adjustment expenses (LAE)

  Any expenses associated with handling claims

  losses

  The amount of money paid by insurance carriers to settle covered claims

  loss development

  The change in loss estimates over time

  loss ratio

  A common insurance industry metric measured by the amount of losses and loss adjustment expenses divided by earned premium

  loss reserves

  The amount of funds held by insurers to pay all expected claims, represented as a liability on the balance sheet

  machine learning (ML)

  A branch of artificial intelligence where model development is automated based on algorithms that examine data and tune predictions based on feedback with minimal human intervention

  managing general agent (MGA)

  A specialized type of insurance agent or broker that is vested with underwriting authority from an insurer; MGAs often handle tasks typically performed by insurers such as binding coverage, underwriting and pricing, appointing retail agents and settling claims

  managing general underwriter (MGU)

  Similar to a managing general agent; more common in life and health but often used interchangeably with MGA.

  metadata

  Data about data that provides additional context, such as a date and time stamp when a process was completed, the size and type of data (character, numeric), etc.

  minimum viable product (MVP)

  A concept in innovation to create a product that may not have all of the full capabilities possible but can be quicker to market and is robust enough as a product to stand on its own

  moral hazard

  The risk that unethical behaviors may result in losses that could have been avoided

  morale hazard

  The risk that preventable losses due to neglect or lack of care could have been avoided

  named driver exclusion (NDE)

  A contract provision in auto insurance that explicitly removes coverage for the named driver

  named perils

  A type of insurance contract that only covers losses for perils that are specifically named

  named storm deductible

  A deductible that applies to losses from a named storm event, not just a hurricane

  National Association of Insurance Commissioners (NAIC)

  An organization comprised of state-based regulators in the United States that works to establish standards and best practices, conduct peer reviews and coordinate regulatory oversight

  National Conference of Insurance Legislators (NCOIL)

  A non-partisan legislative organization comprised principally of legislators serving on state insurance and financial institutions committees around the nation

  National Flood Insurance Program (NFIP)

  A federally-backed flood insurance program in the United States that is part of the Federal Emergency Management Agency (FEMA)

  National Insurance Crime Bureau (NICB)

  A national not-for-profit organization dedicated exclusively to fighting insurance fraud and crime by partnering with insurers, law enforcement agencies and representatives of the public

  natural language processing (NLP)

  An application of artificial intelligence devoted to understanding human language as it is spoken

  non-admitted

  A carrier or insurance market that is not part of the admitted (regulated) market

  non-renew

  A decision by a carrier to not continue (renew) a policy after its current term is complete

  on-demand products

  A class of insurance products that provide instantaneous coverage for added items and allow insureds to add and remove items to be covered quickly and easily with little to no friction

  open perils

  Indicates that all perils not specifically excluded in the contract language are covered causes of loss for a policy; also referred to as all perils coverage

  original equipment manufacturers (OEMs)

  A general description for any hardware or equipment manufacturer, often used to refer to major auto manufacturers such as Ford, General Motors, Mercedes Benz, Toyota, etc.

  parametric insurance

  A form of insurance product where payment is made based on a trigger or objective measure(s) rather than the principle of indemnification, which requires losses to be adjusted

  partial losses

  Losses that account for a portion of the value of the damaged property, but not the total amount

  peer-to-peer (P2P) insurance

  A type of insurance where individuals or entities directly insure each other with assistance from a platform or connecting organization that facilitates the setup but does not directly serve as an insurer themselves

  percentage deductible

  A deductible that is expressed as a percentage of the total value or amount insured

  peril

  A class of hazard that can cause economic damage and loss to exposures

  permissive users

  One or more drivers of a vehicle that are not named drivers on the auto policy yet are covered

  personal property

  All household items and personal effects not classified as real property like buildings and land or vehicles or business property

  physical damage

  Damage to a vehicle that can be covered under collision or comprehensive coverage

  policies in force (PIF)

  The total number of insurance products currently active

  policy administration system

  An information technology platform used by carriers to manage customer and policy information

  predictive algorithms

  A class of statistical formulas that are used to make predictions and forecasts

  premium

  The money collected by insurers in return for coverage from an insurance policy

  premium leakage

  The amount of money that should be collected in premium by insurers if the risk is categorized properly but is lost due to misclassification

  pricing cells

  The number of unique rates that an insurer pricing plan has based on all variables considered

  primary insurer

  An insurance carrier that does business directly with insureds and covers losses from the first dollar up; higher amounts may also be covered by excess cover or reinsurance

  prior approval

  A regulatory scheme common in many states where new rates, forms and rules must be reviewed and formally approved by the regulator prior to being implemented

  process engineering

  A discipline where formally trained experts use techniques to document, evaluate and recommend improvements to make processes more streamlined and efficient (commonly referred to as Six Sigma)

  productivity

  A financial measure of return on employment that takes revenue (earned premium) divided labor expenses to calculate a productivity ratio

  Professional Liability

  A type of commercial insurance coverage for professionals such as doctors, lawyers, accountants, and engineers to cover their liability exposure in the provision of advice and services (also called Errors and Omissions coverage)

  proof of concept

  The development of an innovative idea to the point where it has some tangible qualities and can serve as a basis for evaluation to determine whether to move forward with a minimal viable product (MVP)

  proof of insurance

  A document or other method that serves as legal proof that required insurance coverage is actively in force

  proof of ownership

  A document or other method that serves as evidence that the item or exposure is owned by the insured or claimant; used to demonstrate whether an insurable interest exists

  property

  Insurance used to cover damage to tangible property

  property damage

  A
liability coverage that provides payment for damage to third-party vehicles on an auto policy

  protection gap

  A economic gap between the financial exposures of an individual or entity and those exposures that are covered by insurance (also known as the coverage gap)

  provenance

  A record of an item’s origin and history, used as a guide to establish authenticity and quality

  quasi-insurance

  A product and/or service that provides some of the risk transfer benefits of insurance without being considered insurance for the purposes of regulation

  quote

  The provision of a premium (price) and offering of coverage to a prospect

  rate

  The price charged for insurance, often used interchangeably with premium

  rate integrity

  Describes efforts by carriers to counter premium leakage and ensure that they are charging a sound premium for the exposure

  rating factors

  The variables that are used by insurance carriers in determining rates

  rating plan

  The final (complex) mix of rating factors and pricing algorithms used to determine premiums and the number of pricing cells

  reasonable range

  A range of values estimated using various actuarial techniques between which loss reserves are considered to be sufficient from a statistical viewpoint

  reinsurance

  Secondary insurance that is purchased by primary insurance carriers to provide additional capital and provide protection against large losses on an occurrence or aggregate basis

  relational database

  A data store consisting of tables that can be joined (merged) together using common key fields

  renewal

  The process by which an insurance policy is continued for another consecutive term

  replacement cost (RC)

  Claims settlement for the amount needed to replace the damaged vehicle or property; depreciation is not applied

  responds

  An insurance term used to specify how a policy will react given a set of facts associated with a claim that is made

  return on investment (ROI)

  A business metric of the expected return from an investment expressed as a percentage (e.g., 15% return on investment) or as a ratio (e.g., 3:1 return on investment)