GLOSSARY

External Financing

Using other funds other than the organization’s funds for the financing of losses, e.g. insurance, borrowing and contractual transfer.

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Face Amount

The amount of coverage provided by a life insurance policy, also referred to as coverage amount or death benefit.

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Fiduciary

1) under common law, liability imposed upon a party who stands in a special relationship of trust with another party for a breach of that

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FIFO

An accounting method used to value inventory and the cost of goods sold. Sales are considered to be made against the earliest-purchased or produced merchandise

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Finance

Process of managing an organization’s assets, liabilities, and cash flows to maximize shareholder (or stakeholder) wealth.

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Finite Risk Insurance

Used by primary insurance companies and large self-insurers; the accepted term used to describe a spectrum of loss financing concepts that combine internal and external

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First In, First Out

An accounting method used to value inventory and the cost of goods sold. Sales are considered to be made against the earliest-purchased or produced merchandise

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First To Die

Insurance policy on two lives, with a death benefit to be paid to the surviving insured upon the death of one of the insureds (also

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Fixed Cost

Costs that do not vary with the level of output, especially fixed financial costs such as interest, lease payments, and sinking fund payments.

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FMLA

A federal regulation that provides employees who have been employed at least 12 months and have worked at least 1,250 hours within that 12 month

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Force Majeure

In the law of insurance, a superior or irresistible force. Also common to construction contracts to protect parties in the event that a part of

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Foreign Insurer

InsurerInsurance company that assumes risks for insureds and performs other insurance-related operations, such as loss control and claims settlements. More domiciled outside a state that

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Fraud

An intentional manipulation of the truth, and the act of getting someone to rely on that manipulation of the truth, which results in the person’s

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Free Look

A period of time (usually 10, 20 or 30 days) during which a policy owner may examine a newly issued policy of life and surrender

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Fronting

Use of one insurance company, usually a domestic, admitted carrier, to issue policies on behalf of the captive.

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FSA

A healthcare reimbursement account that allows employees to set aside money through payroll deductions on a pre-tax basis to pay for anticipated eligible medical expenses,

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Fully Insured Plan

A plan where the policyholder (individual or employer) pays a defined premium to an insurer and does not share in the risk associated with actual

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Fully Self-insured

Used by larger organizations to assume management of all exposures; useful when losses for both frequency and severity are very predictable and often used in

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Fully Self-Insured Plan

Employer retains 100% of the cost of claims. Because there is no reinsurance protection most employers choose a partially self-funded financial arrangement.

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GAAP

Principles in financial accounting that serve to assure consistency in financial reporting. GAAPPrinciples in financial accounting that serve to assure consistency in financial reporting. GAAP

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General Damages

An award based on a measure of intangible damages inferred from the Special DamagesThe measurable dollar amounts of an actual loss. More and other facts

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General Partnership

A partnership in which each general partner may act on behalf of the partnership and is personally liable for the partnership’s obligations.

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Generally Accepted Accounting Principles

Principles in financial accounting that serve to assure consistency in financial reporting. GAAPPrinciples in financial accounting that serve to assure consistency in financial reporting. GAAP

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Good Faith

As related to the Business Judgment RuleSingle most powerful defense available to a director or officer and recognizes that not all decisions of the directors

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Goodwill

1) In accounting, the difference between the market price paid for an asset an organization and its book value; 2) in common usage, customer relationship

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Grace Period

A prescribed period, usually 30 to 31 days after the premium due date, during which an insurance contract stays in force and the overdue premium

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Graded Premium

A modified life insurance policy for which the initial premium is low, and then increases in steps over a period of time (usually five years),

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Gross Premium

The premium for participating life insurance. If an insured elects to use his dividends to pay premiums, the gross premium becomes the net premium when

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Gross Written Premium

The annual premium showing on the policies, collected on a gross basis. For a captive, GWPThe annual premium showing on the policies, collected on a

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Group Captive

Owned by multiple, unrelated organizations who are the policyholders; owners may be either homogeneous or heterogeneous.

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Group Model HMO

A single multi-specialty medical group contracted with an HMOProvides a comprehensive benefits package including physician visits, laboratory services, hospitalization and surgery, and focuses on preventive

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Guaranteed Convertible

InsurerInsurance company that assumes risks for insureds and performs other insurance-related operations, such as loss control and claims settlements. More guarantees to convert into a

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GWP

The annual premium showing on the policies, collected on a gross basis. For a captive, GWPThe annual premium showing on the policies, collected on a

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Hazard

A condition or circumstance that may give rise to a loss from a given peril; physical, moral, or morale characteristics that make the likelihood of

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HDHP

A plan that requires employees to bear a greater financial burden in their healthcare by requiring a larger amount of expenses be paid by the

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Health Savings Account

A tax-saving plan for individuals and employees participating in High Deductible Health Plans to save and pay for Qualified Medical Expenses. HSAA tax-saving plan for

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HIPPA

A federal law that provides rights and protections for employees and their covered dependents in group health plans that limit exclusions for pre-existing conditions; prohibit

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HMO

Provides a comprehensive benefits package including physician visits, laboratory services, hospitalization and surgery, and focuses on preventive care, early diagnosis and outpatient treatment. An HMOProvides

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Home Healthcare

Medical care provided by trained personnel in the patient’s home for patients who do not need the more extensive treatment provided by a hospital, skilled

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HRA

An account owned, maintained and funded by the employer to pay Qualified Medical Expenses for employees.

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HSA

A tax-saving plan for individuals and employees participating in High Deductible Health Plans to save and pay for Qualified Medical Expenses. HSAA tax-saving plan for

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IBNR

Represents the liability for unpaid claims not reflected in the case reserve estimates for individual losses. The two components to IBNRRepresents the liability for unpaid

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Implementation

Implementing the desired actions and risk management plans; an element of the risk administration step of the Risk ManagementProcess of managing uncertainty of exposures that

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Implied Authority

Authority of the agent, which is not specifically expressed or communicated, but which is consistent with the agent fully exercising the express authority granted by

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Income Policy

A life insurance contract that provides income on a monthly basis, as opposed to a policy that pays proceeds in a lump sum.

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Incurred but Not Reported

Represents the liability for unpaid claims not reflected in the case reserve estimates for individual losses. The two components to IBNRRepresents the liability for unpaid

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Incurred Losses

1) The total amount of paid claims and loss reserves associated with a particular period of time (usually a policy year). Generally, incurred losses are

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Indemnity

Restoring an injured party to the financial position they enjoyed prior to a loss; reimbursing an injured party suffering loss for the amount of the

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Indemnity Plan

Also known as “fee-for-service plans”, provide a specified payment for medical services rendered regardless of the actual charges.

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Independent Agency System

A system of marketing insurance that involves self-employed parties (independent contractors (agents)) who enter into contracts with usually more than one insurer to represent the

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Indexed Contracts

Contracts where the policy owner can share in a percentage of the growth of an indexed investment (a mutual fund tied to the Standard &

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Indirect Loss

A loss or damage that results from an insured’s inability to use his/her property because of direct loss to the property of others.

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Inflation Index Factor

PremiumAmount of money an insurance carrier charges to provide the coverage described in the policy. More loading to provide for future increases in claims costs

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Insurability

General acceptability by an insurer of an applicant for insurance, based on underwriting review, which may include items such as the applicant’s current health status,

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Insurance Broker

The insurance broker is an individual who acts or aids in the negotiation of insurance contracts, in placing risks, or in soliciting or effecting contracts.

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Insurer

Insurance company that assumes risks for insureds and performs other insurance-related operations, such as loss control and claims settlements.

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Intellectual Property

Property that has a value and lacks a physical existence, such as industrial property consisting of inventions, designs, or trademarks, or copyrights, such as artistic

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Intentional Act

When an individual commits an act with the intent of causing injury, damages, or a private violation of another person’s rights.

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Internal Financing

Using the organization’s funds for the financing of losses, e.g. deductibles, planned retentions, uninsured losses (planned or unplanned).

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Internet

A global system of interconnected computer networks using a standard InternetA global system of interconnected computer networks using a standard Internet protocol to access data

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IRA

A self-directed, tax-deferred retirement investment account established by employed workers who earn a salary, wage, or self-employment income. An individual may establish an IRAA self-directed,

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Joint Venture

Association of two or more individuals or organizations who engage in a specific or limited business transaction; a partnership between separate business organizations.

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Joint-Life Annuity

Provides annuity payments to the annuitant until they die then to the named survivor for their life. Usually spouse, but could be anyone named.

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Kurtosis

In probability theory and statistics, a statistic that measures the degree of peakedness in a distribution; also known as a measure of the volatility of

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Lapse

The point in time when the policy has been terminated or cancelled, usually due to non-payment of premium.

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Last In, First Out

An accounting method used to value inventory and the cost of goods sold. Sales are considered to be made using the latest-purchased or produced merchandise

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Law of Large Numbers

In probability and statistics, the larger the number of units independently exposed to loss, the more accurate the ability to predict loss results arising from

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Layering

Building an insurance program in steps, utilizing the excess-of-loss approach, whereby one insurer writes in excess of lower limits accepted by other insurers.

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Leading

The behavior from a risk manager to cause people to take action; an element of the managerial process.

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Leverage

Use of external fixed cost sources of capital for the organization, e.g., long-term debt and preferred stock.

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Life Expectancy

As shown in the mortality or annuity table used as a reference, the average number of years remaining for a person of a given age

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Life Income

A settlement option under which a life insurance policy pays equal installments as long as the beneficiary lives, even if the principal has been exhausted.

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Life Insurance (Generic)

A contractual system of risk sharing under which contributions are accumulated and redistributed to meet the economic consequences of the uncertain duration of life.

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Lifetime Maximum

The maximum amount the insurer would pay in benefits for an insured during the insured’s lifetime while covered under the policy.

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Limitations

Health insurance plans that contain certain limitations that impose internal limits or “caps” on specific types of medical care.

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Limited Partnership

A partnership in which the general partner is the managing partner who operates the business and the limited partners are not involved in the day-to-day

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Liquidity

Ability of an organization to convert assets into cash quickly with little or no loss, such as selling or factoring accounts receivable and selling marketable

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Liquidity Ratios

Financial ratios that measure the organization’s ability to pay bills over the short term. Includes the current ratio, quick ratio, and net working capital.

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Loan Value

A term that refers to the amount of money an insured can borrow using the cash value of his or her life insurance policy as

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Long-Term Care

A blanket term for a wide range of services designed to meet medical, personal, and social needs in a variety of settings and locations.

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Loss Control

See RiskUncertainty that may be either positive or negative arising from a given set of circumstances. Common definitions also include: 1) chance or probability of

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Loss Conversion Factor

In retrospective rating, a factor used to cover claim adjustment expenses and the cost of the insurer’s or third-party claim administrator’s services.

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Loss Data Analysis

ApplicationThe statement of information given when a person applies for insurance. The insurer underwriter uses this information as a basis in determining whether the applicant

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Loss Development

Difference between the original loss frequency and/or severity as originally reported to an insurer and its subsequent evaluation at a later date or at the

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Loss Limit

Used in retrospective rating formulas, the maximum amount of any one loss included in the retrospective rating plan. In effect, this lessens the impact of

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Loss Rating

Rating technique that establishes the prospective rate based upon historical losses that will be applied to an exposure base to compute the premium.

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Loss Report

Listing of reported claims providing such information as the date of occurrence, type of claim, amount paid and amount reserved for each as of the

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Loss Reserve

Estimation of the liability for unpaid claims that have occurred as of a given date, including the IBNRRepresents the liability for unpaid claims not reflected

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Loss Retention

See Retention1) Internal funds used to pay losses; 2) budgeted losses plus the “tolerance corridor.” See Tolerance corridor; 3) assumption of risk of loss as

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Loss Trending

Adjusting historical losses to account for inflationary trends so that the ultimate value is more current or meaningful. LossA reduction in value. More trend factors

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Loss Triangulation

Study of changes, the relationship of one period to a previous period. The process involves graphs in which the data is displayed in an inverted

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Major Medical Policy

Provides greater benefits for services such as in-patient and out-patient hospital care, intensive care, physician charges and other medical services.

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Managed Care Plan

A partnership between insurers and providers through contracts to provide care at discounted costs for benefits defined in the policy.

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Managed Indemnity Plan

Incorporates basic utilization programs such as case management, pre-certification and recertification of certain services into a traditional indemnity plan.

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Managerial Accounting

An internal accounting system that provides accurate and timely financial information for use by managers to make short-term and day-by-day financial decisions.

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Managerial Model

PlanningThe process a risk manager takes to predetermine a course of action; an element of the managerial process. More, organizing, leading and evaluating the resources

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Manual Rates

Rates as promulgated by a rating bureau before application of any credits, discounts, surcharges or deviations. Such rates are referred to as “manual rates” because

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Maturity

The date cash value equals the face value of a whole life or endowment policy and becomes payable to the policy owner.

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Maturity Value

The amount paid under a whole life insurance contract if the insured reaches the age of the mortality table on which the contract was based.

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Mean

Sum of all observations divided by the number of observations; the average (also known as the arithmetic mean).

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Median

Midpoint of the observations ranked in order of value; half the observations lie below and half above; the middle value (also known as the 50th

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Medicaid

A jointly funded federal and state program that provides hospital expense, medical expense coverage, and in some cases long-term-care-type coverage to the low-income population and

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Medicare

A federal government medical insurance plan originally for individuals age 65 and older or disabled. The age requirement has been raised based on year of

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Medicare Supplement Insurance

Also known as “Medigap”, individual health insurance coverage designed to bridge coverage gaps in MedicareA federal government medical insurance plan originally for individuals age 65

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Merger

Two or more organizations that create a new entity, agree to move forward as one and issue the appropriate ownership interests (common stock, memberships, partnerships,

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Microschool

As a consequence of COVID-19COVID-19 is a disease caused by a new strain of coronavirus. ‘CO’ stands for corona, ‘VI’ for virus, and ‘D’ for

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Mini-tail

Automatic 60-day extended reporting period allowing for the making of claims after expiration of a “claims made” liability policy.

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Minimum Premium

In retrospective rating, the minimum amount of premium to be paid by the insured, determined by multiplying the minimum retrospective premium factor by the standard

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Mitigation of Damages

Legal concept that imposes a duty on an injured party to exercise reasonable diligence and ordinary care in attempting to minimize damages after injury or

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Mixed Model HMO

Also known as a “hybrid HMOProvides a comprehensive benefits package including physician visits, laboratory services, hospitalization and surgery, and focuses on preventive care, early diagnosis

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Monitoring

Examining and evaluating the results of risk management actions and plans; an element of the Risk AdministrationImplementation and monitoring of the Risk Management Process; a

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Mortality

The measure of the probability of dying at a certain age. MortalityThe measure of the probability of dying at a certain age. Mortality rates usually

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National Alliance Difference Makers

National Alliance Difference MakersNational Alliance Difference Makers is a quarterly multimedia series highlighting insurance and risk management professionals who display excellence and make positive impacts

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Negligence

Failure to exercise a degree of care which a reasonably prudent person would exercise under the same circumstances. The following four elements must be proven

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Net Book Value

Value of an organization’s assets as carried on the balance sheet in accordance with applicable accounting system principals. Under financial accounting (GAAPPrinciples in financial accounting

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Net Ceded Premium

PremiumAmount of money an insurance carrier charges to provide the coverage described in the policy. More deposited in the captive. From the perspective of the

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Net Income

Operating income less interest expense and taxes; amount that can be distributed to an organization’s owners or kept as retained earnings.

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Network Model HMO

Multiple groups of medical providers contracted with an HMOProvides a comprehensive benefits package including physician visits, laboratory services, hospitalization and surgery, and focuses on preventive

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Non-admitted Asset

Assets of an insurer that are not permitted by the state insurance department or other regulatory authority to be taken into account when determining an

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Non-admitted Insurer

InsurerInsurance company that assumes risks for insureds and performs other insurance-related operations, such as loss control and claims settlements. More authorized to operate in a

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Non-Cancelable

An insurance policy that the insured has the right to keep in force by paying the premium for a period (stated in the contract). The

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Non-concurrency

A term used to describe a situation where there are two or more insurance policies not written with the same coverage, or effective dates.

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Non-renewal

The action by the insurance company to terminate insurance coverage at the expiration date or anniversary date of the policy.

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Non-subject Premium

A premium that is not a part of a loss sensitive rating formula. For example, in a retro plan, the non-subject premium usually purchases the

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Non-waiver Agreement

In claims management, a bilateral agreement between an insurer and a claimant that permits the continued processing of the claim while preserving the insurer’s rights

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Obligee

Person, firm, or corporation protected by a surety bond; the party to whom the principal under the bond is obligated.

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Occurrence

An accident with the limitation of time removed; an “accident” that is extended over a period of time rather than a single observable happening.

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Occurrence

An accident with the limitation of time removed; an “accident” that is extended over a period of time rather than a single observable happening.

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Off-shore Insurer

An insurer domiciled outside the US. By definition, all off-shore insurance companies are alien, in spite of ultimate ownership by a US corporation.

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Open-Panel HMO Model

Insurers contract with individual or groups of physicians to provide services to the HMOProvides a comprehensive benefits package including physician visits, laboratory services, hospitalization and

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Organizing

The actions a risk manager takes to arrange and relate work to be done so that it can be performed most effectively by others.

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Out-of-Pocket Maximum

In Health Insurance, a stop loss provision that defines the maximum dollar amount an insured must pay in out-of-pocket expenses during the year. Once an

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Outstanding losses

On a loss run, the amount calculated by subtracting paid losses from incurred losses and representing the remaining liability to be paid on a loss

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Owner

The individual or entity controlling all rights, benefits, and privileges of a life insurance contract. This may or may not be the insured. Ownership may

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Paid Losses

Amount actually paid in losses during a specified period of time, not including estimates of amounts (i.e., reserves) that will be paid in the future

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Paid-in Capital

Amount actually paid in losses during a specified period of time, not including estimates of amounts (i.e., reserves) that will be paid in the future

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Paid-in Excess

Original cost of a newly issued share of common stock less its stated par value. Insurance company common stock (and commercial bank stock) often has

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Pandemic Pods

Question: What are Pandemic PodsQuestion: What are Pandemic Pods? Answer: As a consequence of COVID-19 and the closing of schools, parents have started organizing “pandemic

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Pareto Principle

In business management, the observation that 80% of effects come from 20% of the causes. Also known as “Pareto Efficiency” or the “80/20 Rule”.

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Parole Evidence

Legal concept describing oral or verbal evidence. In contract law, parole evidence relates to the inadmissibility of oral representations that would otherwise alter or defeat

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