In the Insurance Essentials article series, Axco defines key insurance terms to clarify understanding of the global insurance market and to aid the professional development of those wishing to join or learn more about the industry.
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Here are some key insurance terms and their definitions:
Deadweight tonnage (DWT)
Also known as deadweight carrying capacity, deadweight tonnage refers to the weight that a vessel can transport, calculated using the weight of cargo, stores and fuel.
Cover for property owners to insure against the costs of remedial work on a property where that property has been physically damaged or has partially or totally collapsed as a result of faulty design, construction or materials. Contracts cover a period of ten years or more following the completion of construction work and can be transferred to new owners. Decennial insurance is sometimes referred to as inherent defects insurance.
The portion of an insured loss borne by the insured (rather than the insurer). A deductible may be arranged as an agreed amount or an agreed percentage of the policy limit and only once this amount or percentage level is exceeded does the insurer become liable to pay the (remainder of) the claim; in this way, application of a deductible reduces the insurer's limit of indemnity. The deductible is, in effect, the amount that is 'deducted' from the amount of a claim. Any claim that falls below the level of the deductible does not affect the insurer and is not treated as a claim. The term tends to be used in reference to a large excess, ie one borne by a commercial entity rather than one that would apply to an individual with personal insurance, and is often used synonymously with 'excess'. Related terms: excess.
A deductible that operates on the basis of time rather than a monetary amount or percentage of a policy limit. Time deductibles are most commonly seen in business interruption, workers' compensation and medical insurance policies, where the policy terms and conditions may state that, for example, all costs incurred and losses resulting following a loss event are borne by the insured (rather than the insurer) for the 72 hours immediately following the loss event. Only once this agreed time period is exceeded does the insurer become liable to pay the (remainder of) the claim; in this way, application of a time deductible reduces the insurer's limit of indemnity. Related terms: deductible.
Deferred acquisition costs (DACs)
Acquisition costs (ie any and all costs incurred by an insurer or reinsurer in acquiring business) that are carried over to a subsequent accounting period so that the acquisition costs are shown within the same period as any corresponding income generated. Related terms: acquisition costs.
Difference in conditions (DIC)
1. A commercial insurance policy that is designed to 'fill the gaps' in coverage left when many different policies have, necessarily, been purchased in various insurance markets around the world to cover risks in different territories. Difference in conditions policies are regarded as 'master' policies and cover only those risks not covered under the local policies already purchased.
2. A commercial property insurance policy that is purchased by a company in addition to a standard commercial property policy in order to 'fill the gaps' in coverage left by the standard policy. Such 'gaps' are usually those perils that are not covered by the standard policy, such as earthquake. Compare to: difference in limits.
Difference in limits (DIL)
A commercial insurance policy that is designed to 'fill the gaps' in coverage left when many different policies have, necessarily, been purchased in various insurance markets around the world to cover risks in different territories. 'Difference in limits' policies are regarded as 'master' policies and provide excess limits over the limits of the local policies already purchased. Compare to: difference in conditions.
Direct insurance company
Denotes an insurer, as opposed to a reinsurer. The term 'direct writer' is often used in place of 'direct insurance company', or 'direct insurer'. In the United States, the term is sometimes used more specifically to refer to an insurer that deals 'directly' with the policyholder and not through an intermediary.
Direct insurance premiums
Gross written premium including commissions and charges and before reinsurance cessions.
Direct marketing encompasses all those marketing methods that insurers use to sell business without the use of an intermediary. Such methods may include targeted mailings and telesales and are carried out by insurance company employees. Although these methods allow insurers to save on the costs of paying sales staff, direct marketing entails great expense in advertising and promotion, often on the radio or television or in the paper press. Compare to: indirect marketing.
Direct response advertising
Refers to a form of marketing that is designed to encourage prospective customers to respond directly to the advert that they have seen. This 'response' can be in the form of calling an advertised telephone number, responding to an address provided or clicking a link online.
See direct insurance company
Directors' and officers' liability (D&O)
A type of cover that insures directors and officers of companies for claims brought against them on the grounds of negligence, breach of duty or a wrongful act. Such claims are brought most commonly by employees and stockholders that have incurred financial loss as a result of the actions of a director or officer.
Used to describe situations in which there are two or more policies in force covering the same risk.
Duty of care
A level of care that people owe to one another in common law. The duty of care is intended to ensure that peoples' actions do not injure others or cause damage to their property. If a person breaches the duty, they may be liable to pay compensation to those who suffer injury or property damage as a result of their action or inaction.
Duty of disclosure
This term relates primarily to the duty on any party seeking insurance cover to disclose to the underwriter all those facts that may affect the granting or rating of insurance cover, ie material facts. The term may also be used in reference to underwriters, as it is also incumbent upon the underwriter to disclose to the party seeking insurance any entitlement to a premium discount that this party may have earnt, together with a clear and comprehensive explanation of the scope of the cover and highlighting of any policy conditions and exclusions.
This article covers some of the terms you need to know to better understand the insurance industry. If you are interested in learning more, take a look at the various educational insurance courses we have on offer at the Axco Academy.