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:

# a b c d e f g h i j k L M n o p q r s t u v w x y z


Liability insurance

Liability insurance, referred to as casualty insurance in the US, offers protection against the legal obligation to pay compensation and costs for causing bodily injury or property loss or damage to third parties. Liability may arise through negligence, breach of statutory duty or breach of contract. Liability insurance sub-classes include directors' and officers', employers', environmental, hunting, product, professional and public liability and are often compulsory by law.

Limit of indemnity

See limit of liability

Limit of liability

In a liability insurance policy, the limit of liability (also known as the limit of indemnity) is the maximum sum for which the insured is covered, ie the maximum sum that the insured can claim from the insurer. In property insurance, the equivalent limit is called the 'sum insured'. A limit of liability may be determined as one of several types of limit, such as per event, per year or per cause. Many liability insurances can be compulsory, for example employers' liability or professional liability, and in such cases there may be a prescribed minimum limit of liability that businesses or professionals are required to purchase (and insurers obliged to offer).

Limit of liability, aggregate

The aggregate limit of liability, also known as the aggregate limit of indemnity or aggregate limit, outlines the maximum amount that the insurer will pay for multiple losses under a given policy during a set time period, for example the currency of the policy or one year. It seeks to limit the liability of the insurer and may apply to a specific type of coverage or to all losses under the policy.

Line of business

See class of business

Loss adjuster

A claims expert who investigates and processes claims and assesses the nature and value of losses. Loss adjusters are appointed and paid by insurers but they are independent and professionally qualified. Insurers will appoint a loss adjuster to investigate large, complex and unusual claims; loss adjusters are employed to: establish the cause and value of any losses; recommend the basis (and, often, size) of settlement; negotiate the settlement between insurer and insured.

Loss assessor

A claims expert who is appointed to assess, prepare and negotiate a claim and settlement with an insurer on the insured's behalf. Loss assessors are appointed and paid by insureds to act in their interests (ie, unlike loss adjusters, they are not independent). The fees paid to a loss assessor may not form part of the insured's claim. Loss assessors are sometimes referred to as public loss assessors.


A basis on which liability insurance may be written, although it is usually only public liability policies that are written on this basis. Under a policy written on a losses-occurring basis, claims are handled by the insurer that was on cover at the time when the event causing the insured loss occurred (rather than when the claim was actually made). Compare to: claims-made.



See mobile banking

Material circumstance

See material fact

Material fact

A material fact is generally taken to mean any fact that would influence the judgement of a prudent insurer in determining whether to underwrite a risk and/or in establishing the terms and premium rate on which to underwrite it. Material facts must be disclosed as part of the principle of utmost good faith and the duty to disclose all known material facts applies prior to the conclusion of a contract but also upon renewal and in respect of mid-term changes affecting the risk. Non-disclosure of a material fact entitles the insurer to void a contract ab initio.

Medvedev-Sponheuer-Karnik scale (MSK)

A 12-step scale used to measure the intensity of earthquake events on the basis of three factors: effects perceived by people; damage caused to buildings; geological changes, underground and to water systems. These three factors are measured in the area surrounding an earthquake's occurrence and, if there is any discrepancy between the scale values assigned to two or more of the three factors of measure, the "damage caused to buildings" factor predominates, as the assessment of damage to buildings is the primary objective of the MSK scale. The "effects perceived by people" factor is the only one used for the first four values on the MSK scale (I to IV) because this is held to be the only way to measure seismic intensity at such a low level. The scale was developed in the 1960s and is still in use in many former Soviet Union countries and in India. Related terms: Medvedev-Sponheuer-Karnik scale values.

Medvedev-Sponheuer-Karnik scale (MSK) values

Medvedev-Sponheuer-Karnik scale values are the values assigned to earthquake events under the Medvedev-Sponheuer-Karnik scale, which measures seismic intensity. The scale values are as follows:

  • I (not noticeable) - this level of seismic activity is detectable only by seismographs.
  • II (scarcely noticeable) - noticeable to only a few people who are at rest inside buildings at the time of the earthquake event.
  • III (weak, partially observed only) - only noticed by a few people who are inside buildings.
  • IV (largely observed) - felt by many people in buildings and by a few outside. Windows and free-standing objects would rattle and hanging objects sway.
  • V (awakening) - the first level of the scale that takes account of factors beyond human perception. Most people, both in buildings and outside, would feel an earthquake of this level. Buildings tremble and unstable objects may overturn or move. Slight damage to some buildings of rural, clay or adobe structure.
  • VI (frightening) - many people would run outside. Slight damage to many rural, clay or adobe constructions and to a few brick, stone and prefabricated buildings. Some rural structures may also sustain more moderate damage, such as cracks in chimneys. Gaps of up to one cm may be detectable in wet ground.
  • VII (damage to buildings) - people experience difficulty standing. Many reinforced and well constructed wooden buildings sustain minor damage, brick structures are moderately damaged, and rural structures start to collapse. Waves form on water.
  • VIII (destruction of buildings) - fright and panic. Rural buildings collapse partly or entirely and some reinforced buildings sustain heavy damage. Branches break off from trees and stone walls collapse. Gaps of several centimetres appear in the ground and water levels and flows change.
  • IX (general damage of buildings) - considerable panic. Damage to roadways and underground pipes, destruction of brick buildings, and heavy damage to reinforced structures. Landslides, large waves on water, cracks in the ground exceeding 10cm on river banks.
  • X (general destruction of buildings) - partial collapse, and in some cases total destruction, of reinforced structures. Severe damage to dams and bridges. Cracks of up to one metre in the ground, landslides, and creation of new lakes.
  • XI (catastrophe) - extreme damage to all types of structure, including reinforced and well-constructed buildings, bridges and railway lines. Major changes to the ground surface, including landslips and rockfalls. The intensity of the event requires investigation.
  • XII (landscape changes) - almost all buildings heavily damaged or destroyed entirely. Considerable changes to the surface of the ground, with sizeable cracks in the ground, new waterfalls created and rivers redirected. The event requires special investigation.


A form of microfinance banking in which lending institutions, including financial institutions and non-governmental organisations, lend small amounts of money at low rates of interest to low-income individuals and groups to facilitate the starting-up of small businesses. The purpose of microcredit is to provide access to basic financial services for those who would otherwise be denied credit due to a lack of credit history or banking experience or lack of collateral.


Microfinance is finance on a small scale. The term encompasses several forms of 'micro' services, including microcredit, microsavings and microinsurance but is often used to refer to microcredit activities only.


A form of microfinance that is designed to provide low-income individuals with the opportunity to purchase insurance to protect themselves or their businesses against loss. In both personal and commercial lines, microinsurance involves lower sums insured and lower premium than most normal insurance business. Microinsurance business is designed for low-income individuals, and scope of cover, methods of distribution, premium payment and claims-processing vary accordingly. Microinsurance is carried out worldwide and regulation and supervision of this area of business is usually identical to that for normal insurance business.


A form of microfinance banking that allows low-income individuals who would otherwise be denied access to basic financial services the opportunity to open savings accounts for the purpose of setting money aside for future needs. Microsavings accounts often entail lower minimum deposit requirements than normal savings accounts in order to make them more accessible to low-income individuals.


Microtakaful is takaful on a small scale, as microinsurance is insurance on a small scale. It involves small premiums and small amounts of cover and is offered to those on very low incomes as a form of protection against damage or loss that may befall them or their business. The target market for microtakaful is workers in the informal economy and those whose income is affected by seasonal variations in employment.

Microtakaful differs from microinsurance in that, like takaful, it is carried out in a way that complies with Islamic principles and sharia law. Related terms: takaful, microinsurance.

Mobile banking

A banking service that allows customers to conduct banking transactions through the internet, or 'online', using a mobile device such as a mobile phone. Such transactions can include moving money, viewing statements and checking account balances. Mobile banking is normally conducted through a specialised mobile device application but may also be conducted through an optimised 'mobile-friendly' version of the bank's website. Compare to: internet banking.

Modified Mercalli scale (MM)

The Modified Mercalli (MM) scale, also called the Modified Mercalli Intensity (MMI) scale, measures seismic intensity (as opposed to magnitude). Like other seismic intensity scales, the MM scale categorises earthquake events on the basis of perceivable and observable effects on people and man-made structures, as well as geological changes. Different MM scale values may be assigned to different areas affected by a single seismic event, due to the fact that the effects of a such an event will vary according to, for example, distance from the epicentre or variations in ground surface. This scale is currently used in the United States. Related terms: Modified Mercalli scale (MM) values.

Modified Mercalli scale (MM) values

Modified Mercalli scale values are the values assigned to earthquake events under the Modified Mercalli scale, which measures seismic intensity. The scale values are as follows:

  • I - this level of seismic activity may be felt but only by very few people and under highly favourable conditions.
  • II - felt by a few people who are at rest.
  • III - noticed by people who are inside buildings but many people may not identify the event as being an earthquake.
  • IV - felt by many people in buildings and by a few outside. Suspended objects swing and windows and dishes are disturbed.
  • V - felt by almost everyone. Windows and dishes break and small objects move.
  • VI - an event of this intensity would be felt by everyone. Furniture moves and buildings are likely to sustain slight damage, such as falling plaster and damage to chimneys.
  • VII - most people would be frightened by the event. Slight damage to well constructed buildings but considerable damage to poorly built structures, including chimney collapse.
  • VIII - collapse of walls, monuments and statues, and severe damage to buildings of poor construction. Heavy furniture moved and overturned.
  • IX - landslides, buildings moved from their foundations, considerable damage to well constructed buildings.
  • X - most building foundations destroyed. Rock falls, avalanches, landslides and large cracks in the ground.
  • XI - almost total destruction, with few buildings left standing. Bridges destroyed.
  • XII - total destruction. Objects thrown into the air.

Motor casco

Motor casco is a form of voluntary motor own damage insurance that covers damage to the vehicle itself resulting from such causes as traffic accidents, natural catastrophes, vandalism and glass breakage, as well as theft of the motor vehicle.


Mudaraba is a form of joint venture in takaful or Islamic insurance between the contribution-paying members (policyholders) and the takaful operator (operating on behalf of the founder members/shareholders). The sharing arrangements between the members and the takaful operator are agreed in advance but may be varied annually or periodically subsequent to agreement as between the parties.

The muduraba system is most commonly used to share investment income and implies the sharing of fortunes between the takaful operator and the members in pre-agreed proportions. Compare to: wakala, waqf.