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:

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Rate

See premium rate

Retail broker

See broker, retail

Retakaful

Retakaful refers to the 'reinsurance' of a takaful operation and denotes reinsurance that, like takaful or Islamic insurance, is carried out in a way that complies with Islamic principles and sharia law. Related terms: reinsurance, takaful.

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Saffir-Simpson scale (SSHWS)

Also referred to as the Saffir-Simpson Hurricane Wind Scale, this scale was developed in the late 1960s for the purposes of rating hurricane intensity and forecasting resultant property damage. The scale uses ratings from 1 to 5 based on hurricane wind speed, with 1 denoting the lowest wind speed on the scale and 5 the highest and most damaging (to human life and to property). The scale excludes other factors such as the size of the hurricane and precipitation types and levels. Related terms: Saffir-Simpson scale values.

Saffir-Simpson scale (SSHWS) values

Saffir-Simpson scale values are the values assigned to hurricane events under the Saffir-Simpson scale, which forecasts the likely property damage resulting from a hurricane. Saffir-Simpson scale values are as follows:

  • 1 (74 to 95 mph) - some damage to buildings but minimal and not affecting building structures. Most damage at this level is to trees, foliage and power lines.
  • 2 (96 to 110 mph) - described as causing moderate damage, winds at this speed can cause damage to roofs, windows and doors, piers, coastal roads, small watercraft and mobile homes, and can uproot small trees.
  • 3 (111 to 129 mph) - extensive damage; framed buildings may sustain considerable damage and constructions close to the coast will most likely incur serious flooding if not outright destruction. Evacuation of coastal areas likely.
  • 4 (130 to 155 mph) - devastating damage, with well-constructed buildings damaged severely through loss of exterior walls and roof structure failure, signs, trees and foliage all blown down. Large-scale evacuation likely and of homes further inland than would be evacuated under value 3 winds. Affected area left uninhabitable for weeks.
  • 5 (156 mph and higher) - catastrophic damage, including some total building structure failures, complete destruction of mobile homes, small buildings overturned and evacuation of all properties within five to 10 miles of the coastline. Affected area left uninhabitable for months.

Schengen area

The Schengen area is a defined territory within which the free movement of persons is guaranteed. Those EU member states that have signed the Schengen Agreement of 1985 (which is not all EU member states) have abolished all internal borders in favour of a single, external, border. Within the Schengen area, there are common rules and procedures with regard to visas for short stays, asylum requests and border controls, and there is also heightened co-operation and co-ordination between police services and judicial authorities across the signatory member states. Schengen co-operation was incorporated into the European Union (EU) legal framework by the Treaty of Amsterdam of 1997. Related terms: European Union.

Second party

In insurance terms, the second party refers to the insured. Compare to: first party, third party.

Services business

See cross-border business

Shipping and forwarding agent

See agent, shipping and forwarding

Special perils

See all risks

Specified perils

See named perils

Subrogation, principle of

This is related to the principle of indemnity and it allows an insurer to recover from a third party (responsible for a loss) the costs that it has incurred in indemnifying its insured for that loss.

Sum insured

The specified maximum sum for which the insured is covered under a property insurance policy, ie the maximum amount that the insured can claim from the insurer. The sum insured is usually the same amount as the value at risk and typically forms the basis for calculating the premium.

t

Takaful

Takaful is a term used to refer to insurance conducted in accordance with Islamic principles. There is no common rule about the usage of the term 'takaful'. It is not used in all countries where Islamic insurance is practised and, where it is used, it may refer to sharia-compliant insurance or to life insurance specifically. It is usually taken to denote insurance that complies with Islamic sharia law, where members participating in a takaful arrangement make contributions in order to guarantee each other against loss. Through this system, any losses that occur are spread across all participants. Takaful is based on principles of mutual assistance, shared responsibility and co-operation.

The two most commonly deployed models of takaful are the mudaraba and wakala systems. The muduraba system is usually preferred for the investment aspects of takaful activities while the wakala system is preferred for the risk sharing/underwriting aspects of the operation. Waqf is another, less commonly used, system.

In some countries the conduct of takaful or Islamic insurance is regulated by separate compliance regulations or rules, which usually complement rather than replace conventional insurance legislation. In other countries where takaful is practised there may not be any specific regulations relating to takaful activities. As far as is known there is only one country (Republic of the Sudan) where all insurance legislation is intended to be based on sharia principles and where conventional insurance activity is not permitted at all.

In some countries where takaful or Islamic insurance is practised, each member is provided with a membership document which describes the basis, systems and practice of takaful or Islamic insurance as practised in the specific issuing entity. Such membership documents complement (and do not replace) takaful or Islamic insurance coverage contracts.

Takaful operations may only invest funds in sharia-compliant operations, that is, investments that do not offer fixed rates of interest. It is also common for investments by takaful or Islamic insurance entities in forbidden (haram) activities (such as the manufacture of alcoholic drinks and the production of pork for human consumption) to be prohibited.

In many countries where takaful or Islamic insurance is practised it is usual, or may be legally compulsory, for each practising company to establish an Islamic committee to oversee and approve all operational aspects to ensure that they comply (in the committee's opinion) with sharia. In some countries regulations also allow for a central sharia committee which provides opinion and rulings on all takaful or Islamic insurance activities in the relevant market place.

Takaful, family

Family takaful refers to what is known in conventional insurance as 'life' business and includes long-term savings and protection plans, including provision for retirement, education costs and mortgages. Takaful operations may only invest funds in sharia-compliant operations. Related terms: takaful. Compare to: takaful, general.

Takaful, general

General takaful refers to what is known in conventional insurance as 'non-life', or 'property and casualty' business. General takaful encompasses motor and personal accident business. Related terms: takaful. Compare to: takaful, family.

Third party

In insurance terms, the third party refers to one who is claiming against the insured or policyholder (who is referred to as the second party) for injury or damage. Third party may also refer to a person or organisation who is considered liable for injury or damage caused. Compare to: first party, second party.

Tied agent

See agent, tied