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.

Axco is the definitive source of insurance market information and has developed new ways to deliver information to its users faster and smarter, saving time and resource and allowing businesses to make better-informed decisions.

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

u

Uberimma fides

See utmost good faith

Underinsurance

Term used to describe situations in which the amount of insurance cover purchased is less than the full value of the insured risk. This 'underinsurance' results in the insured paying a lower premium than ought to be paid, as premium rating is based on an understanding of the full value of the insured risk. Underinsurance is dealt with through the condition of average, which is a policy condition that allows for claims payments to be reduced proportionately to the extent of the underinsurance. Related terms: average, condition of.

Uninsured perils

See unnamed perils

Unnamed perils

Those perils that are not declared at all in an insurance policy, as being either covered or not covered by that policy. Unnamed perils can cause some difficulties when determining whether a loss is covered: in such cases, insurers apply the principle of proximate cause. If a loss is caused by an unnamed peril but the proximate cause of that loss is found to be a named peril, then it is covered. Compare to: excluded perils, named perils.

Unspecified perils

See unnamed perils

Utmost good faith

The principle underpinning the underwriting of insurance business whereby all parties to a contract understand that the individual or company proposing the insurance has disclosed to the underwriter all facts material to the risk that are within that individual or company's knowledge. Utmost good faith also applies to insurers, the principal requirement on them being to disclose openly and in full all details of the cover being provided. 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.

v

Valued policy

A valued policy is one under which the value at risk is agreed between the insurer and the insured. It is an indemnity policy in the sense that the insured is restored to the financial position that he or she enjoyed before the loss but the indemnity is based on a pre-agreed amount and does not take account of any variations in market price (positive or negative) or factors affecting value such as wear and tear or deterioration. Compare to: benefit policy, indemnity policy.

w

Wakala

The wakala system is a type of agency agreement whereby a takaful or Islamic insurance operator acts as a manager on behalf of members (policyholders) in return for a fee, usually a percentage of gross written premiums. The wakala system is most commonly deployed for underwriting.

In the wakala system, unlike muduraba, there is no sharing of fortunes between the takaful operator and the members. Where an underwriting account is managed on a wakala basis, the members wholly own and may share, in proportion to the contributions paid by each member, any net underwriting surpluses (after the deduction, inter alia, of the wakala fee). The takaful operator's sole revenue from the part of the operation in which wakala is applied is the wakala fee itself.

In the wakala system the takaful operator arranges retakaful and manages underwriting policy as it sees fit. Legal liability for errors, omissions or negligence by the takaful operator varies between countries and may not be specified in legislation, in which case it would be left to the judgment of the courts, usually according to the rules and principles of the relevant legal system and the facts of the case. Compare to: muduraba, waqf.

Waqf

The waqf takaful or Islamic insurance system is not for profit and relies on membership contributions which are a 100% donation, sometimes known as tabarru. Essentially, waqf operates as a public foundation. Whereas in the mudaraba and wakala models investment and underwriting funds are owned by the respective contributors, in the waqf system they are not owned by anyone in particular. Surplus from operations within the mudaraba and wakala models can be distributed between the contributors but such distribution is not possible in the waqf model, with the result that such surpluses remain unallocated. Compare to: muduraba, wakala.

Wholesale broker

See broker, wholesale

Wildfire

Catch-all term used to refer to the variety of fires that occur in the wild due to natural phenomena in climate or weather, such as spontaneous combustion or lightning storms. Such fires include bushfire, forest fire and grass fire. These different, more precise, names depend simply on what is on fire and where the fire occurs; wildfires can occur anywhere in the world.

Workers' compensation (WC)

Workers' compensation is a no-fault benefit paid out under (state-run) social security systems, normally only to those employed under a contract of service (ie not the self-employed). In order to receive benefit payments under a workers' compensation scheme, an employee is usually only required to prove that an occupational accident or disease has occurred (unlike under employers' liability insurance, where the employee must prove fault on the part of the employer). Workers' compensation usually provides fixed benefits according to the degree of injury or disease, and takes no account of loss of earnings or medical expenses.