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Absolute Liability. The principle that a person may be held liable for damages even without a finding of fault or negligence.

Access. A patient's ability to obtain medical care. The ease of access is determined by such components as the availability of medical services and their acceptability to the patient, the location of health care facilities, transportation, hours of operation and cost of care.

Accident. An unforeseen and unintended event or occurrence.

Accident and Health Insurance. A form of insurance covering death or personal injury by accident, as well as sickness or bodily injury.

Accident Year. The twelve-month period during which losses occurred, regardless of when they are reported.

Accidental Death Benefit. See Double Indemnity.

Accord and Satisfaction. A method of settling a claim in which the parties to the dispute agree to accept something different than was originally expected. The accord is the substituted agreement, and the satisfaction is the performance of the new agreement.

Accumulation Period. The period of time during which an insured must incur medical expenses up to the deductible in order to become eligible for reimbursement under a comprehensive major medical or major medical insurance policy. See Comprehensive Major Medical Insurance and Major Medical Insurance.

Acquisition Costs. See Policy Acquisition Costs.

Act of God. An event that occurs without human intervention or culpability. It serves as a defense to tort liability.

Actuarial Opinion. The certification by an actuary as to the reasonableness of an insurer's reserves.

Actuary. A person who uses mathematical analysis of past loss data and other statistics to determine rates and estimate an insurer's future liabilities.

Acute Care. A pattern of health care in which a patient is treated for an acute (immediate and severe) episode of illness, for the subsequent treatment of injuries related to an accident or other trauma, or during recovery from surgery. Acute care usually is given in a hospital by specialized personnel using complex and sophisticated technical equipment and materials. Unlike chronic care, acute care often is necessary for only a short time.

Additional Named Insured. One or more insureds, in addition to the principal named insured, referred to in an insurance policy as one enjoying protection under the policy.

Add-on Tax. The additional amount of federal income tax payable by mutual life insurers due to the disallowance as a deduction of a portion of policyholder dividends.

Adjuster. See Claim Adjuster.

Administration Expense. All the costs incurred by an insurer in the conduct of its business other than policy acquisition costs, loss adjustment expenses and investment expenses.

Administrative Cost. Costs related to utilization review, insurance marketing, medical underwriting, agents' commissions, premium collection, claims processing, insurer profit, quality assurance programs and risk management.

Administrative Services Only (ASO). A fee-based program in which an insurance company or other third-party administrator performs administrative, clerical or managerial services only and does not assume any risk. Services usually include claims processing, but also may include other services, such as actuarial analysis, utilization review, etc. Businesses or self-funded health plans may use an ASO.

Admitted Assets. Assets of an insurer permitted by insurance regulatory authorities to be taken into account in determining the insurer's financial condition under statutory accounting practices.

Admitted Insurer. An insurer licensed to write certain types of insurance within a given state; also known as an authorized insurer.

Admitted Paper. Policies issued by an admitted insurer.

Adverse Selection. The process by which an insurer is left with a disproportionate share of unwanted, higher-risk business. Particularly common in the life and health lines, adverse selection can occur when higher-than-expected claims experience leads an insurer to raise rates, which in turn causes the migration of "good" risks to companies charging less. Adverse selection may be attributable to improper underwriting and risk selection by the insurer or by superior knowledge of the risk by the insured. Among applicants for a given group or individual program, the tendency for those with an impaired health status, or who are prone to higher-than-average utilization of benefits, to be enrolled in disproportionate numbers and lower deductible plans.

AFDC. See Aid to Families with Dependent Children.

Affinity Group. Purchasers of goods and services, including insurance, with common characteristics.

Agency Plant. An insurer's sales organization.

Agent. A person who solicits insurance on behalf of an insurer.

Agents' Balances. An insurer's written premiums minus commissions due and payable; also known as uncollected premiums.

Aggregate Deductible. The aggregate losses occurring within a given policy period that must be exceeded before an insurer becomes liable for losses.

Aggregate Limits of Liability. The maximum amount payable by an insurer upon all claims arising within a single policy period.

Aid to Families with Dependent Children (AFDC). A federal cash assistance entitlement program; states are required to cover its beneficiaries under Medicaid.

ALAE. See Loss Adjustment Expense.

Alien Insurer. An insurer domiciled outside the United States that transacts business within the United States.

All-Risk Insurance. Insurance in which coverage is not limited to specific events or named perils.

Alliance of American Insurers. A Downers Grove, Illinois-based trade organization representing primarily the smaller property-casualty insurers.

Allied Lines. A form of insurance coverage, often written in conjunction with fire insurance, covering perils not included in the basic policy. Includes data processing insurance, demolition insurance, earthquake insurance, increased cost of construction clause, radioactive contamination insurance, sprinkler leakage insurance, standing timber insurance, vandalism and malicious mischief insurance and water damage insurance. Earthquake insurance can be sold as a separate line, and data on earthquake insurance are tracked separately from allied lines in the annual statutory statement.

Allocated Claim or Loss Adjustment Expense. Expenses directly related to a particular claim, including claims investigation and legal expenses, but excluding loss payments.

Alphabet Houses. A small number of national insurance brokerage organizations usually referred to by their initials. For example, Alexander and Alexander was known as "A&A".

Alternative Delivery Systems. Health care providers other than acute-care hospitals, e.g., neighborhood clinics, treatment centers and visiting nurses.

Alternative Market. Self-insurers, captive insurers and risk retention groups. These entities provide insurance protection in competition with traditional insurance companies.

Alternative Minimum Tax (AMT). This term is used to refer to the federal income tax liability of insurers, without regard to whether the insurer has taxable income using standard calculations.

Ambulatory Care. Medical services provided on an outpatient basis.

American Association of Managing General Agents (AAMGA). A Kansas City, Missouri-based trade organization representing managing general agents.

American Council of Life Insurance (ACLI). A Washington, DC-based trade organization representing primarily the larger life insurers.

American Insurance Association (AIA). A Washington, DC-based trade organization representing primarily the larger property-casualty insurers.

American Lloyd's. Associations of individual underwriters permitted to operate within a limited number of states within the United States. These associations have no legal or other relationship with Lloyd's of London.

American Trust Fund. See Lloyd's American Trust Fund.

AMT. See Alternative Minimum Tax.

Ancillary Management. Medical management of such services as pharmacy programs, mental health, EAP and dental care. Larger HMOs tend to keep ancillary services in-house, while smaller ones typically contract with third parties.

Anniversary Date. The anniversary of a policy's effective date.

Annual Statement. A report of an insurer's financial operations filed annually with the insurance regulatory authorities of each jurisdiction in which the insurer is licensed to transact business. The report includes a balance sheet, as well as detailed schedules and exhibits. Also known as a convention blank or statement, statutory statement, yellow book (for property-casualty insurers) and blue book (for life insurers). For a more detailed discussion of the provisions of the annual statement, see Chapter 10.

Annuitant. A person who receives payment pursuant to an annuity contract.

Annuity. A contract that provides for a fixed or variable periodic payment to a person (the annuitant), made from a stated or contingent date and continued for a specified period, such as for a number of years or for life. An annuity may be bought by means of installments, or it may be bought by means of a single lump sum payment.

Anti-Managed Care Laws. Legislation designed to prohibit or restrict the business activities of managed care plans, or that undermines the principles of managed care.

"Any Willing Provider Laws." Legislation that requires managed care plans to accept into their networks any provider willing to agree to the network's terms and conditions.

Appeal Bond. A form of surety bond that guarantees to the court that the party against whom a judgment was rendered will pay the judgment if the appeal fails.

Appurtenant Structure. A building or other structure on the same premises as the primary structure that also is insured under a property or homeowners insurance policy.

Arbitration. A procedure to resolve a dispute between two parties without resorting to litigation.

Arbitration Clause. A provision in a contract in which the parties agree to arbitrate disputes. Most contracts between insurers and reinsurers contain an arbitration clause.

ASO. See Administrative Services Only.

Assessable Mutual Insurer. A mutual insurance company that may assess additional premiums from its insureds in the event losses exceed expectations.

Assessment. This term refers to (1) an additional payment that may be required of policyholders of an assessable mutual insurer in the event losses exceed expectations and (2) a charge levied upon insurers by state guaranty funds or other regulatory authorities.

Asset-Liability Matching. An investment strategy particularly appropriate for insurers in which the asset manager attempts to match the maturities of fixed-income securities to the schedule of claims and other payments anticipated by the insurer.

Asset Valuation Reserve (AVR). A reserve adopted in interim form by the National Association of Insurance Commissioners in December, 1991, to replace the Mandatory Securities Valuation Reserve (MSVR). AVR was established as a liability on life insurance statutory financial statements beginning in 1992. Life insurers are required to establish statutory reserves for mortgage loans, equity, real estate and joint ventures, as well as for those investments (fixed maturities and equity) previously subject to MSVR. AVR captures all unrealized, as well as realized, gains and losses on such assets.

Assigned Risk. An insured whose insurance is provided through an assigned risk pool or plan.

Assigned Risk Pool or Plan. A program for providing automobile insurance to high-risk drivers who cannot obtain insurance in the voluntary markets.

Association Plans. Group annuity contracts marketed to independent businesses affiliated with professional and trade associations.

Assume. The act of accepting a risk from a cedant in consideration of payment of a premium.

Assumed Premiums. Refers primarily to premiums arising from reinsurance policies issued by an insurer or reinsurer. Also may refer to premiums accepted by an individual company under a pooling arrangement.

Assumption of Risk Doctrine. A legal doctrine that provides a defense for a claim of negligence based upon the plaintiff's knowledge and voluntary assumption of risk associated with a particular activity.

Assumption Reinsurance. A transaction in which one insurer transfers its liabilities under existing or in-force contracts to an assuming insurer. The transfer is intended to extinguish the assignor's liabilities under the contracts being assigned.

Assurance. A synonym for insurance.

Attachment Point. The level above which insurance or reinsurance becomes applicable.

Attractive Nuisance Doctrine. A legal doctrine that recognizes that certain conditions can attract and cause injury to children. Upon such a finding, the owner of such property can be held liable for resulting injuries.

Audit Premiums. Premiums developed from an audit of an insured's records. Audit premiums are generated in workers' compensation and other lines of insurance where premiums are based on payroll and other data relating to actual exposures.

Authorized Insurer. See Admitted Insurer.

Authorized Reinsurance. Reinsurance provided by a reinsurer recognized by a particular state regulator.

Automatic Reinstatement. A policy provision that provides for automatic reinstatement of a policy following payment of a loss.

Automobile Insurance. A form of insurance that provides protection against liability for bodily injury and property damage arising from automobile accidents, as well as protection against loss from damage to automobiles owned by the insured.

Automobile Insurance Plan. See Assigned Risk Pool or Plan.

Automatic Treaty. See Treaty Reinsurance.

Aviation Insurance. A form of insurance that provides liability and physical damage protection for aircraft and their contents.

AVR. See Asset Valuation Reserve.