C risks (contingency risks)

In the United States, four officially recognized categories of risk that the actuarial profession has identified as being vital to insurers. See also C-1 risk (asset risk), C-2 risk (pricing risk), C-3 risk (interest-rate risk), and C-4 risk (general management risk).

C-1 risk (asset risk)

For insurers, the risk of a loss of asset value on investments in such assets as stocks, bonds, mortgages, and real estate.

C-2 risk (pricing risk)

For insurers, the risk that an insurer’s experience with mortality or expenses will differ significantly from the actuarial assumptions used in product pricing, causing the insurer to lose money on its products.

C-3 risk (interest-rate risk)

For insurers, the risk that market interest rates might shift, causing an insurer’s assets to lose value or its liabilities to gain value.

C-4 risk (general management risk)

For insurers, the risk of losses resulting from the insurer’s ineffective general business practices, from the need to pay a special assessment to cover another insurer’s unsound business practices, from unfavorable regulatory changes, or from unfavorable changes in tax laws.

cafeteria plan

See flexible benefits plan.

calendar-year deductible

For medical expense insurance policies, an amount of eligible medical expenses that the insured must incur during a given calendar year (from January 1 to December 31) before the insurer becomes liable to pay any benefits for further covered expenses.

call center

Within a business organization, any group of individuals whose main function is to provide customer service by answering incoming customer calls or electronic mail messages that are routed through a computerized distribution system.

Canada Customs and Revenue Agency

The federal governmental agency responsible for enforcing the provisions of Canadian laws and regulations concerning income taxes.

Canada Health Act

In Canada, federal legislation that requires that each Canadian province provide its residents with health care coverage for hospital and medical services.

Canada Labour Code

Canadian federal legislation that mandates minimum wage and overtime standards that are similar to the standards established by the Fair Labor Standards Act in the United States.

Canada Pension Plan (CPP)

A Canadian federal program that primarily provides retirement benefits for retirees who reside in all provinces except Quebec and who have contributed money into the plan during their working years. The program also provides a benefit to disabled workers, as well as to the widows, widowers, and surviving dependent children of deceased and disabled workers.

Canadian and British Insurance Companies Act

A Canadian federal statute that describes the requirements that federally incorporated Canadian insurers and British insurers must meet in order to transact business in Canada.

Canadian Council of Insurance Regulators (CCIR)

In Canada, a committee of provincial superintendents of insurance that recommends uniform insurance legislation to the provinces.

Canadian Institute of Chartered Accountants (CICA)

A professional organization of Canadian Chartered Accountants (CAA) that establishes generally accepted accounting principles (GAAP) for Canadian insurers to follow in recording and presenting their financial information.

Canadian Life and Health Insurance Association (CLHIA)

An insurance industry association of life and health insurance companies operating in Canada.

Canadian Life and Health Insurance Compensation Corporation (CompCorp)

In Canada, a federally incorporated, nonprofit company established by the Canadian Life and Health Insurance Association to protect insurance consumers against loss of benefits in the event a life or health insurance company becomes insolvent. Operates similarly to state guaranty associations. See also guaranty association.

Canadian Reinsurance Conference (CRC)

An annual meeting of Canadian insurance companies and reinsurance companies that provides a forum for current life and health insurance and reinsurance issues. The CRC establishes the Canadian Reinsurance Guidelines.

Canadian Reinsurance Guidelines

A set of common reinsurance principles, established by the Canadian Reinsurance Conference (CRC), that can be voluntarily used as a basis upon which new reinsurance treaties can be written and existing treaties can be interpreted.

cancellable policy

An individual health insurance policy that gives the insurer the right to terminate the policy at any time, for any reason, simply by notifying the policyowner that the policy is cancelled and by refunding any advance premium paid for the policy. See also conditionally renewable policy, noncancellable and guaranteed renewable policy, and optionally renewable policy.

cap

For an equity-indexed annuity contract, the upper limit on the amount of an index’s gain in value that will be credited to the annuity contract.

capacity

In insurance, the highest dollar amount of coverage that an insurer or reinsurer is financially able to accept on a specified risk.

capital

(1) An amount of money invested in a company by its owners, usually through the purchase of the company’s stock. Also known as owners’ equity. (2) Long-term funds.

capital and surplus

For insurers, the amount remaining after liabilities are subtracted from assets; owners’ equity in an insurance company.

capital and surplus ratios

Financial ratios insurance companies use to express the relationship between the insurer’s capital and/or surplus and its liabilities and thus to measure an insurer’s financial strength. Also known as capital ratios and capitalization ratios.

capital appreciation

An increase in the market value of invested assets.

capital budget

A budget that shows a company’s plans for the financial management of its long-term, high-cost investment proposals, such as new investments, major repairs to or remodeling of existing investments, acquisitions of other companies or lines of business, mandated safety and environmental improvements, expense reduction projects, and revenue expansion projects.

capital gain

The amount by which the selling price of an asset exceeds its purchase price. Contrast with capital loss.

capitalization ratios

See capital and surplus ratios.

capitalize

To record an expense, such as deferred acquisition costs, as an asset.

capital loss

The amount by which the purchase price of an asset exceeds its selling price. Contrast with capital gain.

capital ratios

See capital and surplus ratios.

capitation

A fee payment method used by some health maintenance organizations (HMOs) under which the HMO prepays a medical care provider a flat amount for each subscriber’s medical care—usually on a monthly basis.

captive agent

An insurance agent who is under contract to only one insurer and who is not permitted to sell the products of other insurers. Also known as exclusive agent. Contrast with broker.

captive reinsurer

A reinsurance company that is formed and controlled by an insurance company or another type of insurance marketer for the purpose of providing reinsurance to that insurer or marketer.

career agency system

See agency building distribution system.

career agent

A licensed insurance salesperson who is under contract with at least one insurance company. A career agent is considered to be an independent contractor and not an employee of the insurance company.

caregiver training benefit

A benefit provided in a long-term care (LTC) policy to cover the cost of training someone to help care for a covered person who is to receive LTC at home or at an alternate living facility.

case assignment system

A system for organizing underwriting work in which cases are distributed to an appropriate person or group for underwriting based on certain characteristics of the case; for example, the face amount requested, the type of application of policy change, or the geographic origin of the application or location of the agent. Contrast with work division system.

case management

A process insurers use in managed health care plans to evaluate the necessity and quality of an insured’s medical care and the appropriateness of alternative treatments or solutions for the insured’s medical care.

cash-basis accounting

An accounting system in which a company recognizes revenues or expenses only when it receives or
disburses cash.

cash budget

A type of budget that projects a company’s beginning cash balance, cash inflows, cash outflows, and ending cash balance for a specified accounting period, typically by quarter.

cash disbursement

The payment of cash by a company.

cash disbursements budget

A schedule of expected cash disbursements, including their timing and amount, during the accounting period.

cash dividend option

For participating insurance policies, a dividend option under which the insurer sends the policyowner a check in the amount of the policy dividend. See also dividend and policy dividend options.

cash equivalents

Short-term assets that are not cash, but can typically be converted to cash within 90 days with little or no risk of losing value.

cash flow

Any movement of cash into or out of a company. A cash inflow is a source of funds and a cash outflow is a use of funds.

cash flow statement

A financial statement that provides information about an insurer’s cash receipts (inflows) and its cash
disbursements (outflows) during a specified period.

cash-flow testing (CFT)

The use of simulation modeling to project into a future period the cash flows associated with an insurance company’s existing business, as of a given valuation date, and to compare the timing and amounts of asset and liability cash flows after the valuation date. Contrast with dynamic financial analysis (DFA).

cash inflow

See cash flow.

cash management

The management of short-term funds. Also known as working capital management.

cash-out provision

See bailout provision.

cash outflow

See cash flow.

cash payment option

One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policyowner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment. Also known as cash surrender option. See also nonforfeiture options and cash surrender value.

cash receipt

A check, money order, electronic funds transfer (EFT), or other cash transaction that is remitted to a company as a form of payment for goods or services rendered.

cash receipts budget

A schedule of cash receipts expected during the specified accounting period.

cash surrender option

See cash payment option and cash surrender value.

cash surrender value

(1) For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death. (2) For annuities, the amount of a deferred annuity’s accumulated value, less any surrender charges, that the contractholder is entitled to receive if the policy is surrendered during its accumulation period. Also known as cash value and surrender value.

cash value

See cash surrender value.

cash value accumulation test

For U.S. federal income tax purposes, one of the qualification tests an insurance policy must satisfy in order to be considered a life insurance contract that provides a tax-free death benefit. A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of net single premium needed to fund the policy death benefit.For U.S. federal income tax purposes, one of the qualification tests an insurance policy must satisfy in order to be considered a life insurance contract that provides a tax-free death benefit. A policy passes this test if, according to the contract terms, the amount of its cash surrender value is never greater than the amount of net single premium needed to fund the policy death benefit.

casualty insurance

See liability insurance.

cat cover

See catastrophe reinsurance.

catastrophe reinsurance

A type of nonproportional reinsurance that protects a ceding company from multiple individual claims and/or excessive losses resulting from a single event. Also known as cat cover.

CBO

See collateralized bond obligation.

CCIR

See Canadian Council of Insurance Regulators.

CCRC

See continuing care retirement community.

CD

See certificate of deposit.

CDS

See Complaints Database System.

CDSC

See surrender charge.

CDSL

See surrender charge.

cede

An insurance company’s transfer of all or part of a specified risk to a reinsurance company.

ceding company

In a reinsurance transaction, the insurance company that purchases reinsurance to cover all or part of those risks that the insurer does not wish to retain in full. Contrast with reinsurer.

certificate holder

An individual who is insured under a group insurance contract and who has received a certificate of
insurance. See also certificate of insurance.

certificate of authority

In the United States, a document issued by a state insurance department granting an insurer the right to conduct an insurance business in that state. Also known as license.

certificate of coverage

See certificate of insurance.

certificate of coverage provision

In the United States, a provision that most states require group life, health, and annuity policies to include which states that the insurer will issue a certificate to the policyholder for delivery to each person insured by the policy.

certificate of deposit (CD)

A contractual agreement issued by a bank that returns the investor’s principal with interest on a specified date.

certificate of incorporation

In the United States, a document issued by a state agency that grants a corporation its legal existence and right to operate as a corporation. Also known as corporate charter. See also articles of incorporation.

certificate of insurance

In group insurance, a document that a group policyholder delivers to each group insured which describes the coverage provided and the group insured’s rights to insurance. Also known as certificate of coverage. See also master contract.

certificate of registry

In Canada, a document that is issued by the federal Minister of Finance and that grants an insurance company subject to federal regulation the right to transact business in Canada.

cession

Both the unit of insurance that an insurance company cedes to a reinsurer and the document used to record the transfer of risk from a ceding company to a reinsurer.

CFT

See cash-flow testing.

change in health statement

A statement contained in most individual life insurance applications and premium receipts that requires a proposed insured to notify the insurer in writing if her health or any material information in the application changes before the policy is delivered.

change of beneficiary provision

A provision included in individual life insurance policies and health insurance policies providing a death benefit that states the procedure the policyowner should follow for making a beneficiary change.

change of occupation provision

An individual disability income insurance policy provision that permits the insurer to adjust the policy’s premium rate or the amount of benefits payable under the policy if the insured changes occupation.

chargeback

A method for allocating costs within an organization that allocates indirect costs to departments based on a department’s usage.

children’s insurance rider

A rider that may be added to a whole life insurance policy that provides term life insurance coverage on the insured’s children.

chronically ill individual

Under the Health Insurance Portability and Accountability Act (HIPAA) in the United States, an insured person whom a licensed health care practitioner certifies as someone who is unable to perform, without substantial assistance, at least two activities of daily living (ADLs), or has a similar level of disability, or requires substantial supervision to protect themselves from threats to health or safety due to severe cognitive impairment. See also activities of daily living (ADLs).

churning

An unethical and often illegal sales practice designed to increase commission sales. (1) In insurance sales, churning can occur when an agent induces a policyowner to cash in a policy and buy another, even though the replacement is not in the policyowner’s best interest. See also replacement. (2) In stock and bond sales, churning can occur when a broker engages in excessive and unwarranted trading of clients’ accounts.

CICA

See Canadian Institute of Chartered Accountants.

CI insurance

See critical illness insurance.

Civil Rights Act of 1964

In the United States, a federal anti-discrimination statute that applies to employers that are engaged in interstate commerce and that have 15 or more employees. Title VII of this act prohibits employers from discriminating in hiring, advancement, wages, and other terms and conditions of employment on the basis of sex, race, color, religion, or national origin.

claim

A request for payment of benefits under the terms of an insurance policy following the occurrence of a covered loss.

claim administration

Within an insurance company, the insurance administration function that assesses each claim made, decides whether the claim is justified, and authorizes the payment of benefits to the proper person.

claim analyst

See claim examiner.

claimant

A person who submits a claim to an insurance company.

claim approver

See claim examiner.

claim examiner

An insurance company employee who is responsible for processing and paying claims for policy benefits that the insurer receives. Also known as claim approver, claim analyst, and claim specialist.

claim fraud

An action by which a person intentionally uses false information in an unfair or unlawful attempt to collect benefits under an insurance policy.

claim investigation

The process an insurer undertakes to obtain additional information necessary to make a claim decision.

claim liabilities

See policy and contract claims.

claim philosophy

A precise statement of the principles an insurer will follow in conducting claim administration.

claim reserves

On an insurance company’s financial statements, liabilities that identify the amounts that an insurer will pay in the future on claims already incurred but not paid in full as of the statement date. See also disabled life reserves.

claim settlement

A lump-sum payment by an insurer to a claimant in exchange for the claimant’s agreement to release the insurer from further responsibility for coverage under the policy.

claim specialist

See claim examiner.

class beneficiary designation

A life insurance policy beneficiary designation that identifies the beneficiaries of the policy as members of a group—for example, “my children”—rather than naming each person individually.

class of policies

All policies of a particular type that an insurer has issued or all policies an insurer has issued to a particular group of insureds.

Clayton Act

U.S. federal antitrust law that makes it unlawful for businesses to engage in certain actions that are believed to lessen competition and to lead to monopolies.

CLHIA

See Canadian Life and Health Insurance Association.

CLHIA Guidelines

Recommendations to insurance companies adopted by the Canadian Life and Health Insurance Association (CLHIA). Insurers are expected to abide by these guidelines as a condition of membership in the CLHIA.

closed contract

A contract for which only those terms and conditions that are printed in—or attached to—the contract are considered to be part of the contract. Contrast with open contract.

closed group valuation

An assessment of the value of a pension plan that takes into account only the benefits of persons currently affiliated with the plan as active participants, terminated vested participants, retired participants, or beneficiaries. Also known as static valuation. Contrast with open group valuation.

closed panel HMO

A type of health maintenance organization (HMO) that requires physicians either to belong to a group of physicians that has contracted with the HMO or to be employees of the HMO in order to provide services to HMO members. Contrast with open panel HMO.

closing

(1) In insurance sales, the part of an insurance sales presentation that occurs when an agent secures a purchase commitment from a prospect by asking for and obtaining the prospect’s agreement to submit an application for the coverage recommended in the proposal. (2) Generally, a conclusion of a transaction, usually accomplished by satisfaction of all conditions stated in a purchase contract.

closing entry

An accounting entry that a company makes at the end of each accounting period to start the next accounting period with a zero balance in its temporary accounts.

CMO

See collateralized mortgage obligation.

COB provision

See coordination of benefits provision.

COBRA

See Consolidated Omnibus Budget Reconciliation Act.

COBRA continuation coverage

In the United States, group health insurance coverage provided to an individual who’s employer-provided group health insurance has terminated because of certain qualifying events that are specified in the Consolidated Omnibus Budget Reconciliation Act (COBRA). See also Consolidated Omnibus Budget Reconciliation Act (COBRA).

cognitive impairment

In long-term care (LTC) insurance underwriting, mental incapacity that prevents a person from performing activities of daily living (ADLs) or from living safely. See also activities of daily living (ADLs).

cognitive reinstatement provision

A provision in a long-term care (LTC) insurance policy that permits reinstatement of the policy if the reason for the policy’s lapse is that the policyholder has a cognitive impairment and that the reason for the missed premium payment was mental impairment.

coinsurance

(1) In medical expense insurance coverage, the percentage, usually 10 to 25 percent, of all eligible medical expenses, in excess of the deductible, that the insured is required to pay. Also known as expense participation feature. (2) In reinsurance, a type of proportional reinsurance in which an insurer and a reinsurer share the obligations of a policy, including paying the death benefit and the nonforfeiture values, and establishing the reserves.

coinsurance with funds withheld

A type of proportional reinsurance in which the ceding company retains funds that are due to the reinsurer, usually in an amount equal to the reserve required by law.

COLA benefit

An insurance sales method in which an agent writes, calls, or visits prospects for insurance with whom he has had no prior contact. Also known as cold canvassing.

collateral assignment

A temporary transfer of some of the ownership rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is collateral, all transferred rights shall revert back to the original owner. Contrast with absolute assignment.

collateralized bond obligation (CBO)

A type of bond that is secured by and represents a share in a portfolio of bond investments.

collateralized mortgage obligation (CMO)

A type of bond that is secured by and represents a share in a portfolio of mortgage investments.

collision insurance

Insurance that covers an insured for losses to a vehicle caused by a collision regardless of whether the insured was at fault for the accident.

collusion

A secret agreement entered into by two or more persons to perpetrate an illegal act.

combination pension plan

A type of pension plan that uses both insured and uninsured funding. Also known as split-funded plan. Contrast with trusteed pension plan and fully-insured pension plan.

combined retention

See corporate retention limit.

commingling of funds

In insurance sales, the illegal practice of combining money belonging to policyowners with an agent’s own funds.

commission

An amount of money paid to compensate a sales producer. For insurance sales, the amount is usually expressed as a percentage of the gross premiums paid by the insurance customer each year the policy is in force. For life insurance sales, the first-year commission is traditionally a higher percentage than the percentage commission paid in subsequent years. See also deposit-based commission schedule, level commission schedule, and levelized commission schedule.

committed cost

In accounting, a cost that results from a prior management decision and that cannot be changed quickly.

committee underwriting

A method used to organize underwriting work in which a committee of highly qualified people from inside and outside the underwriting function is called together for case assessment.

common cost

See indirect cost.

common disaster clause

A life insurance policy provision which states that the beneficiary must survive the insured by a specified period, such as 30 or 60 days, in order to receive the policy proceeds. Otherwise, the policy proceeds will be paid as though the beneficiary had died prior to the insured. Also known as survivorship clause and time clause.

common interest association

An association of individuals who share a common status or a common interest. Examples include associations of retired persons, gun owners, participants in a specific sport, or alumni of a specific college. Common interest associations typically are eligible for an association group insurance policy.

common stock

An equity asset that represents an ownership share in a corporation and that usually entitles the owner to vote on the selection of directors and on other important company matters and also entitles the owner to receive dividends on the stock. Contrast with preferred stock. See also dividend and equity assets.

community-property laws

In the United States, state laws, which provide that a spouse is entitled to receive an equal share of earned income and an equal share of property acquired by the other spouse during a marriage.

commutation right

The right granted by an insurer to an annuity contract owner to withdraw a lump sum from an annuity during the payout period. Any lump sum withdrawn reduces the dollar amount of future annuity payments.

commutative contract

An agreement under which the contracting parties specify the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.

comparative financial statements

Financial statements that present a company’s data for two or more accounting periods so that interested users can identify similarities and differences.

CompCorp

See Canadian Life and Health Insurance
Compensation Corporation.

compensatory damages

In a lawsuit, an amount of money awarded to a plaintiff for the actual damage suffered from another’s wrongdoing. See also punitive damages.

Competition Act of 1986

Canadian federal legislation designed to prevent undesirable monopolies, price fixing, and other anticompetitive or deceptive trade practices. In Canada, federally incorporated (registered) companies are subject to federal regulation.

complaint examiner

In the United States, a state insurance department employee who is responsible for handling complaints received from consumers about insurers.

Complaints Database System (CDS)

In the United States, a database compiled and maintained by the National Association of Insurance Commissioners (NAIC) to provide state insurance regulators with aggregated complaint data on insurers across the country.

compliance

For insurers and their agents, the act of adhering to applicable laws and regulations that govern the operations of insurance companies.

compliance function

Within an insurance company, the area responsible for ensuring that all of the actions the insurer takes comply with applicable laws and regulatory requirements.

compound accounting entry

An accounting record of a financial transaction that affects more than two accounts.