Auto Insurance Glossary

A, B

1. adjuster

   An individual employed by a property/casualty insurer to evaluate losses and settle policyholder claims. These adjusters differ from public adjusters, who negotiate with insurers on behalf of policyholders, and receive a portion of a claims settlement. Independent adjusters are independent contractors who adjust claims for different insurance companies.

   adverse selection

   The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government and some private insurers, but is sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.

   affinity sales

   Selling insurance through groups such as professional and business associations.

   aftermarket parts

   (See crash parts; generic auto parts)

   agency companies

   Companies that market and sell products via independent agents.

   agent

   Insurance is sold by two types of agents: independent agents, who are self-employed, represent several insurance companies, and are paid on commission; and exclusive or captive agents, who represent only one insurance company and are either salaried or work on commission. Insurance companies that use exclusive or captive agents are called direct writers.

   alien insurance company

   An insurance company incorporated under the laws of a foreign country, as opposed to a “foreign” insurance company, which does business within the U.S. in states outside its own.

   alternative dispute resolution (ADR)

   An alternative to going to court to settle disputes. Methods include arbitration, in which disputing parties agree to be bound to the decision of an independent third party, and mediation, in which a third party tries to arrange a settlement between the two sides.

   appraisal

   A survey to determine a property’s insurable value, or the amount of a loss.

   arbitration

   A procedure in which an insurance company and the insured or a vendor agree to settle a claim dispute by accepting a decision made by a third party.

   arson

   The deliberate setting of a fire.

   assigned risk plans

   Facilities through which drivers can obtain auto insurance if they are unable to buy it in the regular or voluntary market. This is the most well-known type of residual auto insurance market, which exist in every state. In an assigned risk plan, all insurers selling auto insurance in the state are assigned these drivers to insure, based on the amount of insurance they sell in the regular market. (See residual market)

   auto insurance policy

   There are basically six different types of coverages. Some may be required by law. Others are optional. They are:

   • Bodily injury liability coverage, for injuries the policyholder causes to someone else.
   • Medical payments insurance or personal injury protection (PIP) coverage, for treatment of injuries to the driver and passengers of the policyholder.s car.
   • Property damage liability, for damage the policyholder causes to someone else’s property.
   • Collision, for damage to the policyholder’s car from a collision.
   • Comprehensive, for damage to the policyholder’s car not involving a collision with another car (including theft and damage from fire, explosions, earthquakes, floods, and riots).
   • Uninsured motorists coverage, for costs resulting from an accident involving a hit-and-run driver or a driver who does not have insurance.

   auto insurance premium

   The price an insurance company charges for coverage, based on the historical frequency and cost of accidents, theft, and other losses. Prices vary from company to company, as with any product or service. Premiums also vary depending on:

   • the amount and type of coverage purchased
   • the make and model of the car
   • the insured’s driving record and number of years of driving
   • the number of miles the car is driven per year
   • the driver’s age and gender
   • where the car is most likely to be driven
   • the times of day the car is most likely to be driven—for example, rush hour in an urban neighborhood, or leisure-time driving in rural areas

   Some insurance companies may also use credit history-related information.

2. binder

   Temporary authorization of coverage issued prior to the actual insurance policy.

   bodily injury liability coverage

   The portion of an auto insurance policy that covers injuries the policyholder causes to someone else.

   broker

   An intermediary between a customer and an insurance company. Brokers typically search the market for coverage appropriate for their clients. They work on commission and usually sell commercial, not personal, insurance. In life insurance, agents must be licensed as securities brokers/dealers to sell variable annuities, which are similar to stock market-based investments.