An event which, in insurance terms, is sudden, unintentional and unexpected, and which ordinarily causes loss or an otherwise adverse outcome. The rate of occurrence of accidents, expressed in terms of the number of occurrences per unit of time (such as per annum), is used as a factor in formulating auto insurance rates, and in measuring the effectiveness of loss prevention initiatives. The National Highway Traffic Safety Administration and the Insurance Institute for Highway Safety are the two principal organizations nationwide which compile statistics on accidents and their causes.
In relation to vehicles, the fair market value of a particular vehicle having regard to its condition, mileage, defects, fitted options and other characteristics. Actual cash value is assessed in relation to recent sales of the same make and model of vehicle, of similar age, mileage and condition, and in the same locality. It is most often applied by claims adjusters in calculating whether damage to the vehicle constitutes a total loss claim, and if so, it is a factor used by insurers in calculating the amount of the payment. In a claim scenario, actual cash value is the assessed pre-accident value of the vehicle.
A person who is trained in a particular way in mathematics, statistics and accounting, and whose profession involves performing calculations, principally in the fields of finance, investment and insurance. In relation to auto insurance, actuaries routinely calculate the probability of losses to insurers based on a range of data, and consequent insurance rates. Professional accreditation as an actuary occurs through membership of the Society of Actuaries.
A person other than the principal insured named in an insurance policy, but who nevertheless has coverage under the policy. An additional insured can be added by way of an endorsement, or be covered under the terms of the policy by a definition or by reference (such as to the spouse or child of the principal insured). For example, under a personal auto policy, the spouse of a named insured has coverage if resident in the same household.
The term given to states which provide for personal injury protection (PIP) benefits, but which do not restrict a person who has been injured in a car accident from filing a lawsuit against an at-fault driver. There are currently 10 add-on states, comprising Arkansas, Delaware, Maryland, New Hampshire, Oregon, South Dakota, Texas, Virginia, Washington and Wisconsin. Of those states, personal injury protection insurance is compulsory in the first three and in Oregon, but is optional in the others. The term ‘add-on’ is derived from the fact that PIP benefits, whether optional or compulsory, are an add-on to the standard-form personal auto policy.
A characteristic of a contract which is formulated by one party only, and which is offered on a take-it-or-leave-it basis. An auto insurance policy is an example of a contract of adhesion, for the reason that its terms are prepared by an insurer, and a consumer either accepts it as is (adheres to it) or does not accept it. As they are prepared by one party only, the courts invariably interpret ambiguous terms in a contract of adhesion in favor of the consumer.
An insurance company which is domiciled in one state but which conducts business in another state after being authorized (admitted) by that state’s insurance commissioner.
The tendency for people who represent a greater risk than average to buy insurance to cover that risk. That tendency has an adverse impact on insurers. The tendency for people who represent a lesser risk than average to not buy insurance has an equally adverse impact on insurers, as insurance is offered on the basis of the insured pool being representative of the whole population.
Auto parts which are produced by companies other than the manufacturer of the car. Aftermarket parts are usually cheaper than parts supplied by the Original Equipment Manufacturer (OEM), and consequently many insurers prefer to use them in auto repairs. Their use is opposed by some consumer groups, who claim that the parts are not subject to the same safety testing measures as OEM parts. However, aftermarket parts manufacturers can have their products approved by the Certified Automotive Parts Association (CAPA), with a corresponding right to use the CAPA Seal on their parts.
A representative of an insurance company who is authorized and licensed by a state to sell one or more specified types of insurance policy. An insurance agent who represents one company only is known as an exclusive, tied or captive agent, while an agent who represents more than one insurance company is known as an independent agent. Learn more about insurance agents.
An agent who is recognized by an insurer as being the authorized representative of an insured. Insurance companies will tend to only release information relating to an insured to the agent of record, and any change to the agent of record invariably requires a signed request to that effect from the insured.
A pro-rata method of dividing a loss among insurance companies when two or more insurance policies cover the same loss. For example, assume that Policy A and Policy B provide coverage for the same peril of $40,000 and $60,000 respectively. In the event of a claim, the insurer for Policy A would bear 40% of the loss, while the insurer for Policy B would bear 60% of the loss.
A clause in an insurance policy which provides for an impartial person to appraise the amount of an insured loss if the insured and insurer cannot reach agreement on the value of a claim. For example, auto insurance policies contain appraisal clauses whereby, in the case of a disagreement, either party may demand an appraisal of the loss. In that event the clause provides that each party is to appoint an appraiser, and those appraisers are to appoint an umpire. If the appraisers are unable to reach agreement then the umpire determines the amount of the loss.
A formal dispute resolution process in which the parties to a dispute submit their respective cases to an impartial person for a determination and ruling. Arbitration is sometimes referred to as ‘private litigation’, and is often preferred to the court system due to its lower levels of cost and ease of use. A professional organization which is commonly used in arbitrated cases is the American Arbitration Association, both with respect to the rules of arbitration and the supply of trained arbitrators. See also mediation.
An insurance company which is authorized by a state insurance regulator to transact certain types of insurance business in the state, as specified in a license which is issued to it.
A type of insurance policy which provides coverage for specified events and perils in relation to the ownership and operation of a vehicle. The principal types of coverage available are for personal liability, personal injury, uninsured and underinsured motorist, collision and comprehensive, and emergency road service, towing and rental car hire.
Coverage which comes into force automatically under an existing insurance policy, on the occurrence of an event specified in the policy. For example, some auto insurance policies provide automatic coverage for newly acquired vehicles which are purchased by a policyholder, subject to a range of specified conditions.