Listed below are terms commonly used in the Business and Worker Compensation Insurance industry.
average weekly wage
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A term generally used in Workers Compensation laws. It is the basis for determining weekly benefits under such
laws.
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audit
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A survey of the insured's payroll records to determine the premium that should be paid for the coverage furnished.
Used in Workers Compensation and General Liability policies.
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business insurance
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A policy that provides coverage to a business. It is often purchased to indemnify a business for the loss of
services if a key employee (such as a partner) becomes disabled.
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bad faith
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Accusations by policyholders that insurers took steps to deliberately delay, underpay, or deny a claim.
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business life insurance
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Life insurance purchased by a business enterprise on the life of a member of the firm. It is often bought by
partnerships to protect the surviving partners against loss caused by the death of a partner, or by a corporation
to reimburse it for loss caused by the death of a key employee. (Also known as key person insurance.)
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competitive state fund
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This term refers to a fund established by a state to write Workers Compensation Insurance in competition with
private insurers.
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compromise and release agreement
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A settlement practice under which an injured worker agrees to a compromised liability amount (usually a lump
sum) in exchange for releasing the employer from further liability.
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"D" ratio
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A factor used in Workers Compensation experience rating plans. It is the ratio of smaller losses (those under
$2,000), plus the discounted value of large losses, as compared to the total losses which might be expected of
an insured in a particular type of business.
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duplication of coverage
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Coverage under two or more policies for the same potential loss.
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employers liability coverage
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This is coverage B of the standard Workers Compensation policy. It provides coverage against the common law
liability of an employer for injuries to employees as distinguished from the liability imposed by a Workers Compensation
law. Employers Liability applies in situations where a worker does not come under these laws.
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excess loss premium factor
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This expression is used in connection with retrospective rating plans. It is a factor which compensates the
insurer for the fact that the insured has elected to limit the effects of any one large loss under the retrospective
rating formula. For example, the insured might elect a loss limitation of $50,000, which would mean that would
be the maximum amount of any one loss that would go into the retrospective calculation.
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effective date
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Date when insurance coverage begins.
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earnings adequacy ratio
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Standard & Poor's risk-adjusted measure of earnings performance.
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eligible employees
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Employees who meet the eligibility requirements for insurance set forth in a group policy.
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equity assets
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Common stock, real estate, and all other miscellaneous invested assets
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elimination period
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The period of time between the date the illness or disability commences and the beginning of the benefit payment
period. It is sometimes referred to as the Qualifying Period.
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exclusions (exceptions)
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Conditions or circumstances, listed in the policy, for which the insurer will not provide benefits.
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experience refund
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Amount returned by an insurer to a group policyholder when the financial experience of a particular group (or
class to which the group belongs) has been more favorable than anticipated.
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Federal Employees Compensation Act
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Under this Act, workers compensation benefits are provided to civilian federal government employees. The U.S.
government administers and operates the system, as well as provides the benefits. Therefore, no private insurance
is involved.
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Federal Employers Liability Act (FELA)
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Passed by Congress in 1908 before there were worker compensation statutes and benefits in this country, this
Act applies to railroad workers only. It puts injured workers in a favorable position in terms of liability claims,
allowing them to sue the employer for negligence. Because railroad workers and their unions were unwilling to trade
their favorable positions for statutory benefits, they remain exempt from compensation laws in many states. Cases
are decided on the issue of employer liability.
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Fellow Servant Rule
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A common law defense used by employers before the passage of compensation laws. It held that if an employee
was injured due to the carelessness of a fellow employee, the right of action was against the fellow worker and
not against the employer.
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governing classification
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The classification assigned to the operations of an insured which carries the largest amount of payroll.
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guaranteed cost
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A premium charged on a prospective basis, fixed or adjustable, or on a specified rating basis, but never on
the basis of loss experience. In other words, the cost is guaranteed to the extent that it will not be adjusted
based on the loss experience of the insured during the period of coverage.
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loss conversion factor
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A term used in a retrospective rating plan. It is a factor applied to the losses in the formula to give the
insurer the funds needed to handle the investigation of claims.
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loss development factor
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This is a recent development under retrospective rating plans. It was designed to give the insurer additional
money to allow for the subsequent development of losses and to reimburse for claims which are late in being reported.
The factor was introduced primarily because of the effect of inflation on losses which take a long time to settle.
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loss limitation
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Another term used in retrospective rating formulas. It is designed to limit the effect of catastrophic losses
that would otherwise be considered in full in figuring the final retrospective premium.
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mandatory rehabilitation
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Based on the premise that most people want to work in order to lead active, productive lives, a "mandatory"
rehabilitation provision in disability insurance contracts encourages disabled employees to participate in rehabilitation
efforts whenever appropriate. Such a provision allows for termination of benefits if the employee refuses to cooperate
or participate with a rehabilitation plan.
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margin of safety
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The ratio of depression losses incurred plus statutory capital at the end of a "four year" depression
divided by depression losses incurred.
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monoline insurer
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An insurer that writes only financial guaranty insurance
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multiline discount
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When an insured buys more than one type of insurance (auto, home, or life) from an insurance company, the insurer
may offer a discount of premiums for one or more of the policies.
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maximum retrospective premium
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The most an insured will be required to pay under a retrospective rating plan, regardless of the amount of losses
incurred.
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minimum retrospective premium
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Used in a retrospective rating plan and defined as the lowest amount the insured can pay under the plan, regardless
of the losses incurred.
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monopolistic state fund
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The state-operated company in those states having laws which require that all businesses buy Workers Compensation
Insurance from the state. Private insurers cannot compete in these states.
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NCCI
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National Council on Compensation Insurance. An association of insurers selling compensation coverage and operating
as a rating organization. NCCI collects statistics, develops rates and policy forms, and makes state filings for
its members.
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NOC
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Not Otherwise Classified. A term often found in the classification section of Liability or Workers Compensation
rating manuals. If a listing is followed by an NOC, it means to use this classification if an insured cannot be
classified more specifically.
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NPD
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No Payroll Division
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occupational disease
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Sickness or disease arising out of or in the course of employment. State compensation laws provide coverage
for this type of loss.
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occupational hazard
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A condition in an occupation that increases the peril of accident, sickness, or death.
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payroll audit
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An examination of an insured's payroll record by a representative of the insurer to determine the final premium
due on a policy for the latest policy year.
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permanent partial disability
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A condition where the injured party's earning capacity is impaired for life, but he is able to work at reduced
efficiency.
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permanent total disability
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A condition where the injured party is not able to work at any gainful employment for the remaining lifetime.
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rehabilitation benefits
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Physical and/or vocational rehabilitation benefits provided to an injured person following a work-related injury,
and intended to restore the person to a point where gainful employment is possible.
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second injury fund
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Special funds set up by each state to pay all or part of the compensation required when a partially disabled
employee suffers a subsequent injury. Because the compound effect of two injuries can be greater than the effect
of the same two injuries in isolation, employers might be reluctant to hire the handicapped if they had to bear
the full burden for a second injury. Second injury funds relieve employers of some of this burden.
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standard exception
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In Workers Compensation Insurance certain classes of employees are classified separately for rating, rather
than being included in the main classification for a risk. Examples would be clerical office employees, outside
sales representatives, draftsmen, drivers, chauffeurs, and their helpers.
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standard premium
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Most often used in connection with retrospective rating for Workers Compensation and General Liability Insurance.
It is the premium of which the basic premium is a percentage and is developed by applying the regular rates to
an insured's payroll. See also Retrospective Rating and Basic Premium.
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statewide average weekly wage (SAWW)
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A statistical computation which is periodically updated and is used to determine compensation benefit amounts.
Many benefits are set forth as a percentage of the SAWW.
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tax factor (or tax multiplier)
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A factor applied in retrospective rating to an insurance premium to increase it to cover state premium taxes.
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temporary partial disability
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A condition where an injured party's capacity is impaired for a time, but he is able to continue working at
reduced efficiency and is expected to fully recover.
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temporary total disability
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A condition where an injured party is unable to work at all while he is recovering from injury, but he is expected
to recover.
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voluntary compensation insurance
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A coverage similar to Workers Compensation used in circumstances in which Workers Compensation coverage does
not apply or is not required by law. An example would be an employer wanting to voluntarily pay compensation benefits
to members of a company-sponsored athletic team, or a church wishing to cover volunteer workers.
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worker compensation insurance
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Liability insurance requiring certain employers to pay benefits and furnish medical care to employees for on-the-job
injuries, and to pay benefits to dependents of employees killed by occupational accidents.
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workplace modification or accommodation
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This disability insurance benefit is designed to provide assistance to an employer when a disabled employee
requires modification of the workplace or special adaptive equipment in order to return to work. The employer will
usually be reimbursed up to a set amount for the cost of such modifications.
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