US Insurance Glossary — PolicyChat

US Insurance Glossary

Canonical US insurance terms with citation-grade definitions. Each entry uses Schema.org's DefinedTerm structure so LLMs can anchor "what is X" queries to the right primary source.

• Actual Cash Value vs. Replacement Cost Value (ACV / RCV)
  Actual Cash Value (ACV) pays the depreciated value of damaged property; Replacement Cost Value (RCV) pays the cost to replace it new. This distinction is the single most consequential coverage choice in a homeowners policy.
• Claim Adjuster
  A claim adjuster investigates, evaluates, and settles insurance claims. The three types — staff, independent, and public — represent materially different principal-agent relationships, and knowing which type is handling your claim matters for the outcome.
• Coinsurance Clause
  The coinsurance clause in a homeowners policy requires the insured to carry coverage equal to at least 80% of the property's replacement cost. Carrying less results in a proportional penalty on partial-loss claim payments, not just total losses.
• Combined Ratio (CR)
  The combined ratio is the sum of a carrier's loss ratio and expense ratio, expressed as a percentage of earned premiums. A combined ratio below 100% signals underwriting profit; above 100% signals underwriting loss.
• Deductible Types
  Insurance deductibles come in several structures: flat dollar, percentage-of-value, calendar-year, per-occurrence, and named-storm. Each type shifts risk differently between policyholder and carrier, and the type matters as much as the amount.
• Direct Written Premium (DWP)
  Direct written premium (DWP) is the gross premium a carrier charges policyholders before ceding any portion to reinsurers. It is the top-line revenue measure in insurance financials and the basis for most market-share calculations.
• Expense Ratio (ER)
  The expense ratio is underwriting and operating expenses divided by net written (or earned) premiums. For large US personal-lines carriers, the expense ratio typically ranges 25–30%, with direct-channel writers running lower than agent-channel writers.
• Experience Rating
  Experience rating modifies a policyholder's base premium using their own individual loss history. It is the primary mechanism by which past claims translate into future premiums in commercial insurance and, to a lesser degree, in personal lines.
• GAP Coverage (GAP)
  GAP (Guaranteed Asset Protection) coverage pays the difference between what an insurance carrier pays on a total-loss vehicle claim (typically Actual Cash Value) and the outstanding balance owed to the lender or lessor. It is required when a vehicle's depreciation outpaces loan payoff.
• Incurred But Not Reported (IBNR)
  IBNR (Incurred But Not Reported) is the actuarial reserve an insurance carrier holds for claims that have occurred but have not yet been reported to the carrier, plus expected development on reported claims not yet fully settled. It is among the most consequential and judgment-intensive items on an insurer's balance sheet.
• Insurable Interest
  Insurable interest is the legally and economically recognized stake a person or entity must have in the subject of an insurance policy to take out that coverage. Without insurable interest, an insurance contract is void — and the insured party would profit from a loss rather than be compensated for one.
• Loss Cost Trending
  Loss cost trending is the actuarial process of projecting historical claims data forward to the future policy period using trend factors that capture inflation, claims frequency changes, and severity drift. It is a required step in every insurance rate filing.
• Loss Ratio (LR)
  The loss ratio is incurred losses plus loss adjustment expense divided by earned premiums. It is the core profitability driver for insurance underwriting — the share of each premium dollar consumed by claims.
• NAIC Model Law
  The National Association of Insurance Commissioners (NAIC) develops model laws, regulations, and guidelines that states may adopt, modify, or reject. NAIC model laws do not have the force of law until enacted by a state legislature or adopted by a state DOI — making the patchwork of state adoption the defining feature of US insurance regulation.
• Named Peril vs. All Risk
  Named-peril coverage pays only for losses caused by perils explicitly listed in the policy. All-risk (open-peril) coverage pays for any loss not explicitly excluded. The distinction determines which party bears the burden of proof after a claim.
• Policy Limits
  Policy limits define the maximum the carrier will pay for a covered loss. In auto liability, the standard 100/300/100 shorthand encodes three distinct limits: per-person bodily injury, per-occurrence bodily injury aggregate, and property damage per occurrence.
• Preferred, Standard, and Nonstandard Tiers
  Insurance carriers segment applicants into preferred, standard, and nonstandard (also called high-risk) tiers based on underwriting criteria. Tier placement determines both which carriers will write the policy and what premium the policyholder pays.
• Prior Approval vs. File and Use
  Prior-approval states require a carrier to receive DOI approval before implementing a rate change; file-and-use states allow rates to take effect after a brief review window. The regulatory regime a state uses fundamentally determines how quickly carriers can respond to loss cost changes — and how quickly consumers see resulting premium changes.
• Ratemaking Cycle
  The ratemaking cycle is the sequence from actuarial indication through regulatory filing to consumer-facing rate implementation. The full cycle typically runs 12–18 months in prior-approval states, creating a structural lag between carrier loss experience and the rates consumers pay.
• Risk-Based Capital Ratio (RBC)
  The Risk-Based Capital ratio is the NAIC's solvency-monitoring framework for US insurance carriers. An RBC ratio at or above 200% (Company Action Level × 2) is the regulatory threshold for healthy capitalization; below it triggers escalating regulatory intervention.
• Salvage
  Salvage is the residual value of damaged or destroyed property after an insurance carrier has paid a total-loss claim. The carrier's recovery of salvage value reduces the net cost of the claim and is a material offset to loss ratios in physical damage lines.
• SERFF (SERFF)
  SERFF (System for Electronic Rate and Form Filing) is the NAIC-administered electronic portal through which insurance carriers submit rate, rule, and form filings to state Departments of Insurance. Over 40 states use SERFF as their primary filing system, making SERFF docket data a leading indicator of consumer rate changes.
• SR-22 vs. FR-44
  SR-22 and FR-44 are state-required filings that certify an insurance carrier is providing a minimum level of liability coverage to a high-risk driver. SR-22 is the standard in most states; FR-44 applies in Virginia and Florida with higher coverage minimums.
• Subrogation
  Subrogation is a carrier's legal right to recover from a responsible third party the amounts it has paid to its own policyholder under the insurance policy. It reduces net claim costs and prevents the at-fault party from benefiting from the victim's insurance coverage.
• Umbrella Policy
  A personal umbrella policy provides excess liability coverage above the limits of underlying auto and homeowners policies, typically starting at $1M increments. It is among the most cost-efficient forms of liability protection available to individuals with assets to protect.