Understanding the jargon of the insurance industry is an important first step to effective risk and equity management. Here is a quick look at commonly used terms that can impact your business.

Additional insured signifies those insureds that generally are not automatically included as insureds under the liability policy of another, but for whom the named insured desires or is required to provide a certain degree of protection under its liability policies. An endorsement is usually used to effect additional insured status for these parties.

Additional named insured are individuals or entities that must be specifically added to the policy, usually by endorsement, to enjoy insured status. These named insureds are typically related in some manner-usually through ownership-to the primary named insured, and the policy applies to each named insured as if it is the only named insured.

Broad form property damage endorsement is attached to a general liability policy thereby eliminating most of the exclusion of property under the care, custody, and/or control of an insured. Without this endorsement there would be no coverage under a commercial general liability policy in the event of damage to property under the care, custody, and control of the insured.

Captive insurance companies are generally owned by companies with common interests that are not engaged primarily in the business of insurance. These interests may be a single-parent shareholder or a group of shareholders or policyholders with similar captive risks. In many cases involving the later, the shareholders or policyholders are members of a business or trade association.

A Certificate of Insurance related to property and liability insurance, provides evidence of the existence of insurance coverage and provides the details of the specific policy including the policy limit, insurance carrier and policy number.

Claims-made basis liability coverage relates to a method of determining coverage. Under this policy language, coverage depends upon a claim made while the policy is in effect, as long as the event occurs during the policy period. An occurrence policy, however, addresses a claim that arises out of an event occurring while the policy is in force, regardless of when the insured submits the claim.

Commercial general liability (CGL) insurance provides coverage against all liability exposures of a business unless the exposures are specifically excluded. This includes coverage for an insured when negligent acts and/or omissions result in bodily injury and/or property damage on or away from the premises of the business, when someone is injured as the result of using the product manufactured or distributed by a business, or when someone is injured in the general operation of the business.

Completed operations insurance coverage protects contractors against damage suffered by third parties as the result of the contractor completing an operation. The contractor must take reasonable care in rendering a project safe and free from all possible hazards.

Endorsement is a written agreement attached to a policy to add or subtract insurance coverage. Once attached, the endorsement takes precedence over the original provisions of the policy.

Excess insurance is property, liability or health coverage above the primary amount of insurance. For example, the primary coverage for an environmental impairment liability (EIL) policy is $2,000,000, and the excess is $3,000,000. After losses exceed $2,000,000 the excess insurance will pay for the losses up to the limit of the excess coverage. Coverage differs from Umbrella Liability Insurance, in that excess insurance sits above one specific policy.

Reinsurance is a form of insurance bought by insurers to spread their own risk and reduce the amount of actual loss from claims. Reinsurance provides many benefits to the insurance company. In particular, it minimizes wide fluctuations in underwriting results caused by large losses.

Tail Coverage or an "extended reporting period" is coverage beyond the end of the policy period of a liability policy written on a claims-made basis. Tail coverage protects the insured against losses from an event that occurred during the policy period, but was reported after the policy expired. This differs from nose coverage (also know as "prior acts"), which applies to claims presented during the policy period that are linked to events occurring prior to the start of coverage.

A third party administrator (TPA) provides claims-handling administration and adjusting services for a liability claim. The TPA is considered a "third party", separate from the insured and the insurer.

Umbrella liability insurance is excess liability coverage above the limits of basic business liability insurance policies. For example, a $5,000,000 umbrella for the CGL, EIL, and business automobile policies would provide excess coverage on one or more policies up to the limit of the umbrella policy. The umbrella policy can also fill gaps in coverage under the basic liability policies.

Underwriting is a process of analyzing and evaluating insurance risks to determine if coverage will be offered, and, if offered, determining the premium rate for the risk. This evaluation is intended to spread the risks over a base of insureds in an equitable manner.