Commercial Glossary
Definitions of some of the Short Term words commonly used. This specialized language of the Short Term Insurance trade is sometimes difficult to understand by outsiders.
Act of God
Any incident that is not man-made, which causes destruction to property and plants/crops, and/or injury or death to animals and people. Examples include earthquakes, storms (rainstorms, hurricanes, etc.) lightning and tsunamis.
All risks” refers to an insurance cover:
(a) which is not limited to certain causes. Insurance for the insured property is extended to include any possible cause of damage, loss or destruction to the insured property. Those causes which are not intended to be part of the wide cover will be listed in the policy as "exclusion".
(b) It may sometimes refer to an insurance cover which has no territorial boundaries. E.g. the insured property is covered anywhere in the world. It is advisable to study the context of all risks in the policy to see the appropriate application.
Arbitration

“Arbitration” is a forum and a process where disputes are adjudicated. The parties in dispute must agree to the arbitration process instead of going to a court of law. The resolution of disputes through arbitration is done under the set rules that govern the arbitration process. The outcome of any dispute resolved through arbitration is binding on those parties as if it was a court order and can be enforced through a court of law.

Average

An insurer compensates the insured for lost or damaged property according to the percentage of its responsibility if the insured property is insured for less than its value. This is applied by the insurer on each claim the insured makes regarding the property.

 A house insured for R200 000 but valued at R400 000 is insured for half its value, therefore, every time the insured claims for loss or damage to that property the insurer will only compensate for 50% of the claim and the insured will have to meet the costs of the remaining 50%.

Betterment

a) As it has been explained under "indemnity", the purpose of insurance for property is to financially restore the insured person to the position he/she was before the loss or damage to the insured property.

b) In principal, the insured should not be placed in a better position than he/she was before the loss or damage to the insured property. In other words, the insurer may not compensate the insured for more than the value (not for more than what it is worth) of the insured property

Claims preparation costs

When an insured submits a claim, he/she must give the insurer all the documents and details about the incident that has led to a claim. The expense incurred by the insured to obtain the documents from the authorities, to make copies, to commute and to certify these documents is called "claims preparation costs".

Consequential loss

For the purposes of this explanation “loss” or “damage” for insurance purposes can be classified in two ways: Firstly, loss or damage and the following loss or damage. 

For the following loss or damage to qualify as consequential loss, it must:

a) Follow in sequence after the first loss or damage

b) Directly happen as a result of the first loss or damage

For example:

1. A fire destroys the insureds factory (first loss or damage). The consequential loss would be the loss of the insureds profit as he can no longer manufacture goods. 

Can this consequential loss be covered?

Under Santam’s commercial policy, it can be covered under the Business Interruption section.

2. A motor vehicle is damaged in an accident (first loss or damage). A consequential loss could be the hiring of another car in order for the insured to carry on with his business. 

Can this consequential loss be covered? 

Yes, car hire can be insured.

3. A motor vehicle is damaged in an accident (first loss or damage). It is properly repaired by the insurer and four years later the insured trades the vehicle in. At trade-in the motor dealer enquires whether the vehicle has ever been in an accident. Being an honest person the insured confirms that it has. The motor dealer then gives a lower trade-in price as the vehicle has previously been involved in an accident resulting in a consequential loss. 

Is this consequential loss covered? 

No, as the motor section specifically excludes consequential loss.

Ex gratia

In insurance ex gratia means goodwill compensation to the insured for loss of or damage to the insured property that the insurer is not compelled to pay in terms of the insurance policy.

Excess

An “excess” is the amount of money the insured person pays as a contribution towards the repairs or restoration of the insured property. The excess must be paid by the insured before the insurer can make its payment according to the policy.

 It is sometimes referred to as the "first amount payable" or as a "deductible". The insurer uses the principle of paying excess in order to incentivise the insured to be mindful in the keeping or usage of the insured property in order to avoid incidents that can lead to a claim.

Exclusion

A policy is a contract between the insurer and the insured. The policy will mention the type of insurance cover the insurer is providing for the insured’s property and it will also mention the nature of incidents it will not cover should these incidents lead to the loss or damage of the insured property. These incidents which are not covered are referred to as "exclusions" or "not covered".

Extensions

This is insurance cover which is in addition to the standard insurance cover offered for a property. The insured can choose to add this cover to the standard cover but at an additional premium. This is also referred to as “optional cover”.

First loss basis

“First loss basis” can be explained by way of an example:

1. An insured has house contents to the value of R500 000. The most expensive of those contents is a painting which is worth R150 000. The insured is of the view that in the event of an unfortunate incident, such as theft or burglary, the loss or damage to his/her house contents is highly unlikely to be to the total value of R500 000, but possibly R150 000 at the most.

The insurer and the insured acknowledge the value of the total house contents but agree that theft or burglary to house contents will be insured up to R150 000. If theft of the house contents occurs and the loss is greater than R150 000, in terms of the "first loss basis", the insurer will only compensate the insured up to R150 000 irrespective.

2. A vehicle value is R100 000 but the damage to the vehicle is R20 000. The insurer pays the R20 000 because it is less than the limit of compensation.

Hold covered

“Hold cover” refers to a situation where the insurer cannot issue an insurance policy to the insured immediately due to administrative limitations or due to further investigation that the insurer is conducting on the insureds insurance application.

The insurer can agree to give cover to the insured in part for specific incidents pending the completion of the administrative or investigative processes. The giving of the part cover is called "hold or held covered".

Indemnity

The purpose of insurance for property is to financially restore the insured to the position he/she was before had the property not been lost or damaged.

Financial restoration of the insured person can be done by repairing or replacing the property or by paying cash. In order for the insured to be financially restored, the property must be insured for the correct value and the insured premiums must be paid up to date.

Insured perils

” Insured perils” are incidents that must cause loss or damage to the insured property as defined in the policy wording for a claim to be valid. The time and location of these incidents should not be known, except that it is expected that they may occur where the insured’s property is located. Examples are earthquakes, fires, floods, collisions and storms.

Jurisdiction

“Jurisdiction” refers to a capacity or boundary allocated to a person or institution in which to exercise authority.

For example:

(a) Capacity – the law requires financial institutions to possess a licence to sell specific financial products; therefore an institution that possesses a licence to sell or underwrite short-term insurance cannot sell or underwrite long-term insurance.

(b) Boundary – should an accident occur between two vehicles along the N1 in Cape Town, the party who intends to sue must approach a court in Cape Town because a court in Johannesburg is out of boundary and does not have jurisdiction to adjudicate the dispute.

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Limit of indemnity

The highest amount the insurer will pay for a claim. This amount should be the value of the insured property or the amount it will cost to replace the property if it were to be lost or damaged to an irreparable condition. It is the responsibility of the insured person to ensure that the property is insured for the correct value.

Material fact

In insurance “material fact” refers to the essential information about a person or property which can influence the insurers decision whether to accept a risk to insure or whether to extend more conditions or to increase the premium.

Negligence

“Negligence” is measured or decided by using the standard of a reasonable person. A reasonable person is a person of similar kind to the one who failed to do or not do. E.g. in the event of a motor vehicle collision, to determine whether the driver of the vehicle was negligent or not, a reasonable person is assumed to be:

(a) a person of sound mind and observation with;

(b) experience of driving in similar conditions, has knowledge of driving;

(c) and has a valid driver’s licence

New for old settlement

In relation to "indemnity" and "betterment", there are instances where the insured will be bettered by the insurance settlement, e.g. electronic gadgets (such as cellphones) constantly get upgraded and old ones discarded and if it is destroyed or lost it is not possible to replace it with the same make and model.

In the event of the loss of the insured item the insurer will settle the claim by providing a similar new upgraded version of the electronic gadget as a replacement of the old one.

Non-disclosure

(a) In situations where a person fails to give information when it is necessary or a requirement to do so. 

(b) In situations where a person is not allowed to share particular information with certain persons who usually have an interest in that information.

Optional cover

This is insurance cover which is in addition to the standard insurance cover offered for a property. The insured can choose to add this cover to the standard cover but at an additional premium. This is also referred to as an “extension”.

Passenger liability

In insurance “passenger liability” refers to cover to compensate a passenger on behalf of the insured as imposed by law for injuries or death of that passenger.

Policy renewal/renewal date/renewal period

An insurance policy has a cycle of 12 months. At the anniversary of the policy, the insurer reviews and adjusts (if necessary) the covers, insured amounts, the terms and conditions, the restrictions (e.g. excesses) and the premiums that apply to the policy. 

The insurer then contacts the insured person to advise him/her of the adjustments made (irrespective of whether there are adjustments or not) to the policy and also formally invite the insured person to inform the insurer of whether their details have changed or remain unchanged. This process is called the "policy renewal".

Policy renewal/renewal date/renewal period

An insurance policy has a cycle of 12 months. At the anniversary of the policy, the insurer reviews and adjusts (if necessary) the covers, insured amounts, the terms and conditions, the restrictions (e.g. excesses) and the premiums that apply to the policy. The insurer then contacts the insured person to advise him/her of the adjustments made (irrespective of whether there are adjustments or not) to the policy and also formally invite the insured person to inform the insurer of whether their details have changed or remain unchanged. This process is called the "policy renewal"

Prescription

“Prescription” refers to a period of time allocated by law or contract in which a person(s) (including organisations such as companies) must act to enforce their rights. Failure to act within this timeline, such person(s) will no longer be able to enforce his/her/its rights if they fail to act within this timeline.

For example:

(a) the law requires that a person (company) must act to collect its funds owed by other person(s) (company) within three years. Failure to do so within this timeline will result in the person (company) losing the right to act to collect the funds. This three-year period within which to act, includes enforcement through court process or adverse listing at the Credit Bureaux.

(b) In insurance an insured has a timeline (which will be stated in the policy) in which to claim under an insurance policy. If the insured does not claim within that time he/she will lose the right to claim and the insurer is not obliged to compensate for a claim submitted after the expiry of the prescribed period.

Reasonable costs

“Reasonable costs” are costs of an acceptable rate (to the insurer) which the insured is expected to incur to prevent, remedy or reduce the extent of loss or damage to the insured’s property. An example of this includes the towing costs of a vehicle after an accident.

Reinstatement (of a policy)

In insurance terms, “reinstatement” refers to a situation where the insureds insurance cover ended for a particular reason and the insurer subsequently reinstated the cover.

Repudiate/Repudiation

In insurance, “repudiation” refers to the decision by the insurer to refuse payment of a claim for one or the other reason.

The insurer may repudiate a claim if:

a) The insurance contract did not give cover for the event which led to the loss or damage;

b) The insured acted contrary to what is stipulated in the insurance contract;

c) The property being claimed for was not insured under the insurance contract 

d) The insurance contract has been terminated, for whatever reason, before the event that led to a claim having occurred.

Reside

This applies to the address where the insured lives. An address is required by insurers as it is a method used to assess the risk of accepting or declining to insure a property.

Salvage

In insurance “salvage” refers to the insurer becoming the owner of the damaged property of the insured if the insurer compensated the insured to the maximum amount of cover for that property. 

This applies to movable property such as motor vehicles and electronic computers.

Subrogation

This is the right that an insurer can exercise to recover from a third party (who has wrongfully caused the loss or damage to the insured property) to cover the costs it has incurred to compensate the insured. 

The policy, which is a contract between the insured and the insurer, must state that the insured grants this right to the insurer.

Sum insured

For each property insured there will be a limit (a maximum amount) of what the insurer will pay/settle in the event of a claim. This is referred to as the “sum insured”. The sum insured should be the amount it will cost the insured to replace the insured property if it should be utterly destroyed or lost.

Third party liability

In insurance “third party liability” means cover to compensate a third party on behalf of the insured, if the law compels and holds the insured responsible for loss or damage of the third party’s property or for injuries or death of the third party.

Without prejudice

“Without prejudice” is a term used in written communications referring to a reservation of rights by the party who writes the communication.

This aims to protect the writer in such that the communication cannot be used against him/her in the communications that will follow or in a court of law. 

An example is when an insurer makes an offer to settle a claim ex gratia. The insurer will insert the words "without prejudice" as an indication of reservation of its rights to refuse to pay the claim if the insured does not accept the ex gratia amount or should the claim escalate to the Ombudsman or court.

Source:Santam

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