Actuarially sound rates.

Rates that accurately reflect actual loss experience, as opposed to rates that are subsidized or are inadequate.

Admitted company.

An insurance company authorized and licensed to do business in a given state. (Gloss.)²

Affordability.

Usually applied to those cases where a person or a group of persons do not have the money to purchase insurance, or as much insurance as they would like to have; often with the implication that rates are simply too high and subsidies may be necessary.

AIA.

American Insurance Association. Merged with the National Board of Fire Underwriters and the Association of Casualty and Surety Companies. Represents companies providing property and casualty insurance and suretyship. Monitors and reports on economic, political, and social trends; serves as clearinghouse for ideas, advice, and technical information. (Encyc.)

Alien Insurer.

An insurer formed under the laws of a country other than the United States. A U.S. company selling in other countries is also an alien insurer. (Gloss.)

Availability.

Ability and willingness of the insurance industry to provide coverage. Especially applicable to high-risk areas.

BCEGS.

Building Code Effectiveness Grading Schedule. A classification of communities by the Insurance Services Office based on how well they have implemented and enforced building codes in their community.

BOACA.

Building Officials and Code Administrators International. Government officials and agencies and other interests concerned with administering or formulating regulations for buildings, fire, mechanical, plumbing, zoning, and housing. (Encyc.)

Capacity.

The total limit of liability that an insurance or reinsurance company, or the industry, can assume, according to generally accepted criteria for solvency. Can be viewed on countrywide or territorial basis.

Cataclysm.

Any great upheaval that causes sudden and violent changes, as an earthquake, war, great flood, etc. (New World)

Catastrophic Risk.

The risk of a large loss by reason of the occurrence of a peril to which a very large number of insureds are subject. (Gloss.)

Catastrophic Loss.

Damage resulting from a catastrophe.

CATEX.

An exchange through which insurers trade "standardized catastrophe units."

CBOT.

Chicago Board of Trade. Provides a futures exchange dealing with contracts based on agricultural products, financial instruments, precious metals, and options on futures including catastrophes. (Encyc.)

CEA.

California Earthquake Authority, 1996. A state agency, established by state statute, with the authority to act as an insurer of earthquake coverage for residential property.

Claim.

A request made by an insured for payment for damages covered by insurance.

Coinsurance clause.

A policy provision stating that the insured and the

insurer will share all losses covered by the policy in a proportion agreed upon in advance. (Gloss.)

CRERF.

California Residential Earthquake Recovery Fund. A program to insure the 10 percent deductible applicable to earthquake insurance, to a maximum of $15,000, via a small premium surcharge. Program created and repealed in 1992.

Cross-subsidies.

When insurance is priced below cost for particular geographic areas or groups of policyholders, a portion of their losses over time is subsidized by premiums collected in other areas or from other groups of policyholders.

CRS.

Community Rating System. A grading of communities for mitigation efforts beyond those required by the NFIP for its policyholders.

Deductible.

The portion of an insured loss to be borne by the policyholder before he or she is entitled to recover from the insurer. (Gloss.)

Disaster.

A great or sudden happening that results in loss of life, property, etc. How large a happening has to be in order to be classified as a "disaster" depends upon the perspective of the individual, community, state, or country affected.

Domestic company.

An insurer formed under the laws of the state in which insurance is written. (Gloss.)

Earthquake magnitude.

Earthquakes are measured in terms of the total amount of energy released when slippage occurs along an earthquake "fault" (a break or fracture in the earth's rock strata). The energy release creates vibrations that can be measured by a seismograph. The seismograph readings are described in terms of magnitude numbers based on the Richter scale. Major damage to buildings typically begins to occur when an earthquake's magnitude measures higher than 6 on the Richter scale. The strongest earthquakes ever recorded measured between 8 and 9.

Emergency Program.

A temporary installation of the NFIP, with restricted coverage, in a community seeking to qualify for the permanent regular program.

Exposure. 1.

The state of being subject to the possibility of loss. 2. The extent of risk as measured by payroll, gate receipts, area, or other standards. 3. The possibility of loss to a risk being caused by its surroundings. 4. Surroundings producing a loss to the insured property. (Note: an example of 3 and 4 is an insured building that suffers loss from a nearby dynamite factory explosion.) (Gloss.)

FAIR Plan.

Fair Access to Insurance Requirements. A pooling arrangement to insure risks that cannot obtain coverage in the private market.

FEMA.

Federal Emergency Management Agency. A cabinet-level agency responsible for developing mitigation strategies, coordinating disaster relief, and administering the NFIP.

FHCF.

Florida Hurricane Catastrophe Fund A tax-exempt trust fund authorized in 1993 which is financed by premiums from insurers based on their property exposure in the state. The fund covers a portion of the losses to insurers from catastrophic disasters to reduce their chances of insolvency. A retention level is specified for each year, and insurers are reimbursed for losses in excess of that level. In the event the fund does not have enough money to pay in full, a set of rules are in place defining the sharing of the funds available.

FIA.

Federal Insurance Administration. An arm of FEMA, which administers the NFIP.

FIGA.

Florida Insurance Guaranty Fund. Created in 1970 to cover the claims payments of insolvent insurers. FIGA is funded by assessing the property insurance premiums written by all insurers in the state based on their percentage of market share.

FIRM.

Flood Insurance Rate Map. Delineates boundaries of 100-year floodplain (1 percent annual probability of flood) in a flood-prone community (see NFIP Manual).

FPCJUA.

Florida Property Casualty Joint Underwriting Association. Created by the Florida legislature in 1986 to provide coverage for commercial property that could not obtain insurance in the voluntary market. Expanded in 1993 to accommodate private residential policies of insolvent insurers. (See RPCJUA.)

FWUA.

Florida Windstorm Underwriting Association Created in 1970 to provide insurance to individuals who are unable to obtain coverage in the voluntary market for wind and hail coverage in high-wind-risk areas.

GAO.

General Accounting Office. A congressionally created watchdog agency for auditing federal government agencies and programs. The GAO also is called upon frequently to assess whether proposed budgets are balanced, to estimate the financial effects of proposed legislation, and to perform other similar tasks.

Hazard.

A specific situation that increases the probability of the occurrence of loss arising from a peril, e.g., a flood or earthquake, or that may influence the extent of the loss, e.g., a poorly constructed house. (See Risk.)

Homeowners' insurance.

A comprehensive insurance policy covering an owner-occupied dwelling for most physical perils, liability, and theft.

IBHS.

Institute for Building and Home Safety. An organization funded by insurance companies, with the mission of reducing deaths, injuries, property damage, economic losses, and human suffering caused by natural disasters. Formerly known as the Institute for Property Loss Reduction (IIPLR).

IFMRC.

Interagency Floodplain Management Review Committee. Established in 1994 to study the causes and consequences of the 1993 Midwest flooding.

IIPLR.

Insurance Institute for Property Loss Reduction. Name changed to the Institute for Business and Home Safety (IBHS) in 1997. (See IBHS.)

Insurable risk.

A risk that an insurer believes it can provide with coverage against future losses.

IRC.

Insurance Research Council. Organized to respond to public and insurance industry needs for timely and reliable research findings concerning property and casualty insurance. (Encyc.)

ISO.

Insurance Services Office. Seeks to make available to any property and liability insurer, on a voluntary basis, statistical, actuarial, policy forms, and other related services; functions as an insurance advisory organization and statistical agent. Also provides insurance services to the federal government. (Encyc.)

IT.

Information technology.

JUA.

Joint underwriting association. A generic term used with a number of specific state residual market plans. A pooling arrangement among companies who share risks that cannot be accommodated by a sole insurer in the private market.

Law of Large Numbers.

For a series of independent and identically distributed random variables, the variance of the average decreases as the number of items in the sample increases.

Loss. 1.

The amount of a reduction in the value of an insured's property caused by an insured peril. 2. The amount sought by an insured's claim. 3. The amount paid on behalf of an insured under an insurance contract.

McCarran-Ferguson Act.

Popular name of Public Law 15, enacted in 1945 in response to a Supreme Court decision declaring insurance to be ''interstate commerce," and therefore subject to federal antitrust laws. P.L.15 gave insurers a partial exemption from federal antitrust enforcement, to the extent that they are regulated by the state. The law recognizes that insurers need to share loss statistics and engage in joint ventures in order to spread risk and meet the coverage needs

of large populations and industrial enterprises. Although the law itself has not been repealed, subsequent court decisions have greatly reduced the list of insurer activities exempt from federal antitrust enforcement.

Mega-Catastrophe.

A catastrophe that exceeds the capacity of the industry to respond completely.

Mitigation.

Measures taken to reduce or eliminate loss or the impact of events. These measures may be structural, strategic, or educational.

Moral Hazard.

Loss to an insurance company that may arise from the dishonesty or imprudence of the insured. (New World) Unethical or careless behavior engaged in by an individual because the property is insured; this behavior increases the probability of loss from an insured peril. Setting a house on fire (arson) as a way of collecting an insurance claim is an extreme example of moral hazard.

NAHB.

National Association of Home Builders of the United States. An organization that lobbies on behalf of the housing industry and conducts public affairs activities to increase public understanding of housing and the economy. Collects and disseminates data on current developments in home building and home builders' plans. (Encyc.)

NAIC.

National Association of Insurance Commissioners. Association of state insurance regulators responsible for regulating insurance in their respective states. Promotes uniformity of legislation and regulation affecting insurance to protect interest of policyholders. Conducts educational programs for insurance regulators. (I.R.M. Glossary)

NAS.

National Academy of Sciences. A private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Under the authority of the charter granted to it by Congress in 1863, the Academy's working mandate calls on it to advise the federal government on scientific and technical matters.

Natural disaster.

An event produced by nature rather than man, i.e., earthquake, flood, hurricane, tornado, volcanic eruption, etc. Sometimes referred to as an "act of God."

NBFU.

National Board of Fire Underwriters. A now-defunct organization founded by fire insurance underwriters in 1866. Its main objectives were to promote fire prevention and property loss control. The NBFU was instrumental in developing the standard fire insurance

policy in the mid-1960s. The board was merged into the American Insurance Association in the 1970s (see AIA). (I.R.M. Glossary)

NCOIL.

National Conference of Insurance Legislators. Made up of chairpersons and members of state insurance or insurance-related committees in state legislatures. Works to support legislators by giving them information to assist them in drafting legislation regulating the insurance industry. (I.R.M. Glossary)

NCPI.

National Committee on Property Insurance. Predecessor of the Insurance Institute for Property Loss Reduction (see IIPLR).

NFIF.

National Flood Insurance Fund, 1968. A repository for premiums from the NFIP, and from which are paid losses, operating costs, and administrative expenses of the NFIP.

NFIP.

National Flood Insurance Program, 1968. Administered by the Federal Insurance Administration (FIA). Provides flood insurance to residents of flood-prone communities that have adopted appropriate land use regulations and building codes.

NOAA.

National Oceanic and Atmospheric Administration. Agency established as part of the Department of Commerce in 1970. The mission responsibilities of NOAA are to monitor and predict the state of the solid earth, the oceans and their living resources, the atmosphere, and the space environment of the earth, and to assess the socioeconomic impact of natural and technological changes on the environment. What was formerly known as the U.S. Weather Bureau is now part of NOAA.

Nonadmitted (unauthorized or unlicensed) insurer.

An insurer not licensed to do business in the jurisdiction in question. (Gloss.)

Nondomestic insurer.

An insurer not domiciled in the state.

NSF.

National Science Foundation. Independent agency in the Executive Branch. Concerned primarily with supporting basic and applied research and education in the sciences and engineering. Funds scientific research. (Encyc.)

PML.

Probable Maximum Loss. The largest amount of loss likely to occur for a single structure or a geographic area when a given event (e.g., an earthquake) occurs.

Pre-FIRM.

In the National Flood Insurance Program, refers to structures constructed prior to the development of a Flood Insurance Rate Map (FIRM) for a community. For these structures rates are subsidized.

Premium.

The price of insurance protection for a specified period of time. (Gloss.) Also, the product of rate times amount of insurance.

Probability.

Likelihood of an event occurring; the number of times something will probably occur over the range of possible occurrences, expressed as a ratio. (New World)

Rate.

The cost per unit of insurance purchased. Usually reflects expected losses from a series of events combined with loss adjusting expense, overhead, and profit.

Regular Program.

The phase of a community's participation in the NFIP where more comprehensive floodplain management requirements are imposed, and higher amounts of insurance are available based upon risk zones and elevations determined in a flood insurance study. The rates are actuarially based and not subsidized.

Reinsurance.

Insurance purchased by insurance company A from insurance company B for the purpose of spreading risk and reducing company A's losses from catastrophes.

Risk.

A person or thing insured; the subject of insurance, i.e., a building; the chance the building could be subject to damage or loss, i.e., "is at risk"; uncertainty of loss.

Risk averse.

Wishing to avoid risk. The attitude of people whose concern with a risk associated with an investment or business venture is such that they are willing to pay proportionately more than the expected loss. In relation to catastrophic natural disaster, "risk-averse" insurers wish to avoid exposing their company to an unreasonable chance of insolvency and are thus unwilling to take on more risk than their financial capacity can easily handle.

RMMs.

Residual Market Mechanisms. Measures designed to provide coverage for those unable to obtain coverage in the voluntary market, e.g., assigned-risk plans, windstorm pools, JUAs, and reinsurance pools.

RPCJUA.

Residential Property and Casualty Joint Underwriting Association, 1986. For commercial property. Expanded in 1993 to accommodate private residential policies of insolvent insurers.

SBA.

Small Business Administration. Agency that distributes some forms of federal disaster relief to homeowners and businesses, in addition to its primary role of providing loans to small businesses.

SBCCI.

Southern Building Code Congress International, Inc. Seeks to develop, maintain, and promote adoption of the standard building, gas, plumbing, mechanical, fire protection, and housing codes. Members include state, county, municipal, or other government entities. (Encyc.)

Stafford (Robert T.) Disaster Relief and Emergency Assistance Act.

Passed in 1988 to provide federal disaster relief funds for repair of public facilities. (Encyc.)

Standard fire policy (New York Standard Fire Policy).

Basic fire and lightning policy used universally by the industry in the early part of this century.

Tsunamis.

Huge ocean waves usually resulting from Pacific hurricanes, earthquakes, and volcanic eruptions.

USGS.

U.S. Geological Survey. Provides reliable, impartial information to describe and understand the earth. This information is used to minimize loss of life and property from natural disasters; manage water, biological, energy, and mineral resources; enhance and protect quality of life; and contribute to wise economic and physical development.

Wind Pools.

Pooling arrangements similar to FAIR plans and JUAs.

WYO.

Write Your Own Program. The program under which private insurance companies sell and service flood insurance for the NFIP. The private insurance companies assume no risk but are reimbursed for their expenses.