Glossary of insurance terms

A

Affiliation

A relationship between two entities, typically an insurance agency and an insurance carrier, where the agency represents and sells insurance products offered by the carrier. 

Agent

An individual or organization that legally represents another; a state licensed professional who represents the insurance company in the sale and servicing of insurance; the direct link between the insurance company and the policyholder. See also: captive agent, exclusive agent, independent agent, independent agencies, insurance agencies.

Captive Agent

An insurance agent who exclusively represents a single insurance carrier and sells only the products of that carrier. A captive agent represents only one company; also referred to as exclusive.

Independent Agent

An agent in business for himself or herself, selling insurance for many different companies; also referred to as nonexclusive.

Agentic AI 

The use of autonomous artificial intelligence technology to streamline workflows in customer service, underwriting, claims processing, and more.  

Amendment

Act of changing for the better. Process of formally altering or adding to a document or record.

Annuity

A financial product sold by insurance companies that provides a stream of income payments in exchange for a lump-sum payment or a series of payments. 

Appointment

An agreement between an insurer and a licensee authorizing the licensee to represent the insurer in the sale of its insurance products.

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B

Broker

A term generally used to describe one who places business with more than one company and has no exclusive contract requiring that all business be offered to a single company. Unlike an agent, who represents a company, the broker represents the client.

Broker/Dealer

An individual who represents a broker/dealer firm in the sale of the firm’s products.  Also referred to as representative.

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C

Cancellation

Termination of an insurance license or appointment before the end of the license or appointment period.

Captive agent

An insurance agent who exclusively represents a single insurance carrier and sells only the products of that carrier. They are restricted by agreement from submitting business to any other company.

Churning

The practice of an insurance agent or broker persuading a policyholder to cancel an existing insurance policy in order to purchase a new one, often to generate additional commissions. 

Continuing Education

Training required in most states to renew a license unless licensee is exempt.

Commercial Lines

Products designed for and bought by business. Among the major coverage are boiler and machinery, business interruption, commercial auto, comprehensive general liability, directors and officers liability, fire and allied lines, inland marine, medical malpractice liability, product liability, professional liability, surety and fidelity, and workers compensation. Most of these commercial coverage’s can be purchased separately except business interruption which must be added to a fire insurance (property) policy.

Commission

The portion of the premium stipulated in the contract to be retained by the licensee as compensation for sales, service, and distribution of insurance policies.

Compensation hierarchy 

The structure of how insurance carriers pay their agents and agency partners, a strategic element of distribution management focused on driving sales through producer incentives. From individual agents to team leaders, managers, and brokers, commission percentages can vary based on a producer’s role within their organization, and the compensation hierarchy is designed to support and motivate each toward more potential earnings.  

Compliance

Complying with a demand or proposal, particularly in the context of regulatory compliance, which governs the lawful activities of insurance professionals and companies.

Co-code (company code)

A unique, five-digit identification assigned by the NAIC to all insurance companies for filing financial data.  

D

Designated home state

The state in which an insurance producer is primarily licensed and where they must comply with licensing requirements. 

Detail report

A report providing comprehensive information on insurance transactions, policies, claims, and other relevant details. 

Domicile

The state or jurisdiction where an insurance company is incorporated and maintains its legal headquarters. 

DRLP (Designated Responsible Licensed Producer)

An individual appointed by an insurance agency or brokerage who is responsible for ensuring compliance with insurance regulations and overseeing the activities of other licensed producers. 

E

E&O insurance (Errors and Omissions insurance)

Professional liability insurance that protects insurance agents, brokers, and agencies against claims of negligence or inadequate work. 

E&S lines (Excess and Surplus)

The specialty market that insures difficult, novel, or higher risk things that many standard carriers do not cover. E&S companies are typically fast-moving and maintain flexibility to adapt to market changes. 

Embedded insurance 

Embedded insurance is the point-of-sale combination of insurance products with non-insurance purchases, such as buying plane tickets and a travel insurance policy in a single transaction. 

Exclusive agent

An insurance agent who works exclusively for a single insurance carrier and is prohibited from selling products from other carriers. 

F

FEIN (Federal Employer Identification Number)

A unique nine-digit number assigned by the Internal Revenue Service (IRS) to businesses for tax identification purposes. 

FMO (Field Marketing Organization)

An entity that provides marketing, sales, and administrative support to insurance agents and agencies, typically specializing in specific insurance products or market segments. 

H

Home Office

The place where an insurance company maintains its chief executives and general supervisory departments.

I

Inactive licenses

Licenses held by insurance producers that are not currently active due to non-renewal, suspension, or other reasons. 

Independent Agent

An individual who represents many insurance companies, rather than a single company; also called a nonexlusive agent.

Independent agencies

Insurance agencies that represent multiple insurance carriers and offer a variety of insurance products to consumers. 

Insured

The party who purchases insurance from an insurer who agrees to provide benefits or services.

Insurer

The party that undertakes the losses or provides benefits or services; also called the insurance company or insurance carrier.

Insurance adjuster

A professional responsible for investigating insurance claims, determining the extent of coverage, and negotiating settlements with policyholders.

Insurance agency

A business that sells insurance products and services on behalf of one or more insurance carriers. 

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Insurance BPO 

Insurance business process outsourcing or BPO is a standard practice in the insurance industry whereby a range of operationally intensive processes can be strategically assigned to external experts. Unlike traditional foreign offshoring to escape the higher cost of domestic services, onshore outsourcing or co-sourcing refers to a more collaborative model between insurers and trusted service providers.  

Insurance broker

A licensed intermediary who represents insurance buyers and assists them in purchasing insurance coverage from insurance carriers. 

Insurance carrier

An insurance company that underwrites insurance policies and assumes the risk of loss in exchange for premiums. 

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Insurance commission structures 

An insurance commission structure is the percentage of a premium paid by a policyholder that goes to an agent or producer. The exact percentage is determined by each carrier for each product and is recorded in their service level agreements with agency partners.  

Insurance core lines

The primary types of insurance products offered by insurance carriers, such as property, casualty, life, health, and annuities. 

Insurance distribution management

Insurance distribution management is the process of leveraging integrated solutions to streamline the distribution of insurance products, ensure compliance, and support producers.

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Insurance producer

An individual or entity licensed to sell insurance products and services to consumers on behalf of insurance carriers. 

Integrated distribution management 

Integrated distribution management is the strategy of consolidating an insurance carrier’s essential producer administration functions (including agent onboarding, licensing compliance, compensation, relationship management, and performance analytics) into a unified, intuitive technology platform.  

J

Just-in-time appointment

An appointment process where an insurance producer is appointed by an insurance carrier immediately before completing a transaction, ensuring compliance with regulatory requirements.  

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L

Line of authority (LOA)

Authorization is granted to an insurance producer by a state insurance department to sell specific types of insurance products. 

License

An agreement between a licensee and a state insurance department authorizing the licensee to sell insurance under the guidelines established by the insurance laws of that state.

Licensee

An individual, firm or corporation who holds a valid license and is appointed by an insurer to solicit, negotiate or procure insurance.

Lloyd's of London 

Lloyd’s of London is a historic marketplace for insurance and reinsurance composed of underwriting groups, managing agents, coverholders or MGAs, brokers, and more. It began as Lloyd’s Coffee House in 1652, a popular gathering spot for sailors, merchants, and ship-owners in the burgeoning global shipping industry. 

Loss control 

Insurance loss control is a risk management practice meant to reduce the likelihood and severity of insurance claims by identifying potential risks and proactively developing strategies to mitigate them before they can occur. For example, in auto insurance, a carrier might offer a reduced rate for drivers who download the carrier’s app and allow it to track their driving habits.  

M

Major lines

The primary categories of insurance products, including property, casualty, life, health, and annuities. 

Managing General Agent (MGA)

An independent entity with specialized expertise authorized by an insurance carrier to underwrite and manage insurance policies on behalf of the carrier. Many MGAs operate in the E&S or specialty lines market. MGAs have more administrative authority than general agents and negotiate, solicit, or procure insurance either directly or indirectly. They may also negotiate reinsurance for insurance companies.

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MGU (Managing General Underwriter)

Similar to an MGA, an MGU is an entity that specializes in underwriting risks on behalf of insurance carriers. 

Multichannel distribution 

For carriers, multichannel distribution refers to a range of hybrid distribution models by which strategically integrate their direct, independent, and/or captive sales channels. 

N

NAIC (National Association of Insurance Commissioners)

An organization composed of insurance regulators from all 50 U.S. states, the District of Columbia, and five U.S. territories, responsible for developing model insurance laws and regulations. 

NIPR (National Insurance Producer Registry)

A nonprofit organization that provides online services for insurance producers, including licensing and appointment applications. 

NPN (National Producer Number)

A unique identifier assigned by the NIPR to insurance producers for licensing and regulatory purposes. 

NPN lookup

A search tool provided by the NIPR to verify the licensing status and credentials of insurance producers using their National Producer Number. 

P

Personal lines of insurance

Insurance products designed to cover the personal property and liability risks of individuals and families, such as auto, homeowners, and renters insurance. 

Policy

An insurance contract.

Premium

The price of an insurance policy, typically charged annually or semiannually.

Producer

General term used to describe someone who sells insurance, such as an agent, broker, or solicitor.

Producer database (PDB)

A centralized database containing information about licensed insurance producers, maintained by state insurance departments or regulatory authorities. 

R

Reinstatement period

The period during which an insurance policyholder can reinstate a lapsed insurance policy without reapplying for coverage, typically subject to certain conditions and requirements. 

Reinsurance

The practice of insurance companies transferring a portion of their risk to other insurance companies, known as reinsurers, to mitigate their exposure to large losses. 

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Rebating in insurance

The illegal practice of offering customers something of value, such as cash or gifts, as an inducement to purchase an insurance policy. 

Retaliatory fee

A fee imposed by a state on insurance companies domiciled in other states if those states impose higher fees or taxes on insurance companies domiciled within their jurisdiction. 

S

Scalability 

In insurance, scalability refers to the capacity of a system or process to manage increased workflows or demands without disrupting overall service. It is critical for insurers to be able to manage seasonal fluctuations or marketplace changes that can cause rapid surges, such as a spike in claims following a major event. 

SEC (Securities and Exchange Commission)

A U.S. government agency responsible for regulating the securities industry, including insurance products with investment components. 

Solvency

The financial ability of an insurance company to meet its obligations to policyholders by having sufficient assets to cover liabilities and claims.

State department of insurance 

A state department (or division) of insurance is a government agency that regulates the insurance industry within each state. Because regulation of the insurance industry in the United States is primarily handled at the state level, each state can pass its own laws governing producer licensing and the sale of insurance products and services. This creates the complex regulatory landscape that multistate companies must navigate. 

U

Underwriter

In the securities industry an underwriter is a company, usually an investment bank, which helps companies introduce their new securities to the market. In the insurance business, an underwriter is a company liable for insured losses in return for fee (premium).

Underwriting

The process of examining the risks of potential policyholders and then accepting or rejecting those risks. Underwriting also includes placing limits on the coverage that policies offer and categorizing policies so that the appropriate premium is charged.

W

Wrench attack insurance 

Noteworthy among several new markets for MGAs, wrench attack insurance is a novel type of insurance policy closely associated with cryptocurrency, one that protects policyholders against losses due to physical attacks over their digital assets. Those with significant cryptocurrency holdings are at greater risk of these targeted robberies.