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.

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.

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. 

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 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 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. 

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.

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. 

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

Solvency

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

SEC (Securities and Exchange Commission)

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

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.