Glossary of Insurance Terms

The Anniversary Rating Date (ARD)

This rule was eliminated effective May 1, 2017 in Indiana and most NCCI states.  With the elimination of the rule, the policy effective date determines the application of rules, classifications and rates.

Note: Rules relating to the establishment of an employer’s Rating Effective Date for Experience Rating purposes will not change.​


A legal agreement issued by

  • an agent (producer),
  • insurer, or
  • for Indiana assigned risk policies, by the ICRB,

that provides temporary evidence of insurance until the insurer can issue the insurance policy.

Combined Ratio

The combined ratio is an indication of an insurance company’s health. The word “combined” is used because it includes three ratios:

  • loss ratio
  • expense ratio, and
  • dividend ratio.

The combined ratio is the percentage of each premium dollar an insurance company has to spend on claims and expenses. When a combined ratio is more than 100 percent, the insurer has an underwriting loss. So, a combined ratio above 100 indicates that a carrier is paying out more in claims and expenses than it is taking in premiums.

Carriers often consider the combined ratio to be a more appropriate indicator of company performance than earnings because earnings also include profits on the company’s investments (thus, investment combined with underwriting results yields operating results). A company with higher than 100 combined ratio can still be profitable because of investment income.

The combined ratio is the sum of the combined loss ratio, expense ratio and dividend ratio for a given time period. The formula is [(Loss + Loss Adjustment Expense)/Earned Premium] + [Underwriting Expenses/Written Premium] + [Dividends to Policyholders/Earned Premium].

Consent to Rate Filing

Indiana general insurance rating law permits a carrier to file a “consent-to-rate” filing. The carrier is charging a rate different than that already on file with the Department of Insurance. The consent to rate filing is done on an individual insured basis and the insured must sign a consent form which shows agreement to the rate.​

Contingent Homeowners Workers Compensation Endorsement

Some carriers upon request will attach a Contingent Workers Compensation Insurance Endorsement, typically to a homeowners policy. The endorsement provides that the insurance company will issue a workers compensation policy, at current rates, to the homeowner or farmowner should a person (e.g. a handyman) doing work around the house or farm be ruled as an employee rather than an independent contractor, or an exempted “agricultural employee.”

This endorsement is not a standard form for workers compensation insurance, therefore, the ICRB has no jurisdiction over its use.​

Direct Written Premium

The total amount of an insurer’s written premiums without any allowance for premiums ceded to reinsurers.

Discount Ratio (D-ratio)

Used in the calculation of an employers Experience Rating Modification, the D-ratio is applied to Expected Losses to determine the percentage of Expected Losses consider to be Primary Expected Loss.  In the experience rating calculation you multiply the D-ratio times the expected losses for each classification code.


The Indiana WC statute defines an employee as follows:

“Employee means every person, including a minor, in the service of another, under any contract of hire or apprenticeship, written or implied, except one whose employment is both casual and not in the usual course of the trade, business, occupation, or profession of the employer.” Reference IC 22-3-6-1 (b)

The statute goes on to describe particular situations for executive officer, sole proprietor, partner, LLC member, real estate agent, owner-operator truck driver, independent contractor in the construction trades, and school to work students.


An addendum to an insurance policy that changes the original policy provisions. It can serve a number of purposes such as:

  • broaden or restrict coverage
  • clarify a unique exposure
  • add or excluded other entities as insureds
  • add or restrict locations.

Excess Loss ​Factor

An ELF is the ratio of the expected portion of losses greater than a particular loss limit to standard premium. For example, given a loss limit of $200,000 and an associated ELF of 10%, the expected losses over the deductible or retention of $200,000 per occurrence is equal of 10% of standard premium.

Classification codes are placed into hazard groups based on their excess ratios (which indicate their potential of having losses in excess of a given threshold) at different loss limits. Classes in Hazard Group A have the lowest potential for large claims, while those in Hazard Group G have the highest potential.​

Expected Loss

An estimate of total loss during the policy or experience period. In the experience rating calculation, you multiply the expected loss ratio by payroll and divide by 100 to arrive at expected losses for each code.

Expected Loss Rate (ELR)

The ELR is used in the calculation of an employers Experience Rating Modification.  The ELR isbased off of the filed Loss Costs for each classification code.  The ELR is multipled times the payroll for each classification code to determine total Expected Losses.

Gross Premium

Pure premium adjusted upward to include insurer expenses. )

Gross Written Premium

The premium paid by the original insured, or the premium that is received by a captive.


An estimate of the liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. The sum of IBNR losses plus incurred losses provides an estimate of the total eventual liabilities for losses during a given period.

Incurred Costs​

The incurred costs or incurred losses for a claim are the amounts that have been paid out so far plus the reserves for future, anticipated losses.

Loss Adjustment Expense (LAE)

The expenses associated with settling claims. LAE is divided into two components: allocated loss adjustment expenses (ALAE), and unallocated loss adjustment expenses (ULAE).

  • Allocated Loss Adjustment Expense (ALAE)
    ALAE, also known as Defense and Cost Containment Expense, is the specific cost of adjusting a specific claim or loss. Therefore it is allocated to a specific claim or loss. It is expressed as both actual (paid) and reserve (estimated) amounts. The components of ALAE include legal fees, court costs, expert witnesses, investigation costs, costs of records duplications, expert witnesses, trial preparations, etc.
  • Unallocated Loss Adjustment Expense (ULAE)
    ULAE, also known as Adjusting and Other Expense, is the cost to the insurance company of managing its claims department to adjust and resolve claims, including such expenses as overhead and staff, all external, internal, and administrative claims handling expenses, including determination of coverage. These costs are not allocated to any individual claim, but are a general expense to the insurance company as part of their operations, usually for a line of insurance like workers compensation. For the most part ULAE is combined in financial reporting as part of “underwriting” expenses.​​

Loss Runs​

Property and casualty are expected to provide loss runs to insureds.

Per the Indiana Department of Insurance minimum requirements for the carriers are as follows:

  • loss runs provided within 30 days of request
  • loss runs current within 30 days
  • loss runs available for 3 years after policy expiration

For assigned risk employers, the  Servicing Carrier Performance Standards state that the servicing carrier will provide a loss runs within 20 days of request to the employer and/or agent of record.​

Participating Company

The term “participating company” refers to an insurance company that writes policies that allow policyholders to participate in the results by paying dividends. Non-participating companies do not offer any dividend policies.

The Indiana Department of Insurance allows carriers to offer both participating and non-participating policies.

Pure Premium

Also called “loss costs,” the actual or expected cost to an insurer of indemnity payments and allocated loss adjustment expenses (also known as defense and cost containment expense). Loss costs do not include overhead costs or profit loadings.​


Reinsurance is when an insurance company buys insurance. It does this to help cover its exposure on the insurance policies it has issued to its customers (policyholders). Reinsurance is a method that enables the spreading of risk across a number of financial backers.

A company that buys reinsurance is known as the “ceding” company. It is the primary insurer. A company that sells reinsurance is known as a “reinsurer.”

Just like other insurance policies, a reinsurance policy is a contract. In the reinsurance market, such a contract is called a “treaty.” The treaty transfers a portion of the risk from the insurance company to the reinsurer, as specified in the contract. So, the ceding company retains a portion of the risk and spreads the rest among its reinsurers.


Reserves are an estimate of the eventual total cost of claims.  These are estimated by Insurance company claims staff based on severity and type of injury.  The monetary amount of the claims reserve can be calculated subjectively, using the claims adjusters judgement, or statistically, by evaluating past data to project future losses.​

Return to Work Programs

Return-to-Work is a proactive approach, endorsed by many health care providers, designed to help restore injured workers to their former lifestyle in the safest and most effective manner possible. A temporary light duty work program is developed to aid the injured worker in getting back to his or her pre-injury status.

The Return-to-Work process restores a worker to the workplace as part of his or her recovery program and minimizes long-term workers’ compensation costs.​​​


The assumption by a third party (as a second creditor or an insurance company) of another’s legal right to collect a debt or damages.


Insurance underwriting is the process of classification, rating, and selection of risks. This selection process consists of evaluating information and resources to determine how an employer will be classified. After this classification procedure is completed, the policy is rated in terms of the premium that the applicant will be charged. The binder or policy is then issued and subsequently delivered to the insured by the producer (more commonly known as the insurance agent).

Workers Compensation Insurance

Workers compensation insurance covers an employer’s liability for injuries, disability or death to persons in their employment, without regard to fault, as prescribed by state or Federal workers compensation laws and other statutes. Includes coverage against the common law liability for injuries to employees (as distinguished from the liability imposed by Workers Compensation Laws). Excludes excess workers’ compensation.