A
Aggregate Limit
The maximum amount an insurer will pay for all claims combined during a single policy period, regardless of how many separate incidents occur. Once the aggregate limit is exhausted, no further claims are covered until the policy renews. Differs from per-claim limits which apply to individual claims.
B
Betterment
The increase in value when damaged property or equipment is replaced with new items rather than equivalent used items. Insurers may reduce claim payments to account for betterment, arguing you’re in a better position than before the loss. “Reinstatement as new” policy provisions prevent betterment deductions.
Bodily Injury
Physical harm to a person, including illness, disease, or death. Product liability and public liability policies cover bodily injury caused by your products or operations. Distinct from property damage or pure economic loss.
Broker
An insurance intermediary who represents clients (buyers) rather than insurers. Brokers search the insurance market to find appropriate coverage, negotiate terms, and manage policy administration. Regulated by the FCA in the UK.
Business Interruption Insurance
Coverage for lost gross profit and continuing fixed costs when business operations stop due to insured events such as fire, equipment breakdown, or supplier failures. Calculates loss based on financial records, not revenue. Critical for manufacturers and research facilities.
C
Claim
A formal demand made against an insured party alleging legal liability or seeking compensation for loss, damage, or injury. Under claims-made policies, claims must be made during the policy period. Under occurrence policies, incidents must occur during the policy period regardless of when claims are made.
Claims Made Basis
Insurance coverage triggered by when a claim is made against you, not when the incident causing the claim occurred. The claim must be made during the policy period and after the retroactive date. Requires continuous coverage to avoid gaps. Most common structure for professional indemnity, D&O, and cyber insurance.
Costs Exclusive (Defence Costs Within Limits)
Policy structure where legal defence costs are paid from the same limit as compensation, settlements, and judgments. A £2m policy with £300k defence costs leaves only £1.7m available for settlements. Contrasts with costs inclusive structure.
Costs Inclusive (Defence Costs in Addition to Limits)
Policy structure where legal defence costs are paid in addition to policy limits, not deducted from them. A £2m policy provides £2m for settlements plus separate defence cost coverage. More valuable structure but typically costs 10-20% more in premium.
Coverage Gap
An uninsured exposure where losses fall outside policy coverage due to exclusions, sublimits, coverage triggers not being met, or gaps between different policies. Common gaps occur between professional indemnity and product liability, or between cyber and technology E&O policies.
D
Data Breach
Unauthorised access to, theft of, or exposure of personal data, confidential information, or commercially sensitive data. Cyber insurance covers breach response costs including forensic investigation, customer notification, regulatory defence, and compensation. GDPR breaches trigger ICO notification requirements.
Deductible
The amount the insured pays from each claim before insurance coverage begins. Synonymous with excess in UK insurance. Deductibles may be per-claim, per-occurrence, or annual aggregate depending on policy structure. Typical ranges: £5k-£50k for SMEs; £25k-£250k for larger operations.
Defence Costs
Legal costs of defending claims including solicitors, barristers, expert witnesses, court fees, and investigation expenses. Whether defence costs sit within limits or in addition to limits significantly affects policy value. Insurers typically control defence strategy and appoint solicitors from panel firms.
Directors and Officers (D&O) Insurance
Coverage protecting company directors, officers, and the company itself from claims alleging wrongful acts in managing the company. Includes shareholder claims, regulatory investigations, employment practices liability, and breach of fiduciary duty allegations. Essential for fundraising and M&A transactions.
Duty to Defend
Insurer obligation to provide legal defence for covered claims, including appointing solicitors and funding defence costs. Duty to defend may be broader than duty to indemnify, meaning insurers defend claims that may ultimately fall outside coverage. Standard in liability policies.
E
Endorsement
An amendment or addition to an insurance policy that modifies coverage terms, adds or removes exclusions, changes limits, or clarifies policy wording. Endorsements may restrict coverage (exclusionary endorsements) or expand it (coverage extensions). Must be explicitly agreed and documented.
Excess
The amount the insured pays from each claim before insurance coverage begins. Synonymous with deductible. Higher excess reduces premium but increases out-of-pocket costs when claims occur. May apply per-claim, per-occurrence, or as annual aggregate.
Exclusion
Specific risks, circumstances, or types of loss that are not covered by an insurance policy. Common exclusions include intentional acts, known circumstances, war, nuclear risks, asbestos, and pollution. Exclusions must be clearly stated in policy wording. Some can be removed via endorsements.
I
Indemnity
The principle of restoring the insured to the financial position they occupied before the loss, without profit or loss. Indemnity policies compensate for actual losses suffered, distinguishing insurance from gambling or investment.
Information Commissioner’s Office (ICO)
The UK’s independent regulatory authority for data protection and privacy. The ICO enforces GDPR, investigates data breaches, issues fines up to £17.5m or 4% of global turnover, and conducts compliance audits. Cyber insurance typically covers ICO defence costs and, where insurable, penalties.
Insured
The person or organisation covered by an insurance policy. May also be called the policyholder. The insured has obligations including prompt claim notification, duty of disclosure, and cooperation during claims. Multiple parties can be named as insureds under a single policy.
Insurer
The insurance company or underwriter providing coverage and accepting risk in exchange for premium. Insurers assess risks, set terms and pricing, handle claims, and pay covered losses. UK insurers must be authorised by the Prudential Regulation Authority.
Intellectual Property (IP)
Intangible assets including patents, trademarks, copyrights, trade secrets, and design rights. Technology E&O and professional indemnity policies may cover IP infringement claims. Product liability covers physical products but typically excludes pure IP disputes unless endorsements apply.
L
Limit of Indemnity
The maximum amount an insurer will pay for covered claims. May be expressed per claim, in aggregate for all claims during the policy period, or both. Sublimits apply to specific coverage types within the main limit. Determining adequate limits requires analysing maximum probable loss scenarios.
Lloyd’s of London
The world’s specialist insurance and reinsurance market, operating since 1688. Lloyd’s is not itself an insurer but a marketplace where syndicates of underwriters provide coverage for complex or high-value risks. Essential market for clinical trials insurance, large product liability placements, and specialty covers.
Loss
The financial detriment suffered by the insured from an insured event, including property damage, bodily injury, defence costs, settlements, and judgments. Policies define what constitutes a covered loss and how losses are calculated, measured, and valued.
O
Occurrence Basis
Insurance coverage triggered by when an incident causing harm occurred, regardless of when claims are made. The incident must occur during the policy period, but claims can be made years later and remain covered under that historical policy. Common in product liability. Contrasts with claims-made basis.
P
Policy Excess / Policy Deductible
See Excess and Deductible above. Terms are interchangeable in UK insurance practice. The amount the insured must pay from each claim before insurance coverage responds.
Policy Period
The duration of insurance coverage, typically 12 months from policy inception to expiry. Claims-made policies only cover claims made during this period (and after the retroactive date). Occurrence policies cover incidents that occur during this period regardless of when claims arise.
Policy Wording
The legal contract document setting out coverage terms, conditions, exclusions, limits, and obligations. Policy wordings differ significantly between insurers even for similar coverage types. Reading actual wordings, not marketing materials, reveals true coverage scope.
Prior Known Circumstances
Facts, situations, or circumstances known to the insured before policy inception that could give rise to claims. Most insurance policies exclude coverage for claims arising from prior known circumstances. Disclosure obligations require revealing such circumstances when purchasing insurance.
Professional Indemnity (PI)
Insurance covering legal liability arising from professional services, advice, or work. Covers errors, omissions, negligence, breach of professional duty, and breach of contract causing client financial loss. Essential for consultants, advisers, and service providers. Operates on claims-made basis.
R
Regulatory Investigation Costs
Legal costs of responding to investigations by regulators such as MHRA, FCA, ICO, or OPSS. Some policies cover investigation costs in addition to limits; others include them within limits or exclude them entirely. Regulatory investigations often run parallel to civil claims but require separate legal representation.
Reinsurer
An insurance company that provides coverage to primary insurers, effectively insuring the insurers. Reinsurance allows primary insurers to accept larger risks by transferring portions to reinsurers. Major reinsurers like Swiss Re and Munich Re influence insurance market capacity and pricing.
Retroactive Date
The earliest date for which claims are covered under a claims made policy. Claims arising from incidents that occurred before the retroactive date are not covered, even if the claim is made during the current policy period. Critical to maintain continuous retroactive dates when switching insurers to avoid coverage gaps.
Run-Off Cover (Tail Cover)
Extended reporting period coverage purchased when a claims-made policy ends, allowing claims to be made after policy expiry for incidents that occurred before expiry. Essential when businesses are sold, cease trading, or switch to occurrence policies. Typically covers 6 years post-expiry and costs 150-300% of annual premium.
S
Sublimit
A limit within the main policy limit that applies to specific types of claims or coverage. For example, a £5m professional indemnity policy might include £1m sublimit for cyber liability and £500k sublimit for regulatory defence costs. Once sublimits exhaust, no further coverage applies to that category even if the main limit hasn’t been reached.
T
Technology Errors and Omissions (Tech E&O)
Specialist professional indemnity coverage for technology companies covering software defects, system failures, data corruption, missed deadlines, and negligent technical advice causing client financial loss. Includes technology specific policy wording avoiding ambiguities in traditional PI policies about whether software errors constitute professional negligence.
U
Underwriter
The insurance professional who assesses risks, determines whether to provide coverage, sets terms and pricing, and accepts risk on behalf of an insurer or syndicate. Underwriters at Lloyd’s operate with substantial authority to bind coverage. Understanding what underwriters think when reviewing applications influences how businesses present risks.
