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CAFETERIA PLAN
A plan which offers a choice between two or more benefits, or a choice between cash and one or more qualified benefits, and which complies with Section 125 of the Internal Revenue Code. (Also known as flexible benefit plans or "flex" plans).

CAPACITY
The supply of insurance available to meet demand. Capacity depends on the industry’s financial ability to accept risk. For an individual insurer, the maximum amount of risk it can underwrite based on its financial condition. The adequacy of an insurer’s capital relative to its exposure to loss is an important measure of solvency.
A property/casualty insurer must maintain a certain level of capital and policyholder surplus to underwrite risks. This capital is known as capacity. When the industry is hit by high losses, such as after the World Trade Center terrorist attack, capacity is diminished. It can be restored by increases in net income, favorable investment returns, reinsuring more risk and or raising additional capital. When there is excess capacity, usually because of a high return on investments, premiums tend to decline as insurers compete for market share. As premiums decline, underwriting losses are likely to grow, reducing capacity and causing insurers to raise rates and tighten conditions and limits in an effort to increase profitability. Policyholder surplus is sometimes used as a measure of capacity.

CAPITAL
Shareholder’s equity (for publicly traded insurance companies) and retained earnings (for mutual insurance companies). There is no general measure of capital adequacy for property/casualty insurers. Capital adequacy is linked to the riskiness of an insurer’s business. A company underwriting medical device manufacturers needs a larger cushion of capital than a company writing Main Street business, for example. (See Risk-based capital, Solvency, Surplus )

CAPITAL MARKETS
The markets in which equities and debt are traded. (See Securitization of insurance risk )

CAPITATION
Method of compensation, used primarily by HMOs, to pay providers a fixed amount for each enrollee regardless of the actual number or nature of services provided to each person.

CAPTIVE AGENT
A person who represents only one insurance company and is restricted by agreement from submitting business to any other company, unless it is first rejected by the agent’s captive company. (See Exclusive agent )

CAPTIVES
Insurers that are created and wholly owned by one or more non-insurers, to provide owners with coverage. A form of self-insurance.

CAR YEAR
Equal to 365 days of insured coverage for a single vehicle. It is the standard measurement for automobile insurance.

CARVE-OUT
Term used to describe certain services not included in capitated benefits that are paid for separately on a predetermined fee-for-service basis.

CASE MANAGEMENT
A system of coordinating medical services to treat a patient, improve care and reduce cost. A case manager coordinates health care delivery for patients.

CASH DIVIDEND OPTION
For participating insurance policies, a dividend option under which the insurer sends the policy owner a check in the amount of the policy dividend. (See Dividend, Policy dividend options )

CASH PAYMENT OPTION
One of several nonforfeiture options included in life insurance policies and some annuity contracts that allows a policy owner to receive the cash surrender value of a life insurance policy or an annuity contract in a single payment. Also known as cash surrender option. (See Cash surrender value, Nonforfeiture options )

CASH SURRENDER VALUE
For life insurance, the amount, before adjustments for factors such as policy loans, that the owner of a permanent life insurance policy is entitled to receive if the policy does not remain in force until the insured’s death.
For annuities, the amount of a deferred annuity’s accumulated value, less any surrender charges, that the contract holder is entitled to receive if the policy is surrendered during its accumulation period. Also known as cash value and surrender value.

CASH VALUE
See Cash surrender value

CATASTROPHE
Term used for statistical recording purposes to refer to a single incident or a series of closely related incidents causing severe insured property losses totaling more than a given amount, currently $25 million

CATASTROPHE BONDS
Risk-based securities that pay high interest rates and provide insurance companies with a form of reinsurance to pay losses from a catastrophe such as those caused by a major hurricane. They allow insurance risk to be sold to institutional investors in the form of bonds, thus spreading the risk. (See Securitization of insurance risk) )

CATASTROPHE DEDUCTIBLE
A percentage or dollar amount that a homeowner must pay before the insurance policy kicks in when a major natural disaster occurs. These large deductibles limit an insurer’s potential losses in such cases, allowing it to insure more property. A property insurer may not be able to buy reinsurance to protect its own bottom line unless it keeps its potential maximum losses under a certain level.

CATASTROPHE FACTOR
Probability of catastrophic loss, based on the total number of catastrophes in a state over a 40-year period.

CATASTROPHE MODEL
Using computers, a method to mesh long-term disaster information with current demographic, building and other data to determine the potential cost of natural disasters and other catastrophic losses for a given geographic area.

CATASTROPHE REINSURANCE
Reinsurance for catastrophic losses. The insurance industry is able to absorb the multibillion dollar losses caused by natural and man-made disasters such as hurricanes, earthquakes and terrorist attacks because losses are spread among thousands of companies including catastrophe reinsurers who operate on a global basis. Insurers’ ability and willingness to sell insurance fluctuates with the availability and cost of catastrophe reinsurance. After major disasters, such as Hurricane Andrew and the World Trade Center terrorist attack, the availability of catastrophe reinsurance becomes extremely limited. Claims deplete reinsurers’ capital and, as a result, companies are more selective in the type and amount of risks they assume. In addition, with available supply limited, prices for reinsurance rise. This contributes to an overall increase in prices for property insurance.

CELL PHONE INSURANCE
Separate insurance provided to cover cell phones for damage or theft. Policies are often sold with the cell phones themselves.

CENTERS OF EXCELLENCE
Providers who are selected to perform certain specialized procedures because of their expertise and willingness to provide discounts.

CHARTERED FINANCIAL CONSULTANT / ChFC
A professional designation given by The American College to financial services professionals who complete courses in financial planning.

CHARTERED LIFE UNDERWRITER / CLU
A professional designation by The American College for those who pass business examinations on insurance, investments and taxation, and have life insurance planning experience.

CHARTERED PROPERTY/CASUALTY UNDERWRITER / CPCU
A professional designation given by the American Institute for Chartered Property Casualty Underwriters. National examinations and three years of work experience are required.

CHRONIC CARE
Care for illness continuing over a long period of time or recurring frequently. Chronic conditions often begin inconspicuously and symptoms are less pronounced than acute conditions. Long term care insurance is designed to assist people who have a loss of capacity due to chronic illnesses.

CIVILIAN HEALTH AND MEDICAL PROGRAM OF THE UNIFORMED SERVICES (CHAMPUS)
Federal program providing cost-sharing health benefits for dependents and survivors of active duty personnel and for retirees and their dependents and survivors.

CLAIM
Demand to the insurer by an insured person for the payment of benefits under a policy.

CLAIMS MADE POLICY
A form of insurance that pays claims presented to the insurer during the term of the policy or within a specific term after its expiration. It limits liability insurers’ exposure to unknown future liabilities. (See Occurrence policy )

CLOSED PANEL
Managed care plan that contracts with physicians on an exclusive basis that requires the insured to use a list of certain providers. The primary provider is responsible for all health care needs and refers to a specialty physician or hospitalization only when medically needed.

COALITIONS
An association of health care plan sponsors who pool their resources to negotiate with insurers or other health care payers and providers.

COBRA
Short for Consolidated Omnibus Budget Reconciliation Act. A federal law under which group health plans sponsored by employers with 20 or more employees must offer continuation of coverage to employees who leave their jobs and their dependents. The employee must pay the entire premium. Coverage can be extended up to 18 months. Surviving dependents can receive longer coverage.

COGNITIVE IMPAIRMENT
Deterioration in intellectual capacity which (1) requires regular supervision to protect patients and others; (2) must be determined by clinical diagnosis or test; and (3) may be the result of Alzheimer's disease, senile dementia, or other nervous or mental disorders of organic origin.

COINSURANCE
In property insurance, requires the policyholder to carry insurance equal to a specified percentage of the value of property to receive full payment on a loss. For health insurance, it is a percentage of each claim above the deductible paid by the policyholder. For a 20 percent health insurance coinsurance clause, the policyholder pays for the deductible plus 20 percent of his covered losses. After paying 80 percent of losses up to a specified ceiling, the insurer starts paying 100 percent of losses.

COLLATERAL
Property that is offered to secure a loan or other credit and that becomes subject to seizure on default. Also called security.

COLLATERAL ASSIGNMENT
A temporary transfer of some of the ownership rights in a particular property, such as a life insurance policy or an annuity contract, as collateral for a loan. The transfer is made on the condition that upon payment of the debt for which the contract is collateral, all transferred rights shall revert back to the original owner. Contrast with absolute assignment.

COLLATERAL SOURCE RULE
Bars the introduction of information that indicates a person has been compensated or reimbursed by a source other than the defendant in civil actions related to negligence or other liability.

COLLISION COVERAGE
Portion of an auto insurance policy that covers the damage to the policyholder’s car from a collision.

COMBINED RATIO
Percentage of each premium dollar a property/casualty insurer spends on claims and expenses. A decrease in the combined ratio means financial results are improving; an increase means they are deteriorating.

COMMERCIAL GENERAL LIABILITY INSURANCE / CGL
A broad commercial policy that covers all liability exposures of a business that are not specifically excluded. Coverage includes product liability, completed operations, premises and operations, and independent contractors.

COMMERCIAL LINES
Products designed for and bought by businesses. Among the major coverages are boiler and machinery, business income, 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 coverages can be purchased separately except business income, which must be added to a fire insurance (property) policy. (See Commercial multiple peril policy )

COMMERCIAL MULTIPLE PERIL POLICY
Package policy that includes property, boiler and machinery, crime and general liability coverages.

COMMERCIAL PAPER
Short-term, unsecured, and usually discounted promissory note issued by commercial firms and financial companies often to finance current business. Commercial paper, which is rated by debt rating agencies, is sold through dealers or directly placed with an investor.

COMMISSION
Fee paid to an agent or insurance salesperson as a percentage of the policy premium. The percentage varies widely depending on coverage, the insurer, and the marketing methods.

COMMUNITY-RATED
Method of developing group-specific capitation rates by a health plan that generally does not account for unique characteristics of the group. The rate is based on the total experience of a given geographic area or "community."

COMMUNITY RATING LAWS
Enacted in several states on health insurance policies. Insurers are required to accept all applicants for coverage and charge all applicants the same premium for the same coverage regardless of age or health. Premiums are based on the rate determined by the geographic region’s health and demographic profile.

COMMUTATIVE CONTRACT
An agreement under which the contracting parties specify the values that they will exchange; moreover, the parties generally exchange items or services that they think are of relatively equal value. Contrast with aleatory contract.

COMPETITIVE MEDICAL PLANS (CMPS)
Health care organization that meets specific government criteria for Medicare risks contracting but is not necessarily a HMO.

COMPETITIVE REPLACEMENT PARTS
See Crash parts; Generic auto parts

COMPETITIVE STATE FUND
A facility established by a state to sell workers compensation in competition with private insurers.

COMPLAINT RATIO
A measure used by some state insurance departments to track consumer complaints against insurance companies. Generally, it is stated as the number of complaints upheld against an insurance company, as a percentage of premiums written. In some states, complaints from medical providers over the promptness of payments may also be included.

COMPLETED OPERATIONS COVERAGE
Pays for bodily injury or property damage caused by a completed project or job. Protects a business that sells a service against liability claims.

COMPREHENSIVE COVERAGE
Portion of an auto insurance policy that covers damage to the policyholder’s car not involving a collision with another car (including damage from fire, explosions, earthquakes, floods and riots), and theft.

COMPULSORY AUTO INSURANCE
The minimum amount of auto liability insurance that meets a state law. Financial responsibility laws in every state require all automobile drivers to show proof, after an accident, of their ability to pay damages up to the state minimum. In compulsory liability states this proof, which is usually in the form of an insurance policy, is required before you can legally drive a car.

CONCURRENT REVIEW
Method of utilization review that takes place on-site when a patient is confined to a hospital.

CONGREGATE HOUSING
Apartment houses or group accommodations that provide health care and other support services to functionally impaired older persons who do not need routine nursing care.

CONTESTABLE PERIOD
The time during which an insurer has the right to cancel or rescind an insurance policy if the application contained a material misrepresentation. (See Incontestability provision) )

CONTINGENT BENEFICIARY
The party designated to receive the proceeds of a life insurance policy following the insured’s death if the primary beneficiary predeceased the insured. Also known as secondary beneficiary and successor beneficiary. (See Primary beneficiary )

CONTINGENT LIABILITY
Liability of individuals, corporations, or partnerships for accidents caused by people other than employees for whose acts or omissions the corporations or partnerships are responsible.

CONVERTIBLE TERM INSURANCE POLICY
A term life insurance policy that gives the policy owner the right to convert the policy to a permanent plan of insurance.

COVERAGE
Synonym for insurance.

CONVERSION PRIVILEGE
A contractual right given to an insured person whose group coverage terminates so that person is able to convert to an individual policy without providing evidence of insurability.

COORDINATION OF BENEFITS (COB)
A contractual provision to prevent an insured from receiving benefits under more than one health insurance plan so that the insured's benefits from all sources do not exceed allowable medical expenses or eliminate appropriate patient incentives to contain cost.

CO-PAYMENT
A small charge paid at the time a medical service is received. It does not accumulate towards a plan's deductible or out-of-pocket maximum and is designed to discharge utilization. (See Co-insurance)

COST CONTAINMENT
Efforts or activities designed to reduce or slow down the cost increases of medical care services.

COST SHARING
The sharing of costs between the payment of premium cost and medical expenses by the health care plan and its insured through employee contributions, deductibles, co-insurance and co-payments.

COST SHIFTING
The increased cost of medical care to other patients that makes up for losses incurred in providing care to patients who are under-insured or who have no coverage.

COVERAGE
The different types of options selected and the benefits paid under a plan or insurance contract.

COVERED EXPENSES
An expense that will be reimbursed according to the terms of the plan or insurance contract. Credentialing Review and documentation of professional providers including licensure, malpractice history, analysis of practice patterns, and certification.

CRASH PARTS
Sheet metal parts that are most often damaged in a car crash. (See Generic auto parts )

CREDIT
The promise to pay in the future in order to buy or borrow in the present. The right to defer payment of debt.

CREDIT DERIVATIVES
A contract that enables a user, such as a bank, to better manage its credit risk. A way of transferring credit risk to another party.

CREDIT ENHANCEMENT
A technique to lower the interest payments on a bond by raising the issue’s credit rating, often through insurance in the form of a financial guarantee or with standby letters of credit issued by a bank.

CREDIT INSURANCE
Commercial coverage against losses resulting from the failure of business debtors to pay their obligation to the insured, usually due to insolvency. The coverage is geared to manufacturers, wholesalers and service providers who may be dependent on a few accounts and therefore could lose significant income in the event of an insolvency.

CREDIT LIFE INSURANCE
Life insurance coverage on a borrower designed to repay the balance of a loan in the event the borrower dies before the loan is repaid. It may also include disablement and can be offered as an option in connection with credit cards and auto loans.

CREDIT RATING
See Bond rating

CREDIT SCORE
The number produced by an analysis of an individual’s credit history. The use of credit information affects all consumers in many ways, including getting a job, finding a place to live, securing a loan, getting telephone service and buying insurance. Credit history is routinely reviewed by insurers before issuing a commercial policy because businesses in poor financial condition tend to cut back on safety, which can lead to more accidents and more claims. Auto and home insurers may use information in a credit history to produce an insurance score. Insurance scores may be used in underwriting and rating insurance policies. (See Insurance score )

CRIME INSURANCE
Term referring to property coverages for the perils of burglary, theft and robbery.

CRITICAL ILLNESS (CI) INSURANCE
A type of individual health insurance that pays a lump-sum benefit when the insured is diagnosed with a specified illness. Also known as critical diagnosis insurance. Contrast with specified disease coverage.

CROP-HAIL INSURANCE
Protection against damage to growing crops from hail, fire or lightning provided by the private market. By contrast, multiple peril crop insurance covers a wider range of yield reducing conditions, such as drought and insect infestation, and is subsidized by the federal government.

C-SHARE VARIABLE ANNUITIES
A form of variable annuity contract where the contract holder pays no sales fee up front or surrender charges. Owners can claim full liquidity at any time.

CURRENT ASSUMPTION WHOLE LIFE INSURANCE
See Interest-sensitive insurance

CURRENT PROCEDURAL TERMINOLOGY (CPT)
Set of five-digit codes describing medical services that are used for billing by professional providers.

CUSTODIAL CARE FACILITIES
A licensed facility that provides personal assistance to persons who are unable to care for themselves due to age, illness, physical or mental infirmity, but who do not require daily nursing care.

CUSTOMER
User of health care services, such as patients getting care or providers getting support services from laboratories; payer of service, such as individuals, employers, or the government; or the general public.