Twenty core Property and Casualty insurance terms, grouped by where they sit in the policy lifecycle - fundamentals, underwriting, coverage, premium and finance, and claims.
Hirak Chatterjee · Originally published 2023 · Revised September 2026
Each entry gives a precise definition, a short worked example, and - because these concepts live in more than terminology - the Guidewire InsuranceSuite app and object they map to in a running policy administration, billing, or claims system.
Fundamentals
The concepts that make an insurance contract insurance, and decide whether a loss is covered at all.
A financial or legal stake in the subject of a policy, such that its loss or damage causes the policyholder genuine economic harm. Without it, a contract functions as a wager, not insurance, and is generally unenforceable.
Example A mortgage lender holds an insurable interest in a financed property up to the outstanding loan balance, even though the borrower holds title.
In the system PolicyCenter – asserted implicitly through the NamedInsured and any AdditionalInterest on the account and policy; the platform doesn't model the interest itself, only the parties who hold one.
Peril is the cause of a loss - fire, windstorm, theft. Hazard is a condition that increases the chance or severity of a peril, without being the cause itself.
Hazard typesMoral hazard is dishonesty - causing or inflating a loss on purpose. Morale hazard is carelessness because coverage exists. Physical hazard is a tangible condition, like frayed wiring.
Example Frayed wiring is a physical hazard; the fire it eventually starts is the peril the policy responds to.
In the system PolicyCenter – perils are configured as covered-cause-of-loss values on a Coverage; hazards surface as underwriting Question/Answer data that adjusts the rate, not as their own entity.
The dominant, effective cause of a loss in an unbroken chain of events, not necessarily the last or nearest event in time. It decides whether a loss falls within a covered peril.
Example A fire set by a trespasser is generally a covered peril for the property owner; the same fire set by the insured is excluded as their own intentional act.
In the system ClaimCenter – recorded on the Exposure's cause-of-loss field during coverage evaluation, which the adjuster uses to decide whether the loss falls within an insured peril.
The principle that a policy restores the insured to the same financial position held immediately before the loss - no better, no worse. It's what separates insurance from a wagering contract or a windfall.
Example A restaurant that loses $40,000 of spoiled inventory to a power outage is indemnified for that loss, not paid extra for the disruption.
In the system ClaimCenter – enforced through Reserves and Payments on the Exposure, tracked separately from allocated loss adjustment expense (ALAE) so indemnity and defence cost stay distinct.
As the number of similar, independent exposures grows, actual losses converge toward the statistically expected loss. It's the mathematical basis for pooling risk and pricing it predictably.
Example An insurer with 200,000 comparable homes can forecast aggregate fire losses far more precisely than it could for any single home.
In the system Not a system object – it underwrites the rate tables and algorithms loaded into PolicyCenter's rating engine; the platform consumes the actuary's output rather than modelling the principle.
Underwriting
How a risk gets priced, and how the paper trail changes once it's in force.
Construction, Occupancy, Protection, Exposure - the four characteristics underwriters assess on a commercial property before pricing it. The first two describe the building and its use; the last two cover fire defence and surrounding risk.
Example A wood-frame restaurant next to a fireworks retailer scores worse on COPE than the same building in an office park.
In the system PolicyCenter – captured on the location or Building risk record feeding the property line, with construction, occupancy, protection class and exposure fields driving rating and underwriting authority.
An underwriting adjustment applying a percentage credit or debit to a manual or class rate, based on risk characteristics specific to one insured that the base rate doesn't capture - management quality, loss control, unusual hazards.
Example A manufacturer with an exceptional safety record and no losses in five years might receive a 15% schedule credit off its base premium.
In the system PolicyCenter – applied as a schedule-rating modifier at the coverage or line level, calculated within the rating worksheet before the final premium is produced.
A written amendment attached to an in-force policy that changes its terms - adding or removing coverage, adjusting a limit, correcting a name - without replacing the contract. It becomes part of the policy from its own effective date.
Example A homeowner adds a home-office endorsement mid-term to extend business-property coverage the base policy excludes.
In the system PolicyCenter – issued as a PolicyChange job against the in-force PolicyPeriod, producing a new period revision effective on the change date.
Coverage
What a policy actually pays for, how much, and on what terms.
A deductible is subtracted from a covered loss before the insurer pays; the insurer can typically defend and settle the claim without the insured's consent, even though the insured ultimately bears the cost. A self-insured retention (SIR) is a layer the insured funds and usually defends directly, and the insurer generally can't settle within it without the insured's sign-off.
Example A $250,000 SIR on a general liability policy means the insured manages and pays claims up to that amount before the insurer's obligation, including any duty to defend, begins.
In the system PolicyCenter – both are stored as CovTerms on the Coverage; ClaimCenter nets the amount against the Exposure's reserve and payment during settlement.
The coinsurance clause requires an insured to carry limits equal to a set percentage - commonly 80% - of a property's value at the time of loss. Carrying less triggers a coinsurance penalty on partial losses: (limit carried ÷ limit required) × loss, minus any deductible.
Example A building worth $500,000 with an 80% clause requires $400,000 of coverage. Carrying only $300,000 and suffering a $100,000 partial loss pays ($300,000 ÷ $400,000) × $100,000 = $75,000 - the insured absorbs the $25,000 gap.
In the system PolicyCenter – the coinsurance percentage is a CovTerm on the property coverage; ClaimCenter's settlement worksheet applies the penalty formula against reported value at time of loss.
Actual cash value (ACV) pays replacement cost less depreciation for age and condition. Replacement cost value (RCV) pays the cost to repair or replace with new property of like kind and quality, with no deduction for depreciation.
Canada vs USUS courts are split on how ACV is calculated - replacement cost less depreciation, fair market value, or a broad-evidence rule blending both - and the answer depends on the state. Canadian practice leans more consistently on replacement cost less depreciation.
Example A ten-year-old roof destroyed by hail is paid at its depreciated value under ACV, or at the cost of a new roof under RCV, often released in two instalments once repairs are verified.
In the system PolicyCenter – a valuation-method CovTerm on the Coverage; ClaimCenter's Exposure settlement uses it to compute the initial payment and, under RCV, holds back recoverable depreciation until repairs complete.
An excess policy follows the form of one specific underlying policy and simply adds limits above it. An umbrella policy can sit above multiple underlying policies, broaden coverage beyond them, and drop down to respond, subject to a retention, to claims the underlying policies don't cover at all.
Example A $1M umbrella above a $1M auto policy pays the next $1M after a $1.5M judgment, and can also respond to a covered claim type the auto policy excludes.
In the system PolicyCenter – modelled as its own Umbrella/Excess policy line referencing a schedule of underlying insurance, rather than as a coverage on the primary line.
Scheduled coverage lists specific valuable items - jewelry, fine art, furs - individually, each at its own appraised value. A floater attaches that schedule to the policy so coverage follows the item wherever it goes, typically on broader, open-perils terms than the base policy, and often with no deductible.
Example A $30,000 engagement ring scheduled on a floater stays covered for accidental loss on vacation, which the base homeowners policy would not cover unscheduled.
In the system PolicyCenter – each item lives as a Scheduled Property Item on the coverage, with its own description, value and effective dates, separate from the blanket personal-property limit.
Premium & Finance
How premium moves through the books, and the metric that says whether it's working.
The total premium on policies that become effective, renew, or change within a given period, recognized on the transaction's effective date - regardless of when, or whether, cash has actually been collected.
Example A one-year policy bound on December 15 books its full annual premium as written premium in December, even though most of the coverage period falls in the following year.
In the system BillingCenter – booked when PolicyCenter transmits a policy transaction's charge; written premium is a recognition event on the ledger, separate from the invoice and cash receipt that follow.
The portion of written premium recognized as revenue for coverage already provided, typically pro-rata over the policy term. The remaining portion sits on the balance sheet as unearned premium until it is earned or refunded.
Example Six months into a one-year, $1,200 policy, roughly $600 is earned and $600 remains unearned.
In the system BillingCenter – recognized through an earning schedule that ratably converts each charge's written premium into earned premium over its coverage period.
A post-term or periodic review comparing the estimated exposure basis used to price a policy - payroll, revenue, vehicle count - against the actual basis, producing additional or return premium for exposure-rated lines like workers' compensation and general liability.
Canada vs USIn Canada, provincial boards (WSIB in Ontario, and equivalents elsewhere) call this a payroll reconciliation and administer it directly rather than through a private carrier; the mechanics match a US premium audit.
Example A contractor estimated at $2M in payroll actually paid $2.6M; the audit generates an additional premium bill for the shortfall.
In the system BillingCenter and PolicyCenter – the audited basis is compared to the estimate captured at issuance, and the difference is issued back through BillingCenter as an audit charge.
The core underwriting profitability metric: incurred losses and loss-adjustment expense, plus underwriting expense, each divided by premium, summed into one ratio. Below 100% is an underwriting profit before investment income; above 100% is an underwriting loss.
Example An insurer with a 65% loss ratio and a 30% expense ratio posts a 95% combined ratio - a five-point underwriting profit.
In the system Not native to either platform – it's a finance and BI metric computed downstream from PolicyCenter's written and earned premium and ClaimCenter's incurred losses and LAE.
The insurer's right, after indemnifying its insured, to step into the insured's place and pursue recovery from the third party actually responsible for the loss. It prevents a double recovery and shifts the ultimate cost back to the party at fault.
Canada vs USQuebec's Civil Code (art. 2474 CCQ) gives insurers a statutory right of subrogation, but expressly bars subrogation against a member of the insured's own household - a specific rule without a direct equivalent in common-law Canada or the US.
Example After paying a policyholder for collision damage caused by another driver, the insurer pursues that driver's insurer to recover what it paid out.
In the system ClaimCenter – tracked as a Recovery of type Subrogation on the Exposure, worked through its own recovery workflow separate from the original loss reserve and payment.
The insurer's right, after paying a total loss, to take title to the damaged property and sell or dispose of it to recover part of the claim cost. It reduces the net cost of the loss, not the amount owed to the insured.
Example An insurer that pays a total-loss auto claim takes title to the wreck and sells it at a salvage auction.
In the system ClaimCenter – tracked as a Recovery of type Salvage on the Exposure, using the same recovery entity and workflow as subrogation, distinguished by recovery type.
A policy provision that resolves disputes over the dollar amount of a covered loss, not whether it's covered at all. Each side selects a competent, disinterested appraiser; the two select an umpire; agreement of any two sets the loss amount and binds both parties on that figure.
Example An insurer and homeowner disagree on the cost to repair hail damage; their appraisers can't agree, and the umpire's decision, concurred by one appraiser, sets the final number.
In the system ClaimCenter – tracked through Activities and notes on the Exposure rather than a dedicated object, since it's a contractual dispute-resolution step outside the normal settlement workflow.
Originally published on LinkedIn, 2023. Revised and maintained here.
