An Australian insurance glossary in plain English

Policy schedules, broker letters and claim correspondence are full of terms most people never use anywhere else. A plain-English glossary of the Australian insurance terms that matter most.

Insurance has its own vocabulary. Some of it is genuinely technical, some of it is shorthand the industry uses with itself, and some of it is plain English used in a not-quite-plain way. This glossary covers the Australian insurance terms that clients most often ask us to explain – the ones that appear on the policy schedule, in our advice, and in the conversation at claim time.

It is not a substitute for reading the wording of a specific policy. It is a starting point for understanding what the wording is saying.

The policy itself

Policy – the contract of insurance between the insured and the insurer. In practice the policy is made up of the schedule, the wording and any endorsements.

Schedule – the front pages that set out the insured's name, the period of insurance, the sums insured, the excesses, the premium and any specific endorsements. The schedule personalises the standard wording to the client.

“Every word in an insurance policy is there for a reason. The ones that decide claims are rarely the ones clients expect.”

Wording (or Product Disclosure Statement / PDS for retail products) – the detailed terms and conditions that explain what is covered, what is excluded, and the conditions on which cover is provided.

Endorsement – a written change to the standard wording that adds, removes or modifies cover for a specific client. Endorsements override the standard wording where they conflict.

Period of insurance – the dates between which the policy responds. For occurrence-based cover, the loss must happen within this period. For claims-made cover, the claim must be made and notified within this period.

Cover, limits and excesses

Sum insured – the maximum the insurer will pay for a particular item or category of cover. For property, it should reflect the cost to replace or reinstate, not the market value.

Limit of liability / limit of indemnity – the maximum the insurer will pay for a single claim or in aggregate over the period of insurance. Common in liability, professional indemnity, management liability and cyber policies.

Sub-limit – a lower limit that sits inside the overall sum insured for a specific type of loss. For example, a property policy with a $5 million sum insured may carry a $50,000 sub-limit for theft of money.

Aggregate limit – the maximum the insurer will pay across all claims in the policy period. Once exhausted, further claims may not be payable unless the wording allows reinstatement of the limit.

Excess (also called deductible) – the amount the insured contributes to each claim before the insurer pays. A higher excess generally produces a lower premium and vice versa.

Co-insurance – a clause that requires the insured to carry a stated percentage of the value at risk. If the sum insured falls below that percentage, the insurer can reduce the claim proportionally. This is the mechanism behind underinsurance penalties.

Indemnity, reinstatement and average

Indemnity – the principle that the insured should be restored to the financial position they were in immediately before the loss, no better and no worse. Indemnity value reflects depreciation and wear and tear.

Reinstatement (or new for old) – cover designed to pay the cost to replace or repair with new property of equivalent kind, without deduction for depreciation, subject to the wording and conditions. Many property policies are written on a reinstatement basis, but the conditions still matter.

Average / underinsurance – where the sum insured is less than the value at risk, the insurer may apply average and reduce the claim proportionally, depending on the wording. For example, a property insured for 70% of its replacement value may have a partial loss reduced to reflect that shortfall.

Indemnity period – the maximum period for which business interruption cover responds, beginning at the date of damage. Should reflect how long it would take to return to pre-loss income, not just to reopen.

Liability concepts

Public liability – cover designed to respond to legal liability to third parties for personal injury or property damage caused by the insured's business activities.

Products liability – cover designed to respond to legal liability arising out of products manufactured, sold, supplied or distributed by the insured.

Professional indemnity – cover designed to respond to legal liability arising out of the insured's professional services, typically on a claims-made and notified basis.

Management liability – package cover designed to respond to certain claims involving directors and officers, employment practices, statutory liability exposures where legally insurable and covered, and related management risks.

Occurrence-based – cover designed to respond to losses that happen during the period of insurance, even if the claim is made later, subject to the wording.

Claims-made and notified – cover designed to respond to claims first made against the insured and notified to the insurer during the period of insurance, subject to the wording. Common in professional indemnity, management liability and cyber policies.

Retroactive date – on a claims-made policy, the date from which the policy may respond. Acts or omissions before the retroactive date are usually excluded.

Run-off cover – claims-made cover arranged for a period after a business ceases trading, is sold or a professional retires, designed to respond to claims made after the event for work done before.

Property and farm concepts

Replacement value – the cost to rebuild or replace the property as new at today's prices, including demolition, professional fees and compliance upgrades.

Market value – what the property would sell for in its current condition. It can be very different from replacement value and is usually not the right number to insure buildings for.

Specified items – assets listed individually on the schedule with their own sums insured. Common for high-value machinery, plant and contents.

Unspecified / blanket cover – cover for a category of property up to a single sum insured, without listing each item.

Business interruption / loss of profits – cover designed to respond to loss of gross profit or gross revenue, plus certain increased costs, following insured damage at the premises, depending on the wording and indemnity period.

Additional increase in cost of working – an extension that may pay reasonable costs to maintain operations beyond the strict economic test of standard cover. It can be useful where protecting client relationships matters.

Claims terms

Notification – the formal advice of a loss, or of circumstances that may give rise to a claim, lodged with the insurer in accordance with the policy.

Loss adjuster – a claims professional appointed by the insurer to investigate a claim, scope the loss and recommend a settlement position.

Subrogation – the insurer's right, after paying a claim, to step into the insured's shoes and recover from any third party legally responsible for the loss.

Salvage – damaged property that retains some value after a claim. Depending on the wording and settlement, the insurer may take ownership once the claim is paid and may dispose of it.

Without prejudice – correspondence or offers made on the basis that they cannot be used against the writer in any later dispute. Common in claim negotiations.

Ex gratia – a payment made without admission of liability under the policy. Sometimes offered where strict cover is doubtful but the insurer chooses to make a payment.

Regulatory and market terms

Australian Financial Services Licence (AFSL) – the licence generally required to provide financial services in Australia, including arranging insurance, unless an exemption applies. Brokers operate under an AFSL or as authorised representatives of an AFSL holder.

General advice / personal advice – general advice does not take the client's objectives, financial situation or needs into account; personal advice does. Brokers may provide personal advice where authorised to do so. Direct insurance channels often provide general advice or product information only.

Duty to take reasonable care not to make a misrepresentation – the duty that applies to consumer insurance contracts. It requires clients to take reasonable care not to make a misrepresentation to the insurer. Different disclosure obligations may apply to wholesale or business insurance arrangements.

Utmost good faith – the principle that both insurer and insured must deal with each other honestly and fairly throughout the life of the policy and at claim time.

Australian Financial Complaints Authority (AFCA) – the external dispute resolution body for financial services, including insurance, that may hear complaints from eligible consumers and small businesses.

Reinsurance – insurance bought by insurers to spread their own risk. Not a direct concern for clients, but the reason capacity and pricing in some classes moves the way it does.

A closing note

Most of the words above appear in everyday policies and everyday claim correspondence. None of them should be a barrier to understanding what a policy does. If a word is being used in a way that is unclear, the right answer is to ask – of the broker, of the wording, or of both.

If you would like a plain-English walk-through of how these terms apply to your own insurance program, RMA Insurance Brokers can go through it with you before renewal or when reviewing your cover.