During the term of a life insurance policy, the time frame in which losses occur.
Insurance Encyclopedia
Basic value
See: base unit .
Basis
The price differential between a financial position held and the benchmark instrument used to hedge or price that position. The basis may reflect different time periods, product forms, qualities or locations. See BASIS RISK.
Basis (of insurance) clause
A clause that makes the declarations contained in an insurance proposal form the “basis” of any contract of insurance that is made in consequence of the completion of that form. Such declarations are thereby converted into warranties with the result that if one of them is found to be untrue then the insurer may disclaim all liability under the relevant contract from the date of the breach, regardless as to whether the false declaration was material to the underwriting of the contract or causative of any loss. Basis of insurance clauses are not normally found in personal lines insurance contracts sold in the United Kingdom and, where they appear in other contracts, they may be qualified by the inclusion of a term in the proposal form that the declarations made in that document are true to the best of the knowledge and belief of the person making the declarations.
Basis clause
A clause at the foot of a proposal form making the proposal form and declaration the whole basis of the contract. It converts representations into warranties so that any inaccuracy in the form will entitle the insurer to avoid the contract regardless of materiality. The insured’s answers may be subject to his ‘best knowledge and belief.
Basis of Attachment/Treaty Experience
A methodology that determines which original policy losses will be covered under a given reinsurance agreement. There are two types of methodologies: policies attaching and losses occurring. The determination may be based on 1) the effective or renewal date of the original policy; or 2) on the date of the loss; or 3) on the date when the reinsured company recorded premium or loss transaction.-Underwriting Year (See also Policies Attaching)The effective date of the original policy, rather than the date of loss, determines the basis of attachment. Any losses occurring on policies written or renewed with inception or renewal dates during the term of the given reinsurance agreement will be covered by that reinsurance agreement irrespective of when the loss actually occurred. This mechanism is often used with “the policies attaching” methodology.
-Accident Year (See also Losses Occurring During)
The date of the loss under the original policy, rather than the effective date of the original policy, that determines the basis of attachment. Any losses occurring during the reinsurance agreement period on policies in force (if any), written or renewed will be covered by that reinsurance agreement irrespective of the inception or the renewal date of the original policy. This mechanism is often used with “the losses occurring during” the contract period methodology.
-Calendar Year Experience
The evaluation of loss experience whereby the total value of all losses incurred during a given twelve-month period (regardless of the dates of loss or the inception date of the policy) is matched with the premiums earned for the same period. As the name implies, Calendar Year Experience is usually calculated for a twelve-month period beginning January 1st. See also Accident Year Experience and Policy Year Experience.
Basis of Rating
The collection of assumptions used to associate the risk premium with the characteristics of the risk being insured.
Basis of valuation clause
A clause in an open cover which sets out a basis for the valuation of cargo which has been declared and added to the policy and is the subject of a loss.
Basis risk
The risk that actual losses exceed the payout as measured by the hedge instrument benchmarking the risk. For example, a weather derivative payout based on movements in an index recorded at London Heathrow may fall short because of adverse deviations occurring in the real location. Under indemnity contracts there is no basis risk as payments are based on actual losses.
Basis Risk for Crop Insurance
The term mostly used in case “index” based insurance, like yield index, weather index etc basis risk signifies the risk that the index (yield or weather) measurement will not match losses suffered by individual insured farmers. As the geographical area covered by the index increases, basis risk increases as well.