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.

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.

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.

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.

Two or more reference stations that are used in determining the specific of a transaction as in a weather derivative.

A product liability clause providing that all claims, whenever made, arising out of the same prepared or acquired batch of the product, shall be treated as resulting from one occurrence. The ‘occurrence’ could be defective design, bench error, error in distribution, etc. The clause protects the insurer from multiple claims, all of which have a common cause, being treated separately for the purpose of the per-occurrence limit, or occurring in separate years for the purpose of the aggregate limit. In terms of a deductible, it may benefit the insured to have the individual claims aggregated.
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A clause in a Products Liability Insurance providing that all claims for injuries arising out of one prepared or acquired lot of the product resulting from a common cause, shall be considered as resulting from one accident an shall therefore be governed by the limit per accident.

A group life and/or pension scheme that varies the benefits for members according to categories of membership. Life cover for one category might be three times income, but four times for another. Each category is carefully defined in order to ensure that there is no discrimination against individuals.

Marine clause meaning that the bailee of goods gets the benefit of any insurance policy effected by the cargo owner should an insured loss occur while the goods are in the bailee’s care. If the contract of carriage is subject to the US Carriage of Goods by Water Act, the clause is void.

Policies such as personal accident and life insurances where the amount to be paid is a pre-agreed benefit and is not based on actual losses as with indemnity contracts. Individuals are free to put their own value on life and limb; the main constraint is their ability to pay.

Non-cash benefits for employees, such as private medical insurance. The amount paid for such benefits is added to the employee’s taxable income for tax purposes. The benefits are shown on form P11D and their value counts towards the calculation of maximum Inland Revenue pension benefits.