Contract, Policy, Line and Layer

From OpenQuote

Contract and Policy

In the Lloyds market, a contract is a policy - Lloyds define "Policy" as being "The wording of a contract of insurance or reinsurance".

A policy can therefore be said to be "a kind of" contract:

Line

A line is the proportion of a risk that an underwriter agrees to take on (or sign) - multiple other underwriters (from other insurers) will agree to cover the rest of the risk with thier own line shares. A line is typically represented on a slip as a percentage of the Limit of Indemnity. A "Line" is not the same thing as a "Layer".

In common with the convention elsewhere in the OpenQuote model, Lines are allowed to be attached at both the Policy and Section levels. This allows simple products which don't require multiple sections to make use of the line concept without requiring them to take on a full section model.

Layer

A layer is a section of the risk - for example the first layer may be the first £100k liability of a risk, the second layer may be the 100k to 300k liability of a risk, and the third layer may be the anything over 300k. Each layer is a seperate contract (and therefore a separate policy). An insurer may provide cover for multiple layers on a risk, so will have multiple contracts (policies) covering the risk (one contract for each layer being covered), each of those contracts will have a its own line percentage (the line size may vary from layer to layer). Ideally you should be able to easily find all the layers (i.e. contracts/policies) that you have covered for a single risk - this may be achieved by simply creating some linking mechanism in the model to relate all the policies together. In reality, not all underwriting systems can do this - and you can only (easily) do this anyway if you know you have already signed another layer previously, which may not always be possible (especially if a different underwriter from the same insurer signed the original layer).