AU 60 Course flash cards
Book of business
A group of policies with a common characteristic, such as territory or type of coverage, or all policies written by a particular insurer or agency.
Underwriting
The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Adverse selection
In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.
Policyholders’ surplus
Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities.
Underwriting guidelines (underwriting guide)
A written manual that communicates an insurer’s underwriting policy and that specifies the attributes of an account that an insurer is willing to insure.
Predictive modeling
A process in which historical data based on behaviors and events is blended with multiple variables and used to construct models of anticipated future outcomes.
Catastrophe model
A type of computer program that estimates losses from future potential catastrophic events.
Telematics
The use of technological devices to transmit data via wireless communication and GPS tracking.
Capacity
The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholders’ surplus.
Manuscript policy or manuscript endorsement
An insurance policy or endorsement that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer.
Big data
Sets of data that are too large to be gathered and analyzed by traditional methods.
Smart product
An innovative item that uses sensors; wireless sensor networks; and data collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise improved.
Internet of Things (IoT)
A network of objects that transmit data to each other and to central hubs through the internet.
Artificial intelligence (AI)
Computer processing or output that simulates human reasoning or knowledge.
Machine learning
Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data.
Deep learning
Insights into data use and processing gained by combining artificial intelligence and machine learning. It is based on algorithms derived from artificial neural networks.
Data mining
The analysis of large amounts of data to find new relationships and patterns that will assist in developing business solutions.
Unfair discrimination
Applying different standards or methods of treatment to insureds who have the same basic characteristics and loss potential, such as charging higher-than-normal rates for an auto insurance applicant based solely on the applicant’s race, religion, or ethnic background.
Declination
An insurer’s refusal to provide coverage to an applicant who has made a written request to the insurer or its producer, or a producer’s refusal to forward such a written request to an insurer.
Termination
An insurer’s cancellation of a policy during the policy term or nonrenewal of coverage at the end of a policy term.
Notification requirements
Regulatory requirements relating to the timing and contents of an insurer’s notice to an insured of the declination, termination, and nonrenewal of insurance coverage.
Market conduct examination
An analysis of an insurer’s practices in four operational areas: sales and advertising, underwriting, ratemaking, and claims handling.
Premium-to-surplus ratio, or capacity ratio
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders’ surplus.
Application
A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claims handling purposes.
Loss history
A listing of past claims, including the date of occurrence, the line of business, the type or description of the claim, the date of the claim, the amount paid, the amount reserved, and the claim’s current status.
Experience rating plan
A rating plan that increases or reduces the premium for a future period based on the insured’s own loss experience for a period in the recent past.
Fee for service company
An independent contractor who specializes in loss control work and who is paid for each loss control survey performed.
Actual cash value
A method in valuing property that is calculated as the cost to replace or repair property minus depreciation, the fair market value, or a valuation determined by the broad evidence rule.
Replacement cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
Common-size statement
A financial statement in which amounts are reported as a percentage of a base figure.
Generally accepted accounting principles (GAAP)
A common set of accounting standards and procedures used in the preparation of financial statements to ensure consistency of presentation and reported results.
Fixed assets
Resources that cannot be expected to be sold or consumed within the business’s normal operating cycle and that are usually considered to be long lived.
DuPont identity
An analysis of ROA and ROE by breaking them down into their component ratios.
Insurable interest
An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred.
Named insured
A person, corporation, partnership, or other entity identified as an insured party in an insurance policy’s declarations page.
Sole proprietorship
A form of business in which one person owns the business assets and is personally liable for the business’s debts.
Partnership
A for-profit business entity jointly owned by two or more persons who share ownership and profits (or losses), although not necessarily on an equal basis.
Corporation
An entity organized under law and entitled to the same rights as a person, distinct from its owners.
Shareholder
An individual owner whose liability is limited to his or her investment in the corporation.
Unincorporated association
A voluntary association of individuals acting together under a common name to accomplish a lawful purpose.
Wrap-up
A risk management program for large construction projects in which the sponsor selects coverages for all contractors and subcontractors working on the project, enabling participating contractors to reduce their bid by the cost of the coverage it provides.
Loss payee
A party entitled to share in whatever loss payment an insured receives.
Vicarious liability
A legal responsibility that occurs when one party is held liable for the actions of a subordinate or an associate because of the relationship between the two parties.
Security interest
An interest in property (real or personal) that allows the property to be sold on default to satisfy the debt for which the security interest was given.
Risk management
The process of making and implementing decisions that enable an organization to optimize its level of risk.
Enterprise risk management
An approach to managing all of an organization’s key business risks and opportunities with the intent of maximizing shareholder value. Also known as enterprise- wide risk management.
Employee
A person hired to perform services for another under the direction and control of the other party, called the employer.
Consideration
Something of value or bargained for and exchanged by the parties to a contract.
Contract of hire
The agreement between an employer and employee to assume an employment relationship from which both parties reasonably expect to derive some benefit; may be express or implied.
Professional employer organization (PEO)
A company that leases workers to small or medium- sized client companies to supply the client’s permanent workforce, making the client an indirect employer; these relationships create insurance implications related to employee status.
Independent contractor
A person (or organization) hired to perform services without being subject to the hirer’s direction and control regarding work details.
General contractor
An independent contractor who obtains the primary contract for a project and either completes all the work or subcontracts portions (or all) of the work to other independent contractors who specialize in such work.
Subcontractor (specialty contractor)
An independent contractor who specializes in a particular kind of work and who is engaged by a general contractor to perform a particular portion of the general contractor’s contract.
Cyber risk loss exposure
Any condition that presents the possibility of financial loss to an organization from property, net income, or liability losses as a consequence of advanced technology transmissions, operations, maintenance, development, or support.
Pricing
The process of setting a price for a product or service and establishing the terms and conditions for the insurance agreement.
Rate
The price per exposure unit for insurance coverage.
Loss costs
The portion of the rate that covers projected claim payments and loss adjusting expenses.
Loss adjustment expense (LAE)
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy.
Premium
The price of the insurance coverage provided for a specified period.
Rate manual
A resource for classifying accounts and developing premiums for given types of insurance; includes necessary rules, factors, and guidelines to apply those rates.
Endorsement
A document that amends an insurance policy.
Class rate
A type of insurance rate that applies to all insureds in the same rating category or rating class.
Pure premium method
A method for calculating insurance rates using estimates of future losses and expenses, including a profit and contingencies factor.
Pure premium
The average amount of money an insurer must charge per exposure unit in order to be able to cover the total anticipated losses for that line of business.
Loss ratio method
A method for determining insurance rates based on a comparison of actual and expected loss ratios.
Judgment ratemaking method
A method for determining insurance rates that relies heavily on the experience and knowledge of an actuary or an underwriter who makes little or no use of loss experience data.
Retrospective rating plan
A rating plan that adjusts the insured’s premium for
the current policy period based on the insured’s loss experience during the current period; paid losses or incurred losses may be used to determine loss experience.
Experience modification factor
A factor that tailors manual rates to an insured’s experience based on the insured’s payroll and loss record of certain prior years.
Credibility factor
The factor applied in ratemaking to adjust for the predictive value of loss data and used to minimize the variations in the rates that result from purely chance variations in losses.
Paid loss retrospective rating plan
A retrospective rating plan in which the insured pays a deposit premium at the beginning of the policy period and makes additional payments, usually monthly, to reimburse the insurer for the insured’s losses as they are paid and in which the total amount paid is subject to the minimum and maximum premium.
Schedule rating plan
A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class rate does not include.
Individual risk premium modification plan (IRPM)
A rating plan that allows underwriters to modify property premiums based upon specific risk characteristics not reflected in the class rate.
Expense modification
An insurance rating plan that modifies the expense portion of an insured’s rate to reflect the actual cost of providing coverage to that insured.
Rebating
The practice of giving a portion of the producer’s commission or some other financial advantage to an individual as an inducement to purchase the policy.
Large deductible plan
A rating plan whereby the insured assumes a substantial per accident or per occurrence deductible, generally ranging from $100,000 up to $1 million.
Availability
A social goal of insurance that states that insurance is accessible to those who want or need it.
Affordability
A social goal of insurance that states that a ceiling placed on rates keeps coverage available so people can purchase it, that rates are determined so that they transfer a portion of the costs of coverage from high-risk insureds to the remaining insureds, or that a subsidy from outside the insurance mechanism offsets premiums that are deemed unaffordable.
Simplicity
A social goal of insurance stating that a rate must be reasonably simple to develop and modify.
Underwriting audit
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines.
Moral hazard
A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss.
Morale hazard (attitudinal hazard)
A condition of carelessness or indifference that increases the frequency or severity of loss.
Production underwriter
An insurer employee who works in the insurer’s office in an underwriting position but also travels to visit and maintain rapport with agents and sometimes clients.
