Burnham - Keywords

Question 1

Cause of Loss

Answer 1

is a force that causes a loss; is a peril

Question 2

Peril

Answer 2

is another term for cause of loss

Question 3

Hazard

Answer 3

is anything that increases the frequency or severity of loss

Question 4

Moral hazard

Answer 4

involves active inducement of loss

Question 5

Morale hazard

Answer 5

involves passive indifference to loss

Question 6

Physical hazard

Answer 6

is a physical condition of the insured object or its environment

Question 7

Legal hazard

Answer 7

is the chance that judge can’t read the policy or the jury can’t render a rational verdict

Question 8

Insurance

Answer 8

is a contractual agreement to transfer risk of financial loss from te insured to the insurer in exchange for payment of the insurance premium

Question 9

Law of large numbers

Answer 9

states that when the number of similar, independent, exposure units (cars, homes, lives) increases, the relative accuracy of loss predictions also increases.

Question 10

Indemnification

Answer 10

restores a party who has had an insured loss to the same financial position he had before the loss occurred.

Question 11

Exposure base

Answer 11

is the variable chosen to approximate the loss potential for a particular line of insurance.

Question 12

Exposure unit

Answer 12

is the unit of measurement of the exposure base

Question 13

Rate

Answer 13

is the price per unit of insurance

Question 14

Premium

Answer 14

equals the rate times the number of exposure units

Question 15

Rating plan

Answer 15

creates an objective system for calculating insurance premiums by defining the exposure base and specifying the rate per exposure unit.

Question 16

Total losses

Answer 16

equals the average loss frequency times the average loss severity; increases as the number of exposure units increases

Question 17

Expense loading

Answer 17

is the expense component plus the allowance for profit and contingencies component of an insurance rate.

Question 18

Pure premium

Answer 18

equals the dollar amount of losses incurred during the experience period divided by the number of earned units of exposure.

Question 19

Gross rate

Answer 19

equals the pure premium divided by the expected loss percentage.

Question 20

Expected loss percentage

Answer 20

equals 100 percent minus the expense loading percentage.

Question 21

Manual rate

Answer 21

is the rate found in a rating manual or on a rate table.

Question 22

Manual premium

Answer 22

equals the manual rate times the number of exposure uinits.

Question 23

Credibility factor

Answer 23

is a measure of the actuary’s confidence in the past loss data as indication of future losses.

Question 24

Trend factor

Answer 24

adjusts individual insured’s rates for a future period based on its loss experience in a prior period.

Question 25

Retrospective rating plan

Answer 25

adjusts the insured’s premium for a given period based on its experience during that same period.

Question 26

Schedule rating plan

Answer 26

adjusts the insured’s premium to reflect characteristics not reflected in its experience rating.

Question 27

Mandatory rate law

Answer 27

has a state agency set rates and require compliance by all licensed insurers.

Question 28

Prior approval law

Answer 28

has the state insurance department approve all rates before they are used.

Question 29

File-and-use law

Answer 29

has insurers use rate changes within a band of percentages without prior approval.

Question 30

Open competition system

Answer 30

does not require insurers to file rates with the insurance department, but the department retains the authority to monitor competition and to dissaprove rates.

Question 31

Insurance advisory organization

Answer 31

is an independent corporation that performs services for its member companies and subscribers

Question 32

Deviation filing

Answer 32

is a request to deviate from bureau rates.

Question 33

National Counsil on Compensation Insurance (NCCI)

Answer 33

is an advisory organization for workers’ compensation and employer’s liability insurance.

Question 34

Insurance Services Office (ISO)

Answer 34

is a miltiple-line rating bureau for property and liability insurance except workers’ compensation, ocean marine, aviation, and surety bonds.

Question 35

American Association of Insurance Services (AAIS)

Answer 35

develops policy forms, manual rules, and rating information for property casualty insurers.

Question 36

AAIS

Answer 36

abbreviates American Association of Insurance Services

Question 37

NCCI

Answer 37

abbreviates National Counsel on Compensation Insurance

Question 38

ISO

Answer 38

abbreviates Insurance Services Office.

Question 39

State rating bureau

Answer 39

is a state government agency or insurer-owned bureau that provides services to property-casualty insurers in one state.

Question 40

McCarran-Ferguson Act

Answer 40

exempts the insurance industry from federal antitrust laws to the extent that our industry is regulated by the states.

Question 41

Gramm-Leach-Mliley Act (GLB)

Answer 41

allows a single corporation to offer combined banking, insurance, and securities products and services and raised the notion of creating a national insurer licensing system if states did not adopt uniform licensing laws.

Question 42

GLB Act

Answer 42

abbreviates Gramm-Leach-Bliley Act.

Question 43

State Modernization and Regulatory Transparency (SMART) Act

Answer 43

would require state insurance regulators to enforce uniform standards to a wide array of insurance issues and preempt state regulation of insurance rates.

Question 44

SMART Act

Answer 44

abbreviates State Modernization and Regulatory Transparency Act.