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RMIN 4000 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

what are the major insurance company operations?

A

-ratemaking
-underwriting
-production
-claims settlement
-reinsurance
-investments

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2
Q

what is ratemaking?

A

the pricing of insurance and the calculation of insurance premiums

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3
Q

what is the ratemaking challenge?

A

an insurance company does not know in advance the cost of their products

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4
Q

what is underwriting?

A

the process of selecting, classifying and pricing applicants for insurance

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5
Q

what is the purpose of underwriting?

A

to develop and maintain a profitable book of business

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6
Q

what decision does an underwriter make?

A

the decision to accept or reject an application for insurance

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7
Q

what is production?

A

the sales and marketing activities of insurers

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8
Q

what are agents/brokers who sell insurance often called?

A

producers

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9
Q

in production, what should an agent/broker do?

A

-be competent professional
-have a high degree of technical knowledge in a particular area of insurance
-place the needs of their client first
-code of ethics

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10
Q

what is claim adjusting ?

A

the process of determining coverage, legal liability and damages, and settling the claim

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11
Q

what are the basic objectives of a claims settlement?

A

-verification of a covered loss
-fair and prompt payment of claims
-provide personal assistance to the insured

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12
Q

what is reinsurance?

A

an arrangement by which the primary insurer transfer to another insurer part or all the potential losses associated with such insurance

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13
Q

who initially writes the insurance?

A

primary insurers

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14
Q

who is the reinsurer?

A

the person who gets the primary insurers transfer

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15
Q

when are insurance premiums invested?

A

the time period between the receipt of the premium and the payment of the claim

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16
Q

what is extremely important in lowering the cost of insurance to policy owners and offsetting unfavorable underwriting experience?

A

investments

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17
Q

who is an actuary?

A

a person who uses complex statistical methods and technology to analyze loss and other data to determine rates and premiums

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18
Q

what are the regulatory goals of rate making?

A

-rates must be adequate
-rates must not be excessive
-rates should not be unfairly discriminatory

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19
Q

what are the business goals of rate making?

A

rates should
-be stable
-be responsive
-provide for contingencies
-promote loss control
-be simple

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20
Q

what states the company’s underwriting policy?

A

underwriting guide

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21
Q

what is included in the underwriting guide?

A

-lines of business written
-policy forms and rating plan used
-acceptable, borderline and prohibited business
-amounts of insurance that can be written
-geographic territories
-business that requires approval from a senior underwriter

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22
Q

what are the underwriting principles?

A

-attain an underwriting profit
-select prospective insureds according to the company’s underwriting guidelines
-provide equity among the policyholders

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23
Q

what are the sources of underwriting information?

A

-application
-agent/broker
-financial statements
-physical inspection
-physical examination
-claims file
-vendor reports

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24
Q

what are the underwriting decisions?

A

-accept the application and issue the policy
-accept the application subject to restrictions or modifications
-reject the policy

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25
Q

what are other underwriting considerations?

A

-are rates currently adequate?
-is reinsurance available?
-should existing business be cancelled or non renewed?

26
Q

what are the insurance professional designations?

A

-chartered life underwriter (CLU)
-chartered property casualty underwriter (CPCU)

27
Q

what are the different types of claims?

A

-“first party”
-“third party”

28
Q

what are claims submitted by the insured to the insurer?

A

first party claims

29
Q

for first party claims, who makes claims payments to the insured?

A

the insurer

30
Q

what are claims submitted against a negligent insured for bodily injury, physical damage, death, personal injury, etc?

A

third party claims

31
Q

for third party claims, who pays damages (caused by the insured) to an injured third party?

A

insurer

32
Q

what are the types of claims adjustors?

A

-insurance agents
-staff claims representatives/adjustors
-independent adjustors
-public adjustors

33
Q

who may have authority to settle small “first party” claims?

A

insurance agents

34
Q

who is a salaried employee who investigates a claim, determines the amount of loss and issues payments?

A

staff claims representative/adjustors

35
Q

who is an individual or organization that adjusts the claims for a fee (common after catastrophes)?

A

independent adjustors

36
Q

who represents the insured and are paid a fee based on the amount of the claim settlement ?

A

public adjustors

37
Q

what is the claims process?

A

-notice of loss
-claim investigation
-proof of loss
-payment of loss or denial of claim

38
Q

what questions are asked for a claim investigation?

A

-did the loss take place during the policy period?
-was damage caused by a covered peril?
-is the damage property covered by the policy?
-are there policy exclusions that apply?
-does any other insurance apply?

39
Q

what is a ceding company?

A

the primary insurer that initially wrote the insurance

40
Q

what is the reinsurer?

A

the company that accepts the insurance from the ceding company

41
Q

what is the retention limit?

A

the amount of insurance retained by the ceding company

42
Q

what is cession?

A

the amount of insurance ceded to the insurer

43
Q

what is retrocession?

A

a transaction in which a reinsurer transfers risks it has reinsured to another reinsurer

44
Q

what are the functions of reinsurance?

A

-increase underwriting capacity
-stabilize profits
-reduced the unearned premium reserve
-provide protections against catastrophic loss
-retire from a line of business
-obtain underwriting advice on a line for which the insurer has little experience

45
Q

what are two principal types of reinsurance?

A

facultative and treaty

46
Q

what type of principal reinsurance is transacted on an individual risk (ex. large factory) where the primary insurer cedes the individual risk to the reinsurer?

A

facultative reinsurance

47
Q

what type of principal reinsurance is used on a case by case basis?

A

facultative reinsurance

48
Q

what type of principal reinsurance is where the primary insurer cedes all risks within one or more specific lines of business to the reinsurer?

A

treaty reinsurance

49
Q

what are the types of reinsurance agreements?

A

proportional (pro rata) and non-proportional (excess of loss)

50
Q

what type of reinsurance agreement is when the ceding company and reinsurer agree to share a predetermined percentage of losses and premium?

A

proportional (pro rata)

51
Q

what are the two types of proportional (pro rata) reinsurance agreements?

A

“quota share” and “surplus share”

52
Q

what is quota share under proportional reinsurance agreement ?

A

the ceding company and the reinsurer share premiums and losses based on fixed percentage

53
Q

what is surplus share under proportional reinsurance agreement? (pro rata)

A

when the reinsurer agrees to accept insurance in excess of the ceding insurer’s retention limit

54
Q

when are losses and premiums shared in the same proportion that each party shares in the same individual risk?

A

surplus share (pro rata)

55
Q

what is non proportional (excess of loss) reinsurance agreement?

A

the ceding company retains a predetermined dollar amount of a loss (retention)

56
Q

what is designed for protection from a catastrophic loss?

A

excess of loss reinsurance

57
Q

what is extremely important in lowering the cost of insurance to policy owners and offsetting unfavorable underwriting experience?

A

investments

58
Q

what do state laws restrict?

A

the riskiness of the portfolio

59
Q

what types of investments are typically invested?

A

“safe” investments - mostly bonds

60
Q

what type of insurance is a long-term exposure so premiums can be invested in long-term assets including real estate?

A

life

61
Q

what type of insurance is a short-term exposure so premiums are invested in marketable securities such as high-quality bonds and stocks?

A

Property and Casualty

62
Q

what are other insurance company operations?

A

-information systems
-accounting
-legal department
-loss control services

RMIN 4000 (15 decks)

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