CPCU 500 Flashcards
The likelihood that an outcome or event will occur.
Probability
A chance of loss or no loss, but no chance of gain.
Pure risk
A chance of loss, no loss, or gain
Speculative risk
The risk that customers or other creditors will fail to make promised payments as they come due
Credit risk
The perceived amount of risk based on an individual’s or organization’s opinion
Subjective risk
The measurable variation in uncertain outcomes based on facts and data
Objective risk
A risk that affects only some individuals, businesses, or small groups
Diversifiable risk
A risk that affects a large segment of society at the same time
Nondiversifiable risk
The potential for a major disruption in the function of an entire market or financial system
Systematic risk
Uncertainty about an investment’s future value because of potential changes in the market for that type of investment
Market risk
The risk that an asset cannot be sold on short notice without incurring loss
Liquidity loss
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-risk management
Enterprise risk management
Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs
Loss exposure
A condition that increases the frequency or severity of loss
Hazard
A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss
Moral hazard
A condition of carelessness or indifference that increases the frequency or severity of loss
Morale hazard (attitudinal hazard)
A tangible characteristic of property, persons, or operations, that tends to increase the frequency or severity of loss
Physical hazard
A condition of the legal environment that increases loss frequency or severity
Legal hazard
A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial interest.
Property loss exposure
Property that has a physical form
Tangible property
Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land
Real property (realty)
All tangible or intangible property that is not real property
Personal property
Property that has no physical form
Intangible property
Any condition tor situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party
Liability loss exposure
A condition that presents the possibility of loss caused by a person’s death, disability, retirement, or resignation that deprives an organization of the person’s special skill or knowledge that the organization cannot readily replace
Personnel loss exposure
Any condition or situation that presents the possibility of a financial loss to an individual or a family such by causes as death, sickness, injury, or unemployment
Personal loss exposure
A condition that presents the possibility of loss caused by a reduction in net income
Net income loss exposure
Goals to be accomplished before a loss, involving social responsibility, externally imposed goals, reduction of anxiety, and economy
Pre-loss goal
Risk management program goals that should be in place in the event of a significant loss
Post-loss goals
The financial statement that reports the assets, liabilities, and owners equity of an organization as of a specific date
Balance sheet
The financial statement that reports an organization’s profit or loss for a specific period by comparing the revenues generated with the expenses incurred to produce those revenues
Income statement
The financial statement that summarizes the cash effects of an organizations operating, investing, and financial activities during a specific period
Statement of cash flows
A contractual provision that obligates one of the parties to assume the legal liability of another party
Hold-harmless agreement (or indemnity agreement)
The process of restoring an individual or organization to a pre-loss financial condition
Indemnification
A method of analysis that identifies conditions that increase the frequency or severity of loss
Hazard analysis
Probability that is based on theoretical principles rather than on actual experience
Theoretical probability
A probability measure that is based on actual experience through historical data or from the observation of facts
Empirical probability (a posteriori probability)
A technique for forecasting events, such as accidental and business losses, on the assumption that they are governed by an unchanging probability distribution
Probability analysis
A mathematical principle stating that as the number of similar but independent exposure units increases, the relative accuracy of predictions about future outcomes (losses) also increases
Law of large numbers
A presentation (table, chart, or graph) of probability estimates of a particular set of circumstances and of the probability of each possible outcome
Probability distribution
The single outcome that is the most representative of all possible outcomes included within a probability distribution
Central tendency
The weighted average of all the possible outcomes of a probability distribution
Expected value
The sum of the values in a data set divided by the number of values
Mean
The value at the midpoint of a sequential data set with an odd number of values, or the mean of the two middle values of a sequential data set with an even number of values
Median
The most frequently occurring value in a distribution
Mode
The variation among values in a distribution
Dispersion
A measure of dispersion between the values in a distribution and the expected value (or mean) of that distribution, calculated by taking the square root of the variance
Standard deviation
A measure of dispersion calculated by dividing a distribution’s standard deviation by its mean
Coefficient of variation
A probability distribution that, when graphed, generates a bell-shaped curve
Normal distribution
A conscious act or decision not to act that reduces the frequency and/or severity of losses or makes losses more predictable
Risk control
A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated
Avoidance
A risk control technique that reduces the frequency of a particular loss
Loss prevention
A risk control technique that reduces the severity of a particular loss
Loss reduction
A plan for backup procedures, emergency response, and post disaster recovery to ensure that critical resources are available to facilitate the continuity of operations in an emergency situation
Disaster recovery plan
A risk control technique that isolates loss exposures from one another to minimize the adverse effect of a single loss
Seperation
A risk control technique that uses backups, spares, or copies of critical property, information, or capabilities and keeps them in reserve
Duplication
A risk control technique that spreads loss exposures over numerous projects, products, and markets or regions
Diversification
The portion of fire safety that focuses on the minimum building design, construction, operation, and maintenance requirements necessary to assure occupants of a safe exit from the burning portion of the building
Life safety
A risk financing technique by which losses are retained by generating funds within the organization to pay for losses
Retention
In the context of risk management, a risk financing technique by which the financial responsibility for losses and variability in cash flows is shifted to another party
Transfer
The first level of insurance coverage above any deductible
Primary layer
Insurance that covers losses above an attachment point, below which there is usually another insurance policy or self-insured retention
Excess coverage
A liability policy that provides excess coverage above underlying policies and may also provide coverage not available in the underlying policies, subject to a self-insured retention
Umbrella policy
A level of excess insurance coverage between a primary layer and an umbrella policy
Buffer layer
A form of retention under which an organization records its losses and maintains a formal system to pay for them
Self-insurance
An insurance policy with a per occurrence or per accident deductible of $100,000 or more
Large deductible plan
A subsidiary formed to insure the loss exposures of its parent company and the parent’s affiliates
Captive insurer, or captive
A group captive formed under the requirements of the Liability Retention Act of 1986 to insure the parent organization
Risk retention group
An arrangement under which an organization rents capital from a captive, to which it pays premiums and receives reimbursements for its losses
Rent-a-captive
A corporate entity separated into cells so that each participating company owns an entire cell but only a portion of the overall company
Protected cell company (PCC)
A risk financing plan that transfers a limited (finite) amount of risk to an insurer
Finite risk insurance plan
A group of organizations that band together to insure each other’s loss exposures
Pool
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
Retrospective rating plan
The level at which a loss occurrence is limited for the purpose of calculating a retrospective rated premium
Loss limit
A financial market in which long-term securities are traded
Capital market
The process of creating marketable investment security based on a financial transaction’s expected cash flows
Securitization
The process of creating a marketable insurance-linked security based on cash flows that arise form the transfer of insurable risks
Insurance securitization
A financial transaction in which one asset is held to offset the risk associated with another asset
Hedging
A financial contract that derives its value from the value of another asset
Derivative
An agreement, entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold
Contingent Capital arrangement
A loss that is accidental or unexpected
Fortuitous loss
The principle that insurance policies should provide a benefit no greater than the loss suffered by an insured
Principle of indemnity
A contract in which the insurer agrees, in the event of a covered loss, to pay an amount directly related to the amount of the loss
Contract of indemnity
A legal doctrine that provides that the damages owed to a victim should not be reduced because the victim is entitled to recover money from other sources, such as an insurance policy
Collateral source rule
Any contract in which one party must either accept the agreement as written by the other party or reject it
Contract of adhesion
A legal doctrine that provides for an ambiguous insurance policy clause to be interpreted in the way that an insured would reasonably expect
Reasonable expectations doctrine
Something of value or bargained for an exchanged by the parties to a contract
Considerations
A contract that one or more parties must perform only under certain conditions
Conditional contract
A single document that contains all the agreements between the insured and the insurer and that forms a complete insurance policy
Self-contained policy
Policy that covers only one line of business
Monoline policy
Policy that covers two or more lines of business
Package policy
An insurance policy that consists of several different documents, none of which by itself forms a complete policy
Modular policy
An insurance form that is drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer
Manuscript form
An insurance policy information page or pages providing specific detail about the insured and the subject of the insurance
Declarations page (declarations, or dec.)
A statement in an insurance policy that the insurer will, under described circumstances, make a loss payment or provide a service
Insuring agreement
A policy provision that eliminates coverage for specified exposures
Exclusion
Any provision that qualifies an otherwise enforceable promise made in the policy
Policy condition
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
Insurable interest
A situation in which a party experiences an economic disadvantage if an insured event does not occur or, conversely, economic harm if the event does occur
Factual expectancy
In the agency relationship, the party that is authorized by the principal to act on the principal’s behalf
Agent
Someone who has the legal title to a property but is responsible that it be used, handled, and transferred solely for the benefit of the beneficiary
Trustee
The party temporarily possessing the personal property in a bailment
Bailee
The owner of the personal property in a bailment
Bailor
Insurance written for an amount approximating the full value of the asset insured
Insurance to value
The amount of loss, typically measured in dollars, for a loss that has occurred
Loss severity
The number of losses that occur within a specified period
Loss frequency
A provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property
Insurance-to-value provision
A clause that requires the insured to carry insurance equal to at least a specified percentage of the insured property’s value
Coinsurance clause
Optional coverage that suspends the coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured
Agreed value optional coverage
A method of protecting against inflation by increasing the applicable limit for covered property by a specified percentage over the policy period
Inflation guard protection
Endorsement that covers the fluctuating values of business personal property by providing differing amounts of insurance of certain time periods during the policy period
Peak season endorsement
Cost to replace property with new property of like kind and quality less depreciation
Actual cash value (ACV)
The cost to repaid or replace property using new materials of like kind and quality with no deduction for depreciation
Replacement cost
The price at which particular piece of property could be sold on the open market by an unrelated buyer or seller
Market value
A court ruling explicitly requiring that all relevant factors be considered in determining the actual cash value
Broad evidence rule
A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss
Agreed value method
A valuation method in which the insurer is required to pay no more than the cost to repaid or replace the damaged or destroyed property with property that is its functional equivalent
Functional valuation method
Money claimed by, or monetary award to, a party who has suffered bodily injury or property damage for which another party is legally responsible
Damages
An insurance premium and loss exchange in which the insured pays the insurer premiums for low value losses, and the insurer pays the same dollars back to the insured, after subtracting expenses
Dollar trading
A dollar amount specified in an insurance policy that the insured must pay before the insurer will make any payment for a claim
Self-insured retention (SIR)
Sets of data that are too large to be gathered and analyzed by traditional methods
Big data
The analysis of large amounts of data to find new relationships and patterns that will assist in developing business solution
Data mining
Obtaining information through language recognition
Text mining
The use of technological devices in vehicles with wireless communication and GPS tracking that transmit data to businesses or government agencies; some return information for the driver
Telematics
A network of objects that transmit data to computers
Internet of things (IoT)
Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data
Machine learning
Computer processing or output that stimulates human reasoning or knowledge
Artificial Intelligence (AI)
An interdisciplinary field involving the design and use of techniques to process very large amounts of data from a variety of sources and to provide knowledge based on data
Data Science
Data organized into databases with defined fields, including links between databases
Structured data
Data that is not organized into predetermined formats, such as databases, and often consists of text, images, or other nontraditional media
Unstructured data
Data that is owned by an organization
Internal data
Data that belongs to an entity other than the organization that wishes to acquire and use it
External data
Data regarding interest rates, asset prices, exchange rates, the Consumer Price Index, and other information about the global, the national, and regional economy
Economic data
Data regarding classifications of a population
Geodemographic data
A field of science that derives knowledge from data; it provides a root understanding of useful approaches to data analysis
Statistics
A collection of information stored in discrete units for ease of retrieval, manipulation, combination, and other computer processing
Database
An operational sequence used to solve mathematical problems and to create computer programs
Algorithm
An accepted standard for the steps in any data mining process used to provide business solutions
Cross industry standard process for data mining (CRISP-DM)
An organizational process to gather and analyze relevant and verifiable data and then evaluate the results to guide business strategies
Data-driven decision making
