CPCU 520 Flashcards
In general, the tendency for people with the greatest probability of loss to be the ones to most likely purchase insurance
Adverse Selection
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
Underwriting guidelines (underwriting guide)
A group of policies with a common characteristic, such as territories or type of coverage, or all policies written by a particular insurer or agency
Book of business
The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Underwriting
The largest loss that an insured is likely to sustain
Probable Maximum loss
The channel used by the producer of a product or service to transfer that product or service to the ultimate customer
Distribution channel
An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers)
Exclusive agency marketing system
An insurance marketing system that uses sales agents (or sales reps) who are direct employees of the insurer
Direct writing marketing system
An insurance marketing system under which producers (agents or brokers), who are independent contractors, sell insurance, usually as representatives of several unrelated insurers.
Independent agency and brokerage marketing system
A person or firm that places business with insurers not licensed (nonadmitted) in the state in which the transaction occurs but that is permitted to write insurance because coverage is not available through standard market insurers.
Surplus lines broker
The term referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market.
Residual market
An insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties, especially those susceptible to loss by riot or civil commotion
Fair Access to Insurance Requirements (FAIR) plans
An insurer owned by its policyholders, formed as an unincorporated association for the purpose of providing insurance coverage to its members (called subscribers), and managed by attorney-in-fact. Members agree to mutually insure each other, and they share profit and losses in the same proportion as the amount of insurance purchased from the exchange by that member
Reciprocal insurance exchange (interinsurance exchange)
An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them
Mutual insurer
Insurer formed for the purpose of earning a profit for its owners.
Proprietary insurer
An association of insurance commissioners from the U.S. fifty states, the district of Columbia, and the five US territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments.
National Association of Insurance Commissioners (NAIC)
A document drafted by the NAIC, in a style similar to a state statue, that reflects the NAIC’s proposed solution to a given problem or issue and provides a common basis to the states for drafting laws that affect the insurance industry. Any state may choose to adopt the model bill or adopt it with modifications.
Model law
A draft regulation that may be implemented by a state insurance department if the model law is passed.
Model regulation
An insurer doing business in the jurisdiction in which it is incorporated
Domestic insurer
An insurer licensed to operate in a state but incorporated in another state.
Foreign insurer
An insurer domiciled in a country other than the United States
Alien insurer
A balance sheet value that represents the amount of funds that a corporation’s stockholders have contributed through the purchase of stock
Capital stock
The amount stockholders paid in excess of the par value of the stock
Paid-in surplus
An insurer owned by its policyholders, formed as an unincorporated association for the purpose of providing insurance coverage to its members (called subscribers), and managed by an attorney-in-fact. Members agree to mutually insure each other, and they share profits and losses in the same proportion as the amount of insurance purchased from the exchange by that member.
Reciprocal insurer
A situation in which an entity’s current liabilities (as opposed to its total liabilities) exceed its current assets
Insolvency
A state-established fund that provides a system for the payment of some of the unpaid claims of solvent insurers licensed in that state, generally funded by assessments collected from all insurers licensed in the state.
Guaranty fund
The manner of handling claims that requires an insurer to give consideration to the insured’s interests that is at least equal to the consideration it gives its own interests
Good-faith claims handling
A breach of the duty of good faith and fair dealing
Bad faith (outrage)
The person or organization that borrows money from a mortgagee to finance the purchase of real property
Mortgagor
An independent organization that works with and on behalf of insurers that purchase or subscribe to its services
Advisory organization
Loss data that are modified by loss development, trending, and credibility processes, but without considerations for profit and expenses.
Prospective loss costs
Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both
Producer
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 risk retention act of 1986 to insure the parent organization
Risk retention group
Information gathered and analyzed regarding a company’s markets to improve competitive decision-making
Market intelligence
A cyclical pattern of insurance pricing in which a soft market (low rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats itself.
Underwriting cycle
A small group of customers or potential customers brought together to provide opinions about a specific product, service, need, or other issue
Focus group
Statistical and analytical techniques used to develop models that predict future events or behaviors.
Predictive analytics
The process of identifying and dividing the groups within a market that share needs and characteristics and that will respond similarly to marketing actions
Market segmentation
Focusing marketing efforts on a specific group of customers
Target marketing
A type of marketing that focuses on specific types of buyers who are a subset of a larger market
Niche marketing
The necessary people and physical facilities to support the sale of insurance products and services
Distribution system
The record of an insurance agency’s present policyholders and the dates their policies expire
Agency expiration list
Laws that require all policies covering subjects of insurance within state to be signed by a resident producer licensed in that state
Countersignature laws
An authorized agent of the primary insurer that manages all or part of of the primary insurer’s insurance activities, usually in a specific geographic area
Managing general agent (MGA)
An insurance distribution channel that markets directly to the customer through such distribution channels as mail, telephone, or the internet
Direct response distribution channel
A type of group marketing that targets various groups based on profession, association, interests, hobbies, and attitudes.
Affinity marketing
Contacting a prospect without an appointment
Cold canvass
A report detailing an insured’s history of claims that have occurred over a specific period, valued as a of a specific date
Loss run
A payment procedure in which a producer sends premium bills to the insured, collects the premium, and sends the premium to the insurer, less any applicable commissions.
Agency bill
A payment procedure in which the insurer assumes all responsibility for sending premium bills to the insured, collecting the premium, and sending any commission payable on the premium collected to the producer
Direct bill
Under statutory accounting principals (SAP), an insurer’s total admitted assets minus its total liabilities
Policyholder’s surplus
The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholder’s surplus
Capacity
The scope of decision that an underwriter can make without receiving approval from someone at a higher level
Underwriting authority
Underwriter who is primarily responsible for implementing the steps in the underwriting process
Line underwriter
Underwriter who is usually located in the home office and who assist underwriting management in making and implementing underwriting policy
Staff underwriter
An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer
Manuscript policy
A guide ti individual and aggregate policy selection that supports an insurer’s mission statement
Underwriting policy (underwriting philosophy)
The increase or decrease in incurred losses over time
Loss development
A statistical technique for analyzing environmental changes and projecting such changes into the future
Trending
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer’s individual loss exposures that fall within the treaty are automatically re insured
Treaty reinsurance
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines
Underwriting audit
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders surplus
Premium-to-surplus ratio, or capacity ratio
The accounting principles and practices that are prescribed or permitted by an insurer’s domiciliary state and that insurers must follow
Statutory accounting principles (SAP)
A profitability ratio expressed as a percentage by dividing a company’s net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders’ equity, owners’ equity, or policyholders’ surplus
Return on equity (ROE)
An analysis of an insurer’s practices in four operational areas; sales and advertising, underwriting, ratemaking, and claim handling
Market conduct examination
A process in which historical data based on behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes
Predictive modeling
A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claim handling purposes
Application
An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and condition
Underwriting
Underwriting information for an initial application, or a substantive policy midterm or renewal change
Underwriting submission
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 a loss
Hazard
The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it
Information efficiency
Methodical examination of a policyholders’ operations, records, and books of account to determine the actual exposure units and premium for insurance coverage already provided
Premium audit
Income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses
Underwriting profit
A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer
Counteroffer
A set of directions that specify criteria of the exposure base, the exposure unit, and rate per exposure unit to determine premiums for a particular line of insurance
Rating plan
A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods
Experience rating
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
Schedule rating
A ratemaking technique 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
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted
Facultative reinsurance
A method of underwriting in which all of the business from a particular applicant is evaluated as a whole
Account underwriting
The distribution of individual policies that compose the book of business of a producer, territory, state, or region among the various lines and classifications
Mix of business
The portion of the rate that covers projected claim payments and loss adjustment expenses
Loss costs
A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued
Binder
A brief description of insurance coverage prepared by an insurer or its agent and commonly used by policyholders to provide evidence of insurance
Certificate of insurance
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain
Combined ratio
Computer software programs that supplement the underwriting decision making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked
Expert systems, or knowledge-based systems
Performing underwriting functions is an insurer’s office as well as traveling to visit and maintain rapport with agents and sometimes clients
Production underwriting
The ratio of insurance policies written to those that have been quoted to applicants for insurance
Hit ratio
A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss
Moral Hazard
A condition of carefulness or indifference that increases the frequency or severity of loss
Morale Hazard (attitudinal hazard)
The unit of measure (for example, area, gross receipts, payroll) used to determine an insurance policy premium
Exposure unit (unit of exposure)
An audit conducted by an insurance advisory organization or bureau to check the accuracy of insurer’s premium audits
Test audit
A payroll system that increases the regular hourly wage rate for the night shift or other special conditions
Premium pay (shift differential)
The amount the primary insurer pays the reinsurer pending the determination of the actual reinsurance premium owed
Deposit premium
A rate multiplier derived from the experience rating computation
Experience modification
An organization that provides administrative services associated with risk financing and insurance
Third-party Administrator (TPA)
An independent claims representative who handles claims for insurers for a fee
Independent adjuster
An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee
Public adjuster
A system to remind claims personnel to perform a particular task on a claim
Diary, or suspense
A record of all the activities and analyses that occur while handling a claim
Activity log
A security setting that controls an individuals computer user’s ability to review, enter, and change information in a claims information system
Authority level
A review of claim files to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included
Claims audit
A review of claim files conducted by an insurer’s staff to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate; thorough documentation is included
Internal claims audit
A review of claim files conducted by organizations other than the insurer that involves reviewing overall claims handling practices; reviewing reserves and other technical details of claim settlements; investigating consumer complaints; ensuring that claims procedures were followed; and verifying that appropriate, thorough documentation was included
External claims audit
A demand against an insured by a person or organization other than the insured or the insurer, seeking to recover damages that may be payable by the insured’s liability insurance
Third-party claim
A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy
Nonwaiver agreement
An insurer’s letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it
Reservation of rights letter
An estimate of the amount of money the insurer expects to pay in the future for the losses that have already occurred and been reported, but are not yet settled
Loss reserve
A method of setting reserves based on the claim’s circumstances and the claim representative’s experience in handling similar claims
Individual case method
A method of setting reserves by using the consensus of two or more claims personnel who have independently evaluated the claims file
Roundtable method
A case reserving method that establishes a predetermined dollar amount of reserve for each claim as it is reported
Average value method
A method of settling claim reserves by using a mathematical formula
Formula method
A method of setting reserves with a software application that estimates losses and loss adjustment expense
Expert system method
A loss reserving method that establishes aggregate reserves for all claims for a type of insurance
Loss ratio method
A statement of facts about a loss for which the insured is making a claim
Proof of loss
The manner of handling claims that requires an insurer to give consideration to the insured’s interests that is at least equal to the consideration it gives its own interests
Good faith
The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss
Subrogation
An insurance to value provision in many property insurance policies providing that if the property is under insured, the amount that an insurer will pay for a covered loss is reduced
Coinsurance
Procedures to help settle disputes without litigation, including arbitration, meditation, and negotiation
Alternative dispute resolution (ADR)
Coverage for direct and accidental loss caused by fire, lightening, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance transporting the covered auto
Specified causes of loss coverage
Property insurance coverage covering all causes of loss not specifically excluded
Special form coverage
A reduction in the value of property that results directly and often immediately from damage to that property
Direct loss
A loss that arises as a result of damage to property, other than the direct loss to the property
Indirect loss
A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the insured person’s loss such as medical expenses or lost wages
Special damages
A monetary award to compensate a victim for losses, such as pain and suffering, that does not involve specific, measurable expenses
General damages
A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party’s actual damages
Punitive damages (exemplary damages)
The process of extracting hidden patterns from data that is used in a wide range of applications for research and fraud detection
Data mining
The process insurers use to calculate insurance rates, which are a premium component
Ratemaking
The price per exposure unit for insurance covererage
Rate
The price of the insurance coverage provided for a specified period
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
Pure premium
The amount that is included in an insurance rate to cover the insurer’s expenses and that might include loss adjustment expenses but that excludes investment expenses
Expense provision
Costs incurred by an insurer for operations, taxes, fees, and acquisition of new policies
Underwriting expenses
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy
Loss adjustment expense (LAE)
The expense an insurer incurs to investigate, defend, and settle claims that are associated with a specific claim
Allocated loss adjustment expense (ALAE)
Loss adjustment expense that cannot be readily associated with a specified claim
Unallocated loss adjustment expense (ULAE)
The final paid amount for all losses in an accident year
Ultimate loss
The period for which all pertinent statistics are collected and analyzed for ratemaking
Experience period
Interest, dividends, and net capital gains received by an insurer from an insurer’s financial assets, minus its investment expenses.
Investment Income
A method for calculating insurance rates using estimates of future losses and expenses, including a profit and contingencies factor
Pure premium method
A method for determining insurance rates based on a comparison of actual and expected loss ratios
Loss ratio method
A method for determining insurance rates that relies heavily on experience and knowledge of an actuary or an underwriter who makes little or no use of loss experience data
Judgement ratemaking method
A factor that provides for differences in expected loss, individual company expenses, underwriting profit and contingencies; when multiplied with a loss cost, it produces a rate
Loss cost multiplier
AA method of collecting ratemaking data that estimates both earned premiums and incurred losses by formulas from accounting records
Calendar - year method
A method of collecting ratemaking data that analyzes all policies issued in a given twelve-month period and that links all losses, premiums, and exposure units to the policy to which they are related
Policy-year method
A method of organizing ratemaking statistics that uses incurred losses for an accident year, which consist of all losses related to claims arising from accidents that occur during the year, and that estimates earned premiums by formulas from accounting records
Accident-year method
A factor that is used to adjust historical premiums to the current level
On-level factor
An actuarial means for adjusting losses to reflect future growth in claims due to both increases in incurred amount for reported losses and incurred but not reported (IBNR) losses
Loss development factor
A method of loss trending that assumes a fixed percentage increase or decrease each time period
Exponential trending
The minimum amount of coverage for which a policy can be written; usually found in liability lines
Basic limit
A type of computer program that estimates losses from future potential catastrophic events
Catastrophe model
The level of confidence an actuary has in projected losses; increased as the number of exposure units increases
Credibility
The factor applied in ratemaking to adjust for the predictive value of loss data and used to minimize variations in the rates that result from purely chance variation in losses
Credibility factor
A factor applied to the rates for basic limits to arrive at an appropriate rate for higher limits
Increased limit factor
An amount over and above the expected loss component of the premium to compensate the insurer for taking the risk that losses may be higher than expected
Risk charge
A reserve established for losses that reasonably can be assumed to have been incurred but not yet reported
Incurred but not reported (IBNR) reserves
A person who uses mathematical methods to analyze insurance data for various purposes, such as to develop insurance rates or set claims reserves
Actuary
The transfer of insurance risk from one insurer to another through a contractual arrangement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary insurer) for some or all of the financial consequences of certain loss exposures covered by the primary insurance policy’s
Reinsurance
In reinsurance, the insurer that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement
Primary insurer
The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement
Reinsurer
Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured
Reinsurance agreement
Uncertainty about the adequacy of insurance premiums to pay losses
Insurance risk
The amount retained by the primary insurer in the reinsurance action
Retention
The consideration paid by the primary insurer to the reinsurer for assuming some or all of the primary insurer’s insurance risk
Reinsurance premium
An amount paid by the reinsurer to the primary insurer to cover part or all or all of the primary insurer’s policy acquisition expenses
Ceding commission
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire)
Retrocession
The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer
Retrocedent
The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer
Retrocessionaire
An insurer’s ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide
Large-line capacity
The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure
Line
A replenishment of policyholders’ surplus provided by the ceding commission paid to the primary insurer by the reinsurer
Surplus relief
Reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies
Portfolio reinsurance
An agreement under which one insurer or reinsurer is substituted for another
Novation
An insurer whose primary business purpose is serving other insurer’s reinsurance needs
Professional reinsurer
A professional reinsurer whose employees deal directly with primary insurers
Direct writing reinsurer
An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts of reinsurance between the primary insurer and reinsurer, receiving commission for placement and other services rendered
Reinsurance intermediary
Groups of insurers that share the loss exposures of the group, usually through reinsurance
Reinsurance pools, syndicates, and associations
A reinsurance association that consists of several unrelated insurer or reinsurance that have joined to insure risks the individual members are unwilling to individually insure
Reinsurance pool
A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums, losses, expenses, and profits
Syndicate
An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization
Association
The decision to reinsure those loss exposures that have an increased probability of loss because the retention of those loss exposures is undesirable
Adverse selection
An agreement that defines the terms of the facultative reinsurance coverage on a specified loss
Facultative certification of reinsurance
A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expense)
Pro rata reinsurance
A ceding commission that is a fixed percentage or the ceding premiums
Flat commission
A ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures
Profit-sharing commission
A ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement
Sliding scale commission
A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage
Quota share reinsurance
A quota share reinsurance treaty in which the cession percentage retention varies based on the specified predetermined criteria such as the amount of insurance needed
Variable quota share treaty
A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses
Loss ratio
A type of pro rate reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount or line
Surplus share reinsurance
The maximum amount that the reinsurer will pay for a claim and that a commonly stated in the reinsurance agreement
Reinsurance limit
A type of reinsurance in which the primary insurer is indemnified for losses that exceed a specified dollar amount
Excess of loss reinsurance (non proportional reinsurance)
The dollar amount above which the reinsurer responds to the loss
Attachment point
The premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium
Subject premium
An excess of loss reinsurance agreement with a low attachment point
Working cover
A type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk
Per risk excess of loss reinsurance
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event
Catastrophe excess of loss reinsurance
A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point
Co-participation provision
A type of excess of loss reinsurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each policy
Per policy excess of loss reinsurance
A type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer’s policies
Per occurrence excess of loss reinsurance
A type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occurs over a specified period, usually one year
Aggregate excess of loss reinsurance
A nontraditional type of reinsurance in which the reinsurer’s liability is limited and anticipated investment income is expressly acknowledged as an underwriting component
Finite risk reinsurance
A financial market in which long-term securities are traded
Capital market
The use of securities or financial instruments (for example, stocks, bonds, commodities, financial futures) to finance an insurer’s exposure to catastrophic loss
Securitization of risk
A facility established for the purpose of purchasing income-producing assets from an organization, holding tile to them, and then using those assets to collateralize securities that will be sold to investors
Special purpose vehicles (SPV)
Financial contract whose value is based on the level of insurable losses that occur during a specific time period
Insurance derivatives
An agreement, entered into before an 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 financial instrument whose value is primarily driven by insurance and/or reinsurance loss events
Insurance-linked security
A type of unsecured debt instrument, issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders’ surplus rather than as a liability on the insurer’s statutory balance sheet
Surplus note
The price which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period
Strike price
The combination of reinsurance agreements that a primary insurer purchases to meet its reinsurance needs
Reinsurance program
A measure of the loss volatility of the types of insurance sold by an insurer
Underwriting risk
A collection of information stored in discrete units for ease of retrieval, manipulation, combination, or other computer processing
Database
A document that amends an insurance policy
Endorsement
The skills, technologies, applications, and practices used to improve decision-making insights and reinforce information integrity
Business Intelligence (BI)
The percentage of policies in force that are renewed at the policy anniversary
Retention
A small segment of a total market
Niche Market
A person responsible for investing, evaluating, and settling claims
Claims representative
An advisory organization that provides analytical and decision support products and services to the property-liability insurance industry
Insurance services office, Inc (ISO)
Uncertainty about an investment’s future value because of potential changes in the market for that type of investment
Market risk
The process of documenting an organization’s adherence to external legal and regulatory requirements as well as to internal policies and standards
Compliance
The amount the insurer estimates and sets aside to pay on an existing claim that has not been settled
Reserve
The ability of an insurer to meet its financial obligations as they become due, even those resulting from insured losses that may be claimed several years in the future
Solvency
A common set of accounting standards and procedures used in preparation of financial statements to ensure consistency of presentation and reported results
Generally accepted accounting principles (GAAP)
The use of a database of a collection of databases developed for an organization or an enterprise for analysis and support of management decisions
Data warehousing
In data analysis, a system of calculating known outcomes based on current data and then applying these calculations to new data to predict future outcomes
Modeling
Any condition that presents a possibility of gain or loss, whether or not an actual loss occurs
Exposures
The maximum that can be paid on the claim, regardless of the actual value of the property damaged
Policy limits
The maximum amount an insurer will pay for all covered losses during the covered policy period
Aggregate limit
The process by which an insurer takes possession of damaged property for which it has aid a total loss and recovers a portion of the loss payment by selling the damaged property
Salvage
An insurer’s denial of coverage without cause, which can result in extra contractual damages, punitive, or both
Bad faith
A portion of a covered loss that is not paid by the insurer
Deductible
A division set up to investigate suspicious claims, premium fraud, or application fraud
Special investigation unit (SIU)
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
Computer processing or output that stimulates human reasoning or knowledge
Artificial intelligence
A business that offers similar products or services from several organizations on its customers’ comparison website and then collects a referral fee from those organizations when a customer uses the site tools or links
Aggressor
An agreement by two or more people to defraud another
Collusion
Information, technology and storage services contractually provided from remote locations, through the internet or another network without a direct server connection
Cloud computing
Federal legislation establishing standards for health insurance information exchanges and health coverage protection when jobs are lost or changed
Health Insurance Portability and Accountability Act (HIPPA)
An arrangement consisting of multiple computers that are interconnected and work together on a common project
Distributed Computing
A set of permissions linking a user with a specific information system object and specifying the level of access to that object such as read, write, execute, or delete
Access control list (ACL)
Typically an outdated computer system that continues to meet users’ needs and is still in use even though newer technology is available that can meet those needs more efficiently
Legacy system
The process an organization uses to formulate and implement its business strategies
Strategic management process
A broad expression of an entity’s goals
Mission statement
A method of evaluating the internal and external environments by assessing an organization’s internal strengths and weaknesses and its external opportunities and threats
SWOT Analysis
An organizational structure in which departments are defined by the operation they perform
Functional structure
An organizational structure in which divisions are organized into separate profit centers
Multidivisional structure
A business-level strategy through which a company seeks cost efficiencies in all operational areas
Cost leadership
A method of evaluating the external environment in which a company operates. Involves assessing five forces that drive competition: threats of new entrants, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing firms
Five forces model
An analysis that identifies patterns in past data and then projects these patterns into the future
Trend analysis
A corporate-level strategy through which a company either produces its own inputs or disposes of its own outputs
Vertical integration strategy
A corporate level strategy through which a company expands its operations into areas that are similar to its existing operations
Related diversification strategy
A corporate level strategy through which a company expands its operations into areas that have no relation to its existing operations
Unrelated diversification strategy
A corporate-level strategy through which a company seeks to gain short-term profits while phasing out a product line or exiting a market
Harvest strategy
A corporate-level strategy through which a company rebuilds organizational resources to return to profitable levels
Turnaround strategy
A corporate-level strategy through which a company sells off a portion of an operation, usually a division or profit center that is not performing to expectations
Divestiture strategy
A business-level strategy through which a company develops products or services that are distinct and for which customers will pay a higher price than that of the competition
Differentiation strategy
A business-level strategy through which a company focuses on one group of customers and offers a low-price product or service
Focused cost leadership strategy
A business-level strategy through which a company focuses on one group of customers and offers unique or customized products that permit it to charge a higher price than that of the competition
Focused differentiation strategy
An arrangement in which two companies work together to achieve a common goal
Strategic alliance
A business association formed by an express or implied agreement of two or more persons (including corporations) to accomplish a particular project, such as construction of a building
Joint venture
A type of acquisition in which two or more business entities are combined into one
Merger
A company owned or controlled by another company
Subsidiary
The percentage of insurance policies renewed
Retention ratio
