CPCU 520 - Insurance Operations Flashcards
They insurance industry is regulated primarily to protect consumers, maintain insurer solvency, and to
Prevent destructive competition
The national association of insurance commissioners
Is a non profit corporation
Insurance trade organization
Provide insurers with personnel for lobbying purposes or allow them to influence pending legislation
The duties of a typical insurance commissioner include:
Holding hearings on insurance issues.
____ would be best able to assist an insurer with providing informed and timely responses to industry issues that affect its customers
The council of insurance agents and brokers
Unfair claims practices require an insurer to approve or deny coverage of a claim within a reasons period after the completion of
Proof of loss statement
If an insurer is insolvent, the state insurance places the insurer in
Receiver ship
Domestic stock insurers must
Meet paid in surplus requirements and capital stock requirements
As part of the peer review process, the NAIC ACCREDITATION program subjects state insurance regulators to a comprehensive review to determine whether the state has met minimum baseline standards of
Solvency regulation
Part of the solvency core principle of exiting the market and receivership
Solvency is defined and a receivership scheme established to ensure the payment of insured obligations of insolvent insurers subject to appropriate restrictions and limitations
Day to day regulation of the insurance business falls within the ______ of each state government
Executive branch
The most difficult time for an insurer to change distribution systems is when
Renewing an existing book of business
An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the Policyholder
The item basis
Though marketing plans are varied, they all serve the same fundamental purpose of
Providing the roadmap necessary to profitably and effectively acquaint sellers with potential buyers
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain.
Combined ratio - lower combined ratio reflects a higher level of profitability for an insurer
For underwriting to achieve it’s purpose,
Insurers must minimize the effects of adverse selection on the books of business
The risk control departments needs claim information to
Direct loss control resources and efforts to crucial areas.
Risk control personnel can assist underwriters
In modifying a new applicants loss exposure to meet eligibility requirements
Once premium auditors have obtained the data necessary for calculating the premium ,
They must decided whether the data are reasonable
Premium auditors verify the
Earnings of injured employees for workers comp claims
When a Policy is written subject to audit, The exact exposure and premium bases :
Cannot be known until the end of the policy period
The need for a premium audit arises because
Some insurance policies have adjustable premiums
Insurance that covers every cause of direct physical loss or damage that is not specifically excluded is referred to as
Special form coverage
Regulators sometimes require insurers to provide
A consulting actuary’s opinion verifying the accuracy and reasonableness of the staff actuaries’ work.
Using the pure premium rate making method, the rate per exposure unit equals
The pure premiums plus the expense per exposure unit, divided by 1 minutes the profit and contingencies factor
Expense provision
The amount needed to pay future expenses, such as acquisition expenses, overhead, and premium taxes.
Ideal characteristic of rates
Promotion of loss control
Charges to increase commercial liability insurance limits
Frequently exceed 100% of the charge for basic coverage limits
With respect to estimating losses for use in the rate making process
Rates are based on incomplete loss experience.
Limitation of the loss development method of estimating loss reserves
Large one time events such as catastrophe would disrupt the historical pattern of development
U.S. Actuaries have several specialties including
Life insurance
Health
P & c
And pension
The data fall into the 3 general categories
Paid and incurred losses
Expenses
Earned premium and/or exposure
The reinsurance agreement indemnifies the:
Policy , groups of policies , or other categories of insurance that are included in the agreement
Reinsurance intermediaries:
Can often help secure high coverage limits and catastrophe coverage
A factor affecting the selection of a retention by a primary insurer in its reinsurance program
Co-participation provision
A direct writing insurer
Is a reinsurer whose employees deal directly with primary insurers
Competent business analysts who speak the languages of business and technology
Can help bridge any communication gap
Multidimensional structure
Is an organization structure in which groups are organized into seperate profit centers
To be successful, the differentiation business-related strategy must
Acurrately determine customers’ preferences to develop products perceived as distinctive
Strategic alliance
Is considered the simplest and carries the lowest degree of risk
following statements is correct with regard to assessing the external environment under the 5 forces model
Insurance consumers have greater bargaining power in a soft market
Strategic alliances
Provide a low-risk approach to quickly entering a new market
SWOT analysis to analyze the competitive environment
Identifying internal strengths and weaknesses involves considering financial, physical, Human, and organizational assets.
The item basis
An agency bill process in which the producer is usually not required to pay the insurer until the premium is collected from the policy holder
The most prominent actuarial functions for an insurer involve estimation of unpaid liabilities and adequacy of loss reserves as well as
Rate making
Artificial intelligence
Is a computer processing or output that stimulates human reasoning or knowledge
3 specific ratios used to measure an insurer’s underwriting performance:
- the loss ratio
- the expense ratio
- the trade basis combined ratio
_____ supports the core functions of an insurance company
Reinsurance
An insurer’s ______ department provided information to the underwriting department to assist in selecting and rating risks.
Risk control
The insurance industry is highly regulated, and the expense associated with compliance can be substantial. To the extent that these expenses increase the cost of insurance, they create a conflict between ___ goal and the insurer’s goal of _____
The insurer’s profit goals and the insurer’s goal of meeting customer’s needs.
In ___ cycles, excessive competition can entice some insurers to bend the rules, making insurers unable to attain their legal and regulatory goals
Soft cycles
Proprietary insurer’s that acts as an insurance marketplace. It’s members underwrite any insurance or reinsurance purchased, and members are primarily partnerships or corporations with limited liability
An insurance exchange
Formula that calculates the return on equity
Net income divided by owners equity
Fraud accounts for ___ percent of property-casualty losses
10%
A goal of rate regulation requires that
Loss exposures that are roughly similar regarding expected losses and expenses should be charged substantially similar rates
3 key areas of market conduct, insurance regulators have traditionally monitored:
- producer practices
- claim practices
- underwriting practices
An important questions for an insurer to ask when examining customers’ need and characteristics to select a distribution channel is
How quickly can inquiries and transactions be processed
Direct bill
Method of premium collection generally used for personal insurance policies and small commercial accounts
Function all producers perform
Prospecting
Generally paid a negotiated fee, rather than a fixed commission
National broker
Regions broker
Sells insurance by representing customer rather than insurers
Marketing plan for a typical insurance provider includes
Situational analysis of the current marketplace
Marketing plan
Includes, Development of sales goals and projected outcomes is part
