Flash Cards
Gain familiarity with risk management concepts
Big data
Sets of data that are too large to be gathered and analyzed by traditional methods.
Smart product
An innovative item that uses sensors; wireless sensor networks; and data collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise improved.
Internet of Things (IoT)
A network of objects that transmit data to and from each other without human interaction.
Cloud computing
Information, technology, and storage services contractually provided from remote locations, through the internet or another network, without a direct server connection.
Blockchain
A distributed digital ledger that facilitates secure transactions without the need for a third party.
Telematics
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.
Text mining
Obtaining information through language recognition.
Risk appetite
Amount of risk an organization is willing to take on in order to achieve an anticipated result or return.
Value at risk (VaR)
A technique to quantify financial risk by measuring the likelihood of losing more than a specific dollar amount over a specific period of time.
Cost of risk
The total cost incurred by an organization because of the possibility of accidental loss.
Exposure
Any condition that presents a possibility of gain or loss, whether or not an actual loss occurs.
Volatility
Frequent fluctuations, such as in the price of an asset.
Likelihood
A qualitative estimate of the certainty with which the outcome of a specific event can be predicted.
Consequences
The effects, positive or negative, of an occurrence.
Time horizon
Estimated duration.
Correlation
A relationship between variables.
Pure risk
A chance of loss or no loss, but no chance of gain.
Speculative risk
A chance of loss, no loss, or gain.
Credit risk
The risk that customers or other creditors will fail to make promised payments as they come due.
Subjective risk
The perceived amount of risk based on an individual’s or organization’s opinion.
Objective risk
The measurable variation in uncertain outcomes based on facts and data.
Diversifiable risk
A risk that affects only some individuals, businesses, or small groups.
Systemic risk
The potential for a major disruption in the function of an entire market or financial system.
Market risk
Uncertainty about an investment’s future value because of potential changes in the market for that type of investment.
Liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss.
Risk management framework
A foundation for applying the risk management process throughout the organization.
Risk criteria
Information used as a basis for measuring the significance of a risk.
Risk threshold
The range or amount of risk that is acceptable.
Sensor
A device that detects and measures stimuli in its environment.
Radio frequency identification (RFID)
A technology that uses radio frequency to identify objects.
Artificial intelligence (AI)
Computer processing or output that simulates human reasoning or knowledge.
Computer vision
A technology that simulates human vision.
Risk treatment
The selection and implementation of actions to help manage or mitigate a risk.
Residual risk
The level of risk remaining after actions are taken to alter the level of risk.
Avoidance
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.
Loss prevention
A risk control technique that reduces the frequency of a particular loss.
Loss reduction
A risk control technique that reduces the severity of a particular loss.
Risk transfer
The shifting of risk from one individual or organization to another.
Retention
A risk financing technique that involves assumption of risk in which gains and losses are retained within the organization.
Risk financing
A risk management technique that includes steps to pay for or transfer the cost of losses.
Internet of Things (IoT)
A network of objects that transmit data to computers.
Machine learning
Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data.
Hedging
A financial transaction in which one asset is held to offset the risk associated with another asset.
Derivative
A financial instrument whose value is derived from the value of an underlying asset, which can be an index, an asset, yield on an asset, weather conditions, inflation, loans, bonds, an insurance risk, or other items.
Diversification
A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions.
Covariance
The relative association between variables to move in tandem or independently of each other.
Insurance
A risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer.
Property loss exposure
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
Real property (realty)
Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land.
Personal property
All tangible or intangible property that is not real property.
Risk management process
The method of making, implementing, and monitoring decisions that minimize the adverse effects of risk on an organization.
Liability loss exposure
Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party.
Damages
Money claimed by, or a monetary award to, a party who has suffered loss or injury for which another party is legally responsible.
Special damages
A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person’s loss, such as medical expenses or lost wages.
General damages
A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific, measurable expenses.
Punitive damages (exemplary 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.
Civil law
A classification of law that applies to legal matters not governed by criminal law and that protects rights and provides remedies for breaches of duties owed to others.
Tort
A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right.
Negligence
The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others.
Intentional tort
A tort committed by a person who foresees (or should be able to foresee) that his or her act will harm another person.
Strict liability (absolute liability)
Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate.
Fixture
Any personal property affixed to real property in such a way as to become part of the real property.
Money
Currency, coins, bank notes, and sometimes traveler’s checks, credit card slips, and money orders held for sale to the public.
Securities
Written instruments representing either money or other property, such as stocks and bonds.
Auto
As defined in commercial general liability and auto forms, a land motor vehicle, trailer, or semitrailer designed for travel on public roads, including attached machinery or equipment; or any other land vehicle that is subject to a
Mobile equipment
Various types of vehicles designed for use principally off public roads, such as bulldozers and cranes.
Recreational vehicle
A vehicle used for sports and recreational activities, such as a dune buggy, all-terrain vehicle, or dirt bike.
Peril
The cause of a loss.
Replacement cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
Actual cash value (ACV)
The cost to replace property with new property of like kind and quality less depreciation.
Agreed value method
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.
Bailee
The party temporarily possessing the personal property in a bailment.
Hold-harmless agreement (or indemnity agreement)
A contractual provision that obligates one of the parties to assume the legal liability of another party.
Loss of consortium
The loss of benefits that one spouse is entitled to receive from the other, including companionship, affection, and sexual relations resulting from the injury or death of a spouse.
Proprietary insurer
An insurer formed for the purpose of earning a profit for its owners.
Cooperative insurer
An insurer owned by its policyholders and usually formed to provide insurance protection to policyholders at minimum cost. Mutual insurance companies, reciprocal exchanges, and fraternal organizations are examples of
Mutual insurer
An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them.
Reciprocal insurance exchange (interinsurance exchange)
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
Captive insurer
An insurance company formed primarily to cover the loss exposures of its owner(s) or members.
Fair Access to Insurance Requirements (FAIR) plans
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.
Residual market
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.
Independent agency and brokerage 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.
Direct writer marketing system
An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer.
Exclusive agency marketing system
An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers).
Underwriting
The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Adverse selection
In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.
Internet of Things (IoT)
A network of objects that transmit data to each other and to central hubs through the internet.
Focus group
A small group of customers or potential customers brought together to provide opinions about a specific product, service, need, or other issue.
Hit ratio
The ratio of insurance policies written to those that have been quoted to applicants for insurance.
Retention ratio
The percentage of insurance policies renewed.
Market segmentation
The process of identifying and dividing the groups within a market that share needs and characteristics and that will respond similarly to a marketing action.
Target marketing
Focusing marketing efforts on a specific group of consumers.
Niche marketing
A type of marketing that focuses on specific types of buyers who are a subset of a larger market.
Distribution system
The necessary people and physical facilities to support the sale of insurance products and services.
Distribution channel
The channel used by the producer of a product or service to transfer that product or service to the ultimate customer.
Agency expiration list
The record of an insurance agency’s present policyholders and the dates their policies expire.
Countersignature laws
Laws that require all policies covering subjects of insurance within a state to be signed by a resident producer licensed in that state.
Managing general agency (MGA)
An independent business organization that functions almost as a branch office for one or more insurers and that appoints and supervises independent agents and brokers for insurers using the independent agency and brokerage
Surplus lines broker
A person or firm that places business with insurers not licensed (nonadmitted) in the state in which the transaction occurs but that are permitted to write insurance because coverage is not available through
Line underwriter
An underwriter who is primarily responsible for implementing the steps in the underwriting process.
Staff underwriter
An underwriter who assists underwriting management with making and implementing underwriting policy.
Underwriting guidelines (underwriting guide)
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 policy (underwriting philosophy)
A guide to individual and aggregate policy selection that supports an insurer’s mission statement.
Underwriting authority
The scope of decisions that an underwriter can make without receiving approval from someone at a higher level.
Composite rating
An optional insurance pricing approach that uses a premium base other than the one specified in the rating manual to price an entire account.
National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners from the 50 U.S. states, the District of Columbia, and the five U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state
Premium-to-surplus ratio, or capacity ratio
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders’ surplus.
Statutory accounting principles (SAP)
The accounting principles and practices that are prescribed or permitted by an insurer’s domiciliary state and that insurers must follow.
Return on equity (ROE) ratio
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’
Market conduct examination
An analysis of an insurer’s practices in four operational areas: sales and advertising, underwriting, ratemaking, and claims handling.
Underwriting audit
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines.
Predictive modeling
A process in which historical data based on behaviors and events is blended with multiple variables and used to construct models of anticipated future outcomes.
Underwriter
An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions.
Underwriting submission
Underwriting information for an initial application, or a substantive policy midterm or renewal change.
Loss exposure
Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs.
Hazard
A condition that increases the frequency or severity of a loss.
Information efficiency
The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it.
Premium audit
Methodical examination of a policyholder’s operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided.
