Introduction to Property-Casualty Insurance 3

Question 1

A group of policies withe a common characteristic, such as territory or type of coverage, or all policies written by a particular insurer or agency.

Answer 1

Book of Business

Question 2

In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.

Answer 2

Adverse Selection

Question 3

The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholders’ surplus.

Answer 3

Capacity

Question 4

Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities.

Answer 4

Policyholder’s Surplus

Question 5

Computer software programs that supplement the underwriter decision-making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked.

Answer 5

Expert Systems, or Knowledge-based Systems

Question 6

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.

Answer 6

Predictive Modeling

Question 7

A condition that increases the frequency or severity of a loss.

Answer 7

Hazard

Question 8

A portion of a covered loss that is not paid by the insurer.

Answer 8

Deductible

Question 9

The price per exposure unit for insurance coverage.

Answer 9

Rate

Question 10

A resource for classifying accounts and developing premiums for given types of insurance; includes necessary rules, factors, and guidelines to apply those rates.

Answer 10

Rate Manual

Question 11

The unit of measure (for example, area, gross receipts, payroll) used to determine an insurance policy premium.

Answer 11

Exposure Unit (Unit of Exposure)

Question 12

The process insurers use to calculate insurance rates, which are a premium component.

Answer 12

Ratemaking

Question 13

A person who uses mathematical methods to analyze loss data and develop insurance rates.

Answer 13

Actuary

Question 14

The price per exposure unit by adjusting the prospective loss costs for expenses, profits, and contingencies.

Answer 14

Insurance Rating System

Question 15

The portion of the rate that covers projected claim payments and loss adjusting expenses.

Answer 15

Loss Costs

Question 16

An independent corporation that works with and on behalf of insurers that purchase or subscribe to their services, which include developing prospective loss costs and standard policy forms.

Answer 16

Insurance Advisory Organization

Question 17

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.

Answer 17

Law of Large Numbers

Question 18

Loss data that are modified by loss development trending, and credibility processes, but without considerations for profit and expenses.

Answer 18

Prospective Loss Costs

Question 19

A provision in an insurance rate for losses that could not be anticipated in the loss data.

Answer 19

Contingencies

Question 20

A rating approach that uses rates reflecting that average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties.

Answer 20

Class Rating

Question 21

A type of insurance rate that reflects the unique characteristics of an insured of the insured’s property.

Answer 21

Individual Rate, or Specific Rate

Question 22

Rating used by underwriters to rate one-of-a-kind risks.

Answer 22

Judgment Rating

Question 23

The price per exposure unit determined by adjusting the prospective loss costs for expenses, profits, and contingencies.

Answer 23

Final Rate

Question 24

A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses.

Answer 24

Loss Ratio

Question 25

The portion of written premiums that corresponds to coverage that has already been provided.

Answer 25

Earned Premiums

Question 26

The sum of the paid losses and loss and loss adjustment expense reserves.

Answer 26

Incurred Losses

Question 27

The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy.

Answer 27

Loss Adjustment Expense (LAE)

Question 28

An insurer’s incurred underwriting expenses for a given period divided by its written premiums for the same period.

Answer 28

Expense Ratio

Question 29

The total premium on all policies written (put into effect) during a particular period.

Answer 29

Written Premiums

Question 30

Costs incurred by an insurer for operations, taxes, fees, and the acquisition of new policies.

Answer 30

Underwriting Expenses

Question 31

A profitability ratio that indicates whether an insurer has made an underwriting loss or gain.

Answer 31

Combined Ratio

Question 32

An insurer’s loss incurred when losses and expenses for a given period are greater than its premium earned for the same period.

Answer 32

Underwriting Loss

Question 33

Income an insurer earns from premiums paid by policyholders minus incurred losses and underwriting expenses.

Answer 33

Underwriting Profit

Question 34

Any product or service that results from a work process.

Answer 34

Output

Question 35

The percentage of insurance policies renewed

Answer 35

Retention Ratio

Question 36

The ratio of insurance policies written to those that have been quoted to applicants for insurance.

Answer 36

Success Ratio

Question 37

Premium Equation

Answer 37

Rate per unit x # of exposures

Question 38

Number of Exposure Units

Answer 38

Insured Value / Unit Size

Question 39

Price

Answer 39

Rate Per Unit x Number of Units