Introduction to Property-Casualty Insurance 3 Flashcards
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.
Book of Business
In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.
Adverse Selection
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.
Capacity
Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities.
Policyholder’s Surplus
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.
Expert Systems, or Knowledge-based Systems
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 condition that increases the frequency or severity of a loss.
Hazard
A portion of a covered loss that is not paid by the insurer.
Deductible
The price per exposure unit for insurance coverage.
Rate
A resource for classifying accounts and developing premiums for given types of insurance; includes necessary rules, factors, and guidelines to apply those rates.
Rate Manual
The unit of measure (for example, area, gross receipts, payroll) used to determine an insurance policy premium.
Exposure Unit (Unit of Exposure)
The process insurers use to calculate insurance rates, which are a premium component.
Ratemaking
A person who uses mathematical methods to analyze loss data and develop insurance rates.
Actuary
The price per exposure unit by adjusting the prospective loss costs for expenses, profits, and contingencies.
Insurance Rating System
The portion of the rate that covers projected claim payments and loss adjusting expenses.
Loss Costs
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.
Insurance Advisory Organization
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
Loss data that are modified by loss development trending, and credibility processes, but without considerations for profit and expenses.
Prospective Loss Costs
A provision in an insurance rate for losses that could not be anticipated in the loss data.
Contingencies
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.
Class Rating
A type of insurance rate that reflects the unique characteristics of an insured of the insured’s property.
Individual Rate, or Specific Rate
Rating used by underwriters to rate one-of-a-kind risks.
Judgment Rating
The price per exposure unit determined by adjusting the prospective loss costs for expenses, profits, and contingencies.
Final Rate
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
