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Risk Management > Module 5 > Flashcards

Module 5 Flashcards

1
Q

Refers to the pricing of insurance and the calculation of insurance premiums.

A

Ratemaking

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2
Q

price per unit of insurance

A

rating

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3
Q

is the unit of measurement used in insurance pricing, which varies by line of insurance

A

Exposure unit

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4
Q

the person who determines rates and premiums

A

actuary

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5
Q

these organizations calculate the historical or prospective loss cost that individual companies can use in calculating their own rates

A

Insurance Services Office (ISO)

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6
Q

refers to the process of selecting, classifying, and pricing applicants for insurance

A

underwriting

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7
Q

underwriting starts with a clear statement of underwriting policy. An insurer must establish an underwriting policy that is consistent with company objectives

A

statement of underwriting policy

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8
Q

Basic Underwriting Policy

A
  1. attain an underwriting profit
  2. select prospective insureds according to the company’s underwriting standards.
  3. provide equity among the policyholders.
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9
Q

agent is told what types of applicants are acceptable, borderline, or prohibited

A

Field Underwriting

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10
Q

sources of underwriting information

A
  1. application
  2. agent’s report
  3. inspection report
  4. physical inspection
  5. physical examination
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11
Q

the type of information required depends on the type of insurance requested

A

application

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12
Q

many insurers require the agent or broker to give an evaluation of the prospective insured

A

Agent’s report

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13
Q

in property insurance, the company may require an inspection report by some outside agency, especially if the underwriter suspects moral hazard. In life insurance, the report may provide information on the applicant’s financial condition, marital status, outstanding debts or delinquent bills, felony convictions, any drinking or drug problems, whether the applicant has ever declared bankruptcy and additional information as well

A

inspection report

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14
Q

in property insurance and casualty insurance, the underwriter may require a physical inspection before the application is approved

A

physical inspection

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15
Q

in life insurance, a physical exam may be required to determine if the applicant is overweight; has high blood pressure; or has any abnormalities in the heart, respiratory system, urinary system, or other parts of the body

A

physical examination

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16
Q

Basic underwriting decisions with respect to an initial application for insurance:

A
  1. accept the application
  2. accept the application subject to certain restrictions or modifications.
  3. reject the application
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17
Q

other factors are considered in underwriting.

A
  1. Rate adequacy and underwriting
  2. reinsurance and underwriting
  3. renewal underwriting
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18
Q

property and casualty insurers are more willing to underwrite new business for a specific line if rates are considered adequate

A

rate adequacy and underwriting

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19
Q

availability of reinsurance may result in more liberal underwriting

A

reinsurance and underwriting

20
Q

in life insurance, policies are not cancellable

A

renewal underwriting

21
Q

refers to the sales and marketing activities of insurers.

A

production

22
Q

agents who sell insurance are frequently referred to as

A

producers

23
Q

This department is responsible for recruiting and training new agents and for the supervision of general agents, branch office managers, and local agents

A

agency departments

24
Q

Basic Objectives in Claims Settlement

A
  1. verification of a covered loss
  2. fair and prompt payment of claims
  3. personal assistance to the insured
25
Q

the person who adjusts a claim is known as a

A

claim adjustor

26
Q

Types of Claims Adjustors

A
  1. agent
  2. company adjustor
  3. independent adjustor
  4. Public adjustor
27
Q

Steps in Settlement of a Claim

A
  1. Notice of loss must be given
  2. The claim is investigated
  3. A proof of loss may be required
  4. A decision is made concerning payment
28
Q

an arrangement by which the primary insurer that initially writes the insurance transfers to another insurer

A

reinsurance

29
Q

the primary insurer that initially writes the insurance

A

ceding company

30
Q

the insurer that accepts part or all of the insurance from the ceding company

A

reinsurer

31
Q

the amount of insurance retained by the ceding company for its own account

A

retention limit or net retention

32
Q

the amount of insurance ceded to the reinsurer

A

cession

33
Q

the reinsurer in turn may reinsure part or all of the risk with another insurer

A

retrocession

34
Q

the second reinsurer

A

retrocessionaire

35
Q

reasons for reinsurance

A
  1. increase underwriting capacity
  2. stabilize profits
  3. reduce the unearned premium reserve
  4. provide protection against a catastrophic loss
36
Q

types of reinsurance

A

Faculty reinsurance
Treaty insurance

37
Q

an optional, case-by-case method that is used when the ceding company receives an application for insurance that exceeds its retention limit

A

faculty Reinsurance

38
Q

the primary insurer has agreed to cede insurance to the reinsurer, and the reinsurer has agreed to accept the business.

A

treaty reinsurance

39
Q

the ceding company and reinsurer agree to share losses and premiums based on some proportion.

A

pro rata method

40
Q

the reinsurer pays only when covered losses exceed a certain level

A

excess-of-loss method

41
Q

methods for sharing losses

A
  1. quota-share treaty
  2. surplus-share treaty
  3. excess-of-loss reinsurance
  4. reinsurance pool`
42
Q

an insurable risk is transferred to the capital markets through the creation of a financial instrument, such as catastrophe bond, futures contract, options contract, or other financial instrument

A

securitization of risk

43
Q

are made available to institutional investors in the capital market through an entity called a special purpose reinsurance vehicle (SPRV)

A

Catastrophe bonds

44
Q

when one party extends money to another party and does not
expect repayment until after a circumstantial event

A

float

44
Q

is a corporation owned exclusively by the
policyholders who are “contractual creditors” with a right to vote on the board of
directors

A

mutual insurance company

44
Q

is a corporation owned by its stockholders or
shareholders, and its objective is to make a profit for them

A

stock insurance company

Risk Management (9 decks)

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