CPCU 410 Flashcards – Module 1
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[h] CPCU 410 – Module 1
[q] Major goals of an insurer
[a] Major goals of an insurer:
Earn a profit.
Meet customer needs.
Comply with legal requirements.
Diversify risk.
Fulfill duty to society.
[q] Internal constraints of an insurer
[a] Constraints:
Efficiency.
Expertise.
Size.
Financial resources.
Other, including damaged reputation.
[q] External constraints of an insurer
[a] Constraints:
Regulation.
Public opinion.
Rating agencies.
Competition.
Economic conditions.
[q] Efficiency
[a] An internal constraint of an insurer. Lack of efficiency may be caused by poor management, insufficient capital or technology, or inability to adapt to change.
[q] Expertise
[a] An internal constraint of an insurer. Lack of expertise could prevent an insurer from making a profit or meeting customers’ needs.
[q] Size
[a] An internal constraint of an insurer. A small insurer may have more challenges than a large insurer.
[q] Financial resources
[a] An internal constraint of an insurer. When financial resources become strained, insurers are unable to effectively train staff, make new capital investments, or reach new markets.
[q] Regulation
[a] An external constraint of an insurer. Insurance operations are closely regulated.
[q] Public opinion
[a] An external constraint of an insurer. When the industry is viewed negatively by the public, it contradicts the idea of serving in the public’s best interests.
[q] Rating agencies
[a] An external constraint of an insurer. Financial rating agencies rate insurers based on financial strength.
[q] Hard cycle
[a] Economic conditions characterized by decreased competition, rising rates, and increased profitability.
[q] Proprietary insurer
[a] An insurer formed with the purpose of earning a profit.
[q] Types of proprietary insurers
[a] Include:
Stock insurers.
American Lloyd’s.
Lloyd’s of London.
Insurance exchanges.
[q] Cooperative insurer
[a] An insurer formed with the primary goal of providing insurance to policyholders/owners.
[q] Types of cooperative insurers
[a] Include:
Fraternal organizations.
Reciprocal insurance exchanges.
Captive.
Risk retention groups and purchasing groups.
Mutual insurers.
[q] FAIR plans
[a] An insurance pool in which private insurers provide property insurance to qualified owners unable to obtain coverage in the standard market.
[q] Residual market
[a] Insurers and organizations that make insurance available to those who cannot obtain coverage in the admitted market.
[q] Domestic insurer
[a] An insurer formed under the laws of the state they are doing business.
[q] Foreign insurer
[a] An insurer licensed to do business in states other than its domiciled state.
[q] Alien insurer
[a] An insurer incorporated or formed in another country.
[q] Admitted insurer
[a] An insurer that has been granted a license to operate in a particular state.
[q] Types of insurance distribution systems
[a] Types:
Direct writer marketing system.
Independent agency marketing system.
Exclusive agency marketing system.
[q] Ratios used to measure an insurer’s underwriting performance
[a] Ratios used:
Loss ratio.
Expense ratio.
Combined ratio.
[q] Retention ratio
[a] A ratio that indicates the percentage of expiring insurance policies an insurer renews.
[q] Lapse ratio
[a] The number of policies lapsing during a period divided by the number of policies written at the beginning of the period.
[q] Three core functions for a typical insurer
[a] Core functions:
Marketing and distribution.
Underwriting.
Claims.
[q] Marketing and distribution function
[a] A core function of an insurer. Involves determining what products or services customers want, advertising, and delivering.
[q] Underwriting
[a] A core function of an insurer. Determines whether and under what conditions the insurer is willing to provide insurance to potential customers.
[q] Claims
[a] A core function of an insurer. Fulfills the insurer’s promise to make a payment to, or on behalf of, the insured if a covered event occurs.
[q] Risk control
[a] A supporting function of an insurer. Provides information to the underwriting function to assist in selecting and rating risks.
[q] Premium auditing
[a] A supporting function of an insurer.
[q] Actuarial
[a] A supporting function of an insurer. Calculates insurance rates and estimates loss reserves.
[q] Reinsurance
[a] A supporting function of an insurer. Involves transferring all or part of a risk to other insurers.
[q] Information technology
[a] A supporting function of an insurer. Provides the infrastructure that supports all of an insurer’s internal and external communications.
[q] Building blocks of the digitization of insurance
[a] Building blocks:
Data capture.
Data storage.
Data analytics.
[q] Internet of Things (IoT)
[a] Technology that allows devices to meaningfully interact with each other without human intervention.
[q] Telematics
[a] The use of devices in vehicles with wireless communication and GPS tracking that transmit data.
[q] Accelerometer
[a] A device that measures acceleration, motion, and tilt.
[q] Blockchain
[a] A virtual ledger that is dynamically updated. Can ensure data used for transactions is from a trusted source.
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