CPCU 410 Flashcards – Module 2

[qdeck align=”center”]

[h] CPCU 410 – Module 2

[q] Steps in the underwriting process

[a] Steps:

Evaluate the submission.

Develop underwriting alternatives.

Select an underwriting alternative.

Determine appropriate premium.

Implement the decision.

Monitor the decision.

[q] Underwriting submission

[a] Underwriting information for an initial application or a substantial policy change.

[q] Hazard

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

[q] Counteroffer

[a] A proposal an offeree makes to an offeror that varies from the original offer.

[q] Account underwriting

[a] A method of underwriting in which all of the business from a particular applicant is evaluated as a whole.

[q] Steps in the claim handling process

[a] Steps in the claim handling process:

Acknowledging and assigning the claim.

Identifying the policy and setting reserves.

Contacting the insured or the insured’s representative.

Investigating the claim.

Documenting the claim.

Determining the cause of loss, liability, and the loss amount.

Concluding the claim.

[q] Nonwaiver agreement

[a] A signed agreement in which the insured acknowledges that the insurer’s investigation or defense of a claim does not waive the insurer’s right to contest coverage later.

[q] Reservation of rights letter

[a] An insurer’s letter that informs the insured that the insurer may deny coverage if the facts warrant a denial.

[q] Subrogation

[a] A legal right held by an insurer to legally pursue a third party that caused an insurance loss to the insured.

[q] Mediation

[a] An alternative dispute resolution method in which disputing parties use an outside party to develop a mutually agreeable settlement.

[q] Arbitration

[a] An alternative dispute resolution method in which disputing parties use an outside party to develop a settlement that may be binding on the parties.

[q] Appraisals

[a] A method of resolving disputes between insurers and insureds over the amount owed on a covered loss.

[q] Mini-trials

[a] An alternative dispute resolution method under which a case undergoes an abbreviated version of a trial.

[q] Summary jury trials

[a] An alternative dispute resolution method under which a case undergoes an abbreviated version of a trial.  Disputing parties present evidence to a panel of mock jurors.

[q] Actuary

[a] A professional who evaluates the financial consequences of future events, and puts a price tag on risk.

[q] Two most prominent actuarial functions

[a] Most prominent actuarial functions:


Estimating an insurer’s unpaid liabilities and loss reserve adequacy.

[q] Risk control services often provided by an insurer

[a] Risk control services:

Conducting physical surveys.

Performing risk analysis and improvement.

Developing safety management programs.

[q] Risk control representative

[a] Insurance personnel who perform risk control activities and have various titles, including loss control engineer or safety specialist.

[q] Moral hazard

[a] A condition that increases the likelihood a person will intentionally cause a loss.

[q] Morale hazard

[a] Carelessness or indifference that increases the frequency or severity of a loss.  Also known as attitudinal hazard.

[q] Steps in the premium auditing process

[a] Steps:


Reviewing operations.

Determining employment relationships.

Finding and evaluating books and records.

Auditing the books and records.

Analyzing and verifying premium-related data.

Reporting the findings.

[q] Field audit

[a] An audit of the insured’s books and records conducted at the insured’s premises.  Also known as a physical audit.

[q] Test audit

[a] An audit conducted by an insurance advisory organization to check the accuracy of premium audits.

[q] ISO Premium Audit Advisory Service

[a] A service offering of the Insurance Services Office, Inc. that offers guides and publications to assist premium auditors as they review insureds’ operations.

[q] Reinsurance

[a] The transfer from one insurer to another insurer of some or all of the financial consequences of certain loss exposures.

[q] Primary insurer

[a] The insurer that transfers risk to another insurer pursuant to a reinsurance contract.

[q] Reinsurer

[a] The insurer that assumes risk of another insurer pursuant to a reinsurance contract.

[q] Retention

[a] The dollar amount or percentage of a primary insurer’s insurance that is not transferred to a reinsurer.

[q] Ceding commission

[a] An amount paid to the primary insurer by the reinsurer.  Covers some portion of the primary insurer’s policy acquisition expenses.

[q] Retrocession

[a] The transfer of insurance from one reinsurer to another reinsurer.

[q] Functions of reinsurance

[a] Functions:

Increase large-line capacity.

Provide catastrophe protection.

Stabilize loss experience.

Provide surplus relief.

Facilitate withdrawal from a market.

Provide underwriting guidance.