CPCU 551 Flashcards – Module 1

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[h] CPCU 551 – Module 1

[q] Property loss exposure

[a] A condition that presents the possibility that damage of or destruction to property will occur.

[q] Real property

[a] Land and all structures permanently attached to the land.

[q] Personal property

[a] Any property that is not real property.

[q] Categories of property for insurance purposes

[a] Categories:


Personal property contained in buildings.

Money and securities.

Vehicles and watercraft.

Property in transit.

[q] Fixture

[a] Personal property affixed to real property in such a way as to become part of the real property.

[q] Mobile equipment

[a] Vehicles designed for use principally off public roads.

[q] Peril

[a] The cause of a loss.

[q] Financial consequences of property loss

[a] Consequences include:

Reduction in value of property.

Extra expenses.

Loss of business income.

[q] Bailee

[a] A party that temporarily possesses property owned by another.

[q] Parties affected by property loss

[a] Parties affected:

Property owners.

Secured lenders.


[q] Loss frequency

[a] The number of losses occurring within a specified period.

[q] Loss severity

[a] How serious a loss might be.

[q] Maximum possible loss

[a] The total value exposed to loss at any one location or from any one event.

[q] Prouty approach

[a] A method used to consider the relationship between frequency and severity.

[q] Total dollar loss

[a] A loss that is calculated by multiplying loss frequency by loss severity.

[q] Timing

[a] When losses occur and when loss payments are made.

[q] Data credibility

[a] Represents the level of confidence that available data can accurately predict future losses.

[q] Risk control techniques

[a] Techniques that address the links in chains of events that cause losses as well as unrelated events that converge to cause losses.

[q] Engineering approach

[a] An approach to risk control that involves reviewing and/or improving the design and location of property and equipment.

[q] Human behavior approach

[a] An approach to risk control that involves modifying people’s behavior.

[q] Common risk financing goals

[a] Common goals include:

Paying for losses.

Managing the cost of risk.

Managing variability of cash flow.

Maintaining liquidity.

Complying with legal requirements.

[q] Liquid assets

[a] Property that can be quickly and easily converted into cash.

[q] Expenses that form the cost of risk

[a] Expenses:

Administrative expenses.

Risk control expenses.

Risk financing expenses.

[q] Guaranteed cost insurance

[a] A funded risk transfer measure that transfers the financial consequences of loss exposures from the insured to an insurer.  The policy premium, deductible, and limits are specified in advance.

[q] Umbrella insurance

[a] A liability policy that provides excess coverage above underlying policies.

[q] Buffer layer

[a] A level of excess insurance coverage between a primary layer and an umbrella policy.

[q] Self-insurance

[a] A plan in which an organization maintains a system of paying for its own losses.  Represents a type of alternative risk transfer.

[q] Large deductible plan

[a] A plan that is similar to a self-insurance plan combined with excess coverage policy.  However, the insurer adjusts and pays all claims, even those below the deductible.

[q] Captive insurer

[a] A subsidiary formed to insure the loss exposures of its parent company.

[q] Pool

[a] A group of organizations coming together to insure each other.  This arrangement achieves savings through economies of scale in administration.

[q] Retrospective rating plan

[a] A plan that adjusts the insured’s premium based on the actual losses sustained during the policy period.

[q] Hold-harmless agreement

[a] A noninsurance risk transfer measure that is commonly included in construction contracts and rental or sales agreements.  The agreement obligates one of the parties to assume the legal liability of another party.

[q] Insurable interest

[a] An interest in a person or property that would cause the interested party to suffer financial loss if an insured event occurred.

[q] Legal bases for insurable interest

[a] Include:

An ownership interest in property.

Contractual obligations.

Exposure to legal liability.

Factual expectancy.

Representation of another party.

[q] Factual expectancy

[a] A situation in which a party experiences an economic advantage if an insured event does not occur or experiences economic harm if the event does occur.

[q] Bailor

[a] A person who delivers personal property to a bailee.

[q] Joint tenancy

[a] A property ownership arrangement between two or more persons.  Each tenant has an equal ownership interest in the property, as well as the right of survivorship.

[q] Tenancy by the entirety

[a] A type of joint tenancy that is only available between spouses.  Each spouse has an insurable interest equal to the full value of the property.

[q] Tenancy in common

[a] A concurrent ownership of property by two or more individuals.  Ownership can be in equal or unequal shares.

[q] Tenancy in partnership

[a] A concurrent owner­ship by a partnership and its individual partners of personal property used by the partnership.