Cpcu 520 - Chapter 1 - Overview Of Insurance Operations

Front 1

Proprietary Insurer

(Stock Insurer)

Back 1

Insurer formed for the purpose of earning a profit for it's owners.

Hint 1

$$

Front 2

Mutual Insurer

(Cooperative Insurer)

Back 2

An insurer that is owned by it's policyholders and formed as a corporation for the purpose of providing insurance to them.

Front 3

Residual market

Back 3

The term referring collectively to insurers and other organizations that make insurance available through a shared-risk mechanism to those who cannot obtain insurance in the admitted market.

Hint 3

Non voluntary

Front 4

Reciprocal Insurance Exchange

Back 4

An insurer owned by PHs, formed as unincorporated association to provide insurance to members. Managed by an attorney-in-fact. Members agree to mutually insure each other and share in profits and losses based on amount of insurance purchased by that member.

Front 5

Fair Access to Insurance Requirements (FAIR Plans)

Back 5

An insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties, especially those suceptible to loss by riot or civil commotion

Front 6

Surplus Lines Broker

Back 6

A person or firm that places business with insurers not licensed (non-admitted) in the ssame state in which the transaction occurs but that is permitted to write insurance because coverage is not available through standard-market insurers

Front 7

Lloyds of London

Back 7

Technically not an insurer. Does provide the physical and procedural facilities for its members to write insurance. It is a marketplace, similar to a stock exchange. Members are investors who hope to earn a profit from insurance operations.

Front 8

Captive Insurer

Back 8

When a company forms a subsidiary company to provide all or part of its insurance. (self-insurance)

Front 9

Domestic Insurer

Back 9

Insurerthat is incorporated within a specific state or, if not incorporated, is formedunder the laws of that state.

Front 10

5 goals of insurers

Back 10

Earn a profit

Meet customer needs

Comply with legal requirements

Diversify risk

Fulfill their duty to society

Front 11

Constraints on achieving insurer goals

Back 11

Internal constraints (Efficiency, expertise, size, financial resources, other)

External constraints (Regulation, rating agencies, public opinion, competition, economic conditions, marketing and distribution)

Front 12

Formula for calculating underwriting gain or loss

Back 12

Earned premiums - (incurred losses + underwriting expenses) = Underwriting gain or loss

*Uderwriting expenses = acquisition expenses, general expenses, taxes, and fees

Front 13

Formula for calcuating overall gain or loss from operations

Back 13

Net underwriting gain/loss + Investment gain/loss = overall gain/loss from operations

Front 14

Independent agency and brokerage marketing system

Back 14

Aninsurance marketing system under which producers (agents or brokers), who areindependent contractors, sell insurance, usually as representatives of severalunrelated insurers.

Front 15

Direct writer marketing system

Back 15

Aninsurance marketing system that uses sales agents (or sales representatives)who are direct employees of the insurer.

Front 16

Exclusive agency marketing system

Back 16

Aninsurance marketing system under which agents contract to sell insuranceexclusively for one insurer (or for an associated group of insurers)

Front 17

Distribution channel

Back 17

thechannel used by the producer of a product or service to transfer that productor service to the ultimate customer.

Front 18

Probable Maximum Loss (PML)

Back 18

Thelargest loss that an insured is likely to sustain.

Front 19

Underwriting

Back 19

The process ofselecting insureds, pricing coverage, determining insurance policy terms andconditions, and then monitoring the underwriting decisions made.

Front 20

Book of business

Back 20

Agroup of policies with a common characteristic such as a territory or typeof coverage, or all policies written bya particular insurer or agency.

Front 21

Underwriting guidelines (underwriting guide

Back 21

Awritten manual that communicates an insurer's underwriting policy and thatspecifies the attributes of an account that an insurer is willing to insure.

Front 22

Adverse selection

Back 22

In general, the tendency for people with thegreatest probability of loss to be the ones most likely to purchaseinsurance.

Front 23

Loss ratio

Back 23

Compares an insurer's incurred losses with its earned premium for a specific period

Front 24

Loss ratio calculation

Back 24

Incurred losses / Earned premiums = Loss ratio

Front 25

Expense ratio calculation

Back 25

Incurred underwriting expenses / written premiums = expense ratio

Front 26

Trade Basis

Back 26

Comibines loss ratio and expense ratio to compare inflows and outflows from insurance underwriting

Front 27

Trade basis (combined ratio) calculation

Back 27

(Incurred losses / earned premiums) + (Incurred underwriting expenses / Written premiums) = Trade basis

OR

Loss ratio + Expense ratio = Trade basis