AIO flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Underwriting

The process of evaluating a submission, classifying its risk, and deciding whether to accept, decline, or modify terms and price before a policy is issued.

Earned premium

The portion of written premium that corresponds to coverage already provided; it increases pro rata over the policy term and is the denominator of the loss ratio.

Unearned premium reserve

A liability equal to written premium multiplied by the fraction of the policy term remaining; it represents coverage still owed to policyholders.

Loss ratio

Incurred losses divided by earned premium. It measures the share of premium consumed by claims and is a core operating performance indicator.

Combined ratio

Loss ratio plus expense ratio. A figure below 100% indicates underwriting profit; above 100% indicates an underwriting loss before investment income.

First notice of loss

The initial report of a claim to the insurer, which opens the claim file, triggers coverage verification, and starts the investigation and reserving process.

Case reserve

An estimate set by the claims adjuster for a specific reported claim, reflecting expected ultimate cost based on the known facts at that time.

IBNR

Incurred but not reported reserves. Actuarially estimated amounts for losses that have occurred but are not yet reported or recorded in the claims system.

Endorsement

A written amendment to an in-force policy that changes coverage, limits, insureds, or other terms; it must be dated and attached to the policy.

Retention

The amount of loss an insurer keeps for its own account before reinsurance responds; ceded amounts above the retention transfer to the reinsurer.

Pro rata reinsurance

A reinsurance arrangement where the reinsurer shares a fixed percentage of premium and losses, typically through quota share or surplus share treaties.

Subrogation

The insurer's right, after paying a claim, to pursue recovery from the negligent third party responsible for the loss, preventing the insured from double recovery.

Segregation of duties

An internal control that separates authorization, custody, and recordkeeping so no single person can both initiate and conceal an error or fraud.

Binder

Temporary evidence of coverage issued before the policy is formally issued; it provides protection subject to the terms stated in the binder.

Premium audit

A post-term review of exposure data such as payroll or sales to determine the final earned premium for policies rated on an adjustable basis.

Renewal underwriting

Re-evaluation of an expiring policy using updated exposure, loss experience, and rating information to decide whether and on what terms to continue coverage.

Pure risk

A risk with only two possible outcomes, loss or no loss, with no possibility of gain; this is the category insurance is designed to handle.

Speculative risk

A risk involving the possibility of either gain or loss, such as investing or starting a business; generally not insurable because losses may be intentional.

Risk avoidance

A treatment that eliminates an exposure entirely by not undertaking the activity that creates it; effective but may forgo the activity's benefits.

Loss prevention

A risk-reduction measure that lowers the probability of a loss occurring, such as installing sprinklers or enforcing safety procedures.

Risk retention

Accepting the financial consequences of a risk, either passively by default or actively with a funded reserve, instead of transferring it.

Insurable interest

A financial stake in the subject matter such that a loss would cause genuine economic harm; it must exist for the contract to be enforceable.

Indemnity principle

The rule that insurance restores the insured to approximately the pre-loss financial position, no better and no worse, subject to policy limits and deductibles.

Utmost good faith

The mutual duty requiring the applicant to disclose material facts and the insurer to deal fairly; material misrepresentation can permit rescission of the contract.

Peril

The actual cause of a loss, such as fire, windstorm, collision, or theft; policies list covered perils and exclude others.

Hazard

A condition that increases the likelihood or severity of a loss from a peril, classified as physical, moral, or morale hazard.

Moral hazard

A hazard arising from dishonesty or intentional behavior by an insured, such as arson or exaggerated claims, which increases expected loss.

Morale hazard

A hazard arising from indifference or carelessness because insurance exists, such as leaving a car unlocked or neglecting maintenance.

Coinsurance clause

A property policy provision requiring the insured to carry a stated percentage of value; carrying less reduces recovery proportionally for partial losses.

Deductible

The amount of each loss the insured absorbs before the insurer pays; it reduces small claims, lowers premium, and controls moral hazard.

Law of large numbers

A statistical principle holding that as the number of similar independent exposure units grows, actual loss experience converges toward the expected value.

Adverse selection

The tendency for higher-risk applicants to seek or retain insurance more than lower-risk ones, which can distort pooling unless underwriting separates risks.