BIBF Award for Certified Insurance Practitioner cheat sheet

Insurable risk tests: accidental, measurable, definite loss, large number of similar exposures, losses not catastrophic to insurer, and premium affordable.

Pure risk offers only loss or no loss; speculative risk offers gain or loss and is generally not insurable.

Moral hazard is dishonest intent (arson, staged theft); morale hazard is careless behavior (leaving keys in car).

Adverse selection: high-risk buyers seek coverage more eagerly, so underwriters screen and use exclusions, waiting periods, and experience rating.

Risk control reduces frequency (loss prevention) or severity (loss reduction); risk financing retains or transfers loss.

Law of large numbers: as the number of independent similar exposures grows, actual loss experience converges toward expected loss.

Indemnity principle restores the insured to pre-loss financial position; actual cash value = replacement cost minus depreciation.

Coinsurance clause in property insurance requires insurance to value (e.g., 80%) or the claim is reduced proportionally.

Elements of a valid contract: offer, acceptance, consideration, legal purpose, and competent parties.

Utmost good faith imposes duties on both parties; material misrepresentation by the applicant can allow rescission.

Aleatory contract: the insured's premium and the insurer's payout are unequal and contingent on chance.

Contract of adhesion: ambiguity in insurer-drafted policy language is generally construed against the insurer (contra proferentem).

Waiver is voluntary relinquishment of a known right; estoppel prevents asserting a right after inducing reliance.

Material misrepresentation must be (1) false, (2) material to underwriting, and (3) relied upon by the insurer.

Concealment is intentional failure to disclose a material fact; innocent non-disclosure is treated differently by jurisdiction.

Agency law: apparent authority can bind the insurer even when the agent exceeds actual authority.

Primary insurance regulation in most jurisdictions is at the state/provincial level, not federal, though federal laws may overlap (e.g., antitrust, taxation).

Rate regulation standards: rates must be adequate, not excessive, and not unfairly discriminatory.

Market conduct examinations review sales, underwriting, claims, and complaint handling for statutory compliance.

Producer licensing requires prelicensing education, passing an exam, appointment by an insurer, and continuing education.

Guaranty associations protect policyholders against insurer insolvency, typically with statutory caps and coverage limits.

Unfair trade practices include misrepresentation, twisting, rebating, false advertising, and unfair claim settlement practices.

Privacy and data rules (e.g., Gramm-Leach-Bliley in the U.S.) require notice, opt-out rights, and safeguards for nonpublic personal information.

Holding company and risk-based capital rules limit insurer leverage and require reporting to regulators.

Property insurance covers direct damage (fire, wind, theft); liability insurance covers legal liability to third parties.

Coverage A (Dwelling) and Coverage B (Other Structures) are typically on an actual cash value basis unless endorsed; Coverage C (Personal Property) has special limits.

Business income coverage pays lost net income plus continuing expenses during the period of restoration, subject to a waiting period.

Commercial general liability (CGL) Coverage A covers bodily injury and property damage; Coverage B covers personal and advertising injury.

CGL occurrence vs. claims-made: occurrence policies respond to injury occurring during the policy period; claims-made responds to claims first made during the period.

Additional insured status extends coverage to another party (e.g., landlord, general contractor) under the named insured's policy.

BOP (businessowners policy) packages property and liability for small businesses with eligibility restrictions on size and class.

Workers' compensation is statutory, no-fault, and exclusive remedy; employers' liability covers related third-party suits.

Term life pays a death benefit for a fixed period with no cash value; whole life provides permanent coverage and cash value.

Universal life separates the mortality charge, expense charge, and interest crediting; policy may lapse if cash value is insufficient.

Variable life cash value is invested in subaccounts and carries market risk; it is a security and requires a securities license.

Health insurance cost-sharing terms: deductible, coinsurance (percentage), copay (fixed amount), and out-of-pocket maximum.

Coordination of benefits (COB) prevents duplicate payment when a person is covered under two health plans.

Personal auto: liability (bodily injury/property damage), medical payments, uninsured/underinsured motorist, collision, and other-than-collision (comprehensive).

Homeowners HO-3 covers the dwelling on an open-peril basis and personal property on a named-peril basis; HO-5 covers both on open peril.

Disability income insurance replaces a percentage of income (commonly 50-70%) and includes elimination period and benefit period.

Underwriting evaluates the risk, classifies it, and decides to accept, modify (exclude, rate up), or decline.

Field underwriting begins at application: producer gathers complete, accurate information and reports adverse facts.

Financial underwriting for life insurance considers income, net worth, existing coverage, and the insurable interest relationship.

Reinsurance treaty vs. facultative: treaty is automatic for defined classes; facultative is case-by-case.

Moral hazard indicators: prior cancellations, claims history, inconsistent statements, unusual coverage requests.

Loss runs provide the applicant's prior claims history and are essential for commercial underwriting.

Rate-making components: pure premium (losses + loss adjustment expense) plus expense loading plus profit/contingency.

Adverse selection control tools: medical exams, inspection reports, MIB-type databases, and waiting periods.

Claim handling steps: acknowledge, investigate, evaluate, negotiate, settle, and close.

Coverage analysis first: was there a policy in force, is the loss covered, are exclusions applicable, are conditions met?

Reservation of rights letter preserves the insurer's right to deny coverage while investigation continues.

Subrogation allows the insurer to recover from the responsible third party after paying the insured.

Salvage and subrogation reduce net loss; insured has duty to mitigate and cooperate.

Bad faith exposure includes unreasonable delay, failure to investigate, and failure to settle within policy limits.

Total loss settlement: actual cash value (replacement cost minus depreciation) versus replacement cost (new for old).

Proof of loss is a formal statement from the insured documenting the amount and cause of loss; required by policy conditions.

Reinsurance transfers risk from a primary insurer (cedent) to a reinsurer; the cedent pays a premium and may retain a portion.

Proportional treaties: quota share (fixed percentage) and surplus share (variable based on line capacity).

Non-proportional treaties: excess of loss (per risk or per occurrence) and stop-loss (aggregate annual loss).

Retention is the amount the cedent keeps before reinsurance responds; attachment point is where reinsurance begins.

Facultative reinsurance is arranged for a single, often large or unusual, risk; treaty is automatic for a defined portfolio.

Ceding commission reimburses the cedent for acquisition and administrative expenses on ceded business.

Reinsurance benefits: capacity, stability, catastrophe protection, and underwriting guidance.

Fronting: a licensed primary insurer issues a policy and cedes nearly all risk to a reinsurer.

Core functions: product development, marketing and sales, underwriting, policy administration, claims, and finance.

Premium accounting: written premium vs. earned premium vs. unearned premium reserve.

Loss ratio = incurred losses / earned premium; combined ratio = loss ratio + expense ratio; a ratio above 100% indicates underwriting loss.

Agency vs. brokerage: agents represent insurers; brokers represent clients.

Distribution channels: captive/exclusive agents, independent agents, brokers, direct response, and digital platforms.

Policy administration lifecycle: quoting, binding, issuance, endorsements, renewals, cancellations, and non-renewals.

Financial statements: balance sheet, income statement, and statutory vs. GAAP accounting differences.

Technology operations: policy administration systems, claims systems, CRM, and data analytics for pricing and fraud detection.

Fiduciary duty: producers handling client funds must hold them in trust and account for them separately.

Suitability requires recommending products consistent with the client's needs, objectives, and financial situation.

Disclosure obligations: identify commissions, conflicts of interest, and material policy limitations.

Twisting is inducing a client to replace a policy through misrepresentation; churning is repeated replacement for commissions.

Rebating is offering part of the commission or an inducement not in the policy to win business; generally prohibited.

Confidentiality: client information must be protected and shared only with consent or as required by law.

Errors and omissions (E&O) insurance protects producers against negligence claims; it does not excuse unethical conduct.

Professional standards: competence, integrity, objectivity, and compliance with continuing education requirements.