BIBF Professional Award in Insurance Management (PAIM) cheat sheet

Risk is uncertainty about outcomes; pure risk offers only loss or no loss, speculative risk offers gain or loss, and only pure risk is conventionally insurable.

Insurable risk tests: large number of similar exposure units, accidental and measurable loss, definable loss, no catastrophic concentration, affordable premium, and calculable probability.

Law of large numbers: as the number of independent similar exposure units rises, actual loss experience converges toward expected loss, reducing relative risk.

Risk management steps: identify exposures, measure frequency and severity, select techniques (avoidance, retention, control, transfer), implement, then monitor and review.

Frequency x severity matrix drives technique choice: high frequency/low severity favours retention plus loss control; low frequency/high severity favours transfer or avoidance.

Moral hazard is behavioural change caused by insurance cover; morale hazard is carelessness; adverse selection is disproportionate take-up by high-risk applicants.

Utmost good faith requires disclosure of material facts; a material fact is one that would influence a prudent underwriter's decision or premium.

Indemnity restores the insured to pre-loss financial position; valued policies, reinstatement and new-for-old cover are recognised exceptions.

Contract formation requires offer, acceptance, consideration, intention to create legal relations, capacity and lawful object; the policy is the evidence of the contract.

Insurable interest must exist at inception for life and at the time of loss for property; absence renders the contract unenforceable or void.

Uberrimae fidei (utmost good faith) imposes pre-contract disclosure duties on the insured and fair presentation duties on the insurer; breach remedies range from avoidance to proportional reduction.

Proximate cause is the dominant, effective cause of loss; remote causes are disregarded when determining whether an insured peril operated.

Subrogation lets the insurer stand in the insured's shoes after indemnifying, preventing double recovery; it cannot improve the insured's position against the insured's own interests.

Contribution applies where multiple policies cover the same loss; insurers share proportionately, often by independent liability or sum-insured method.

Warranties are promissory conditions; breach discharges the insurer from liability for losses occurring after breach, subject to statutory reform in many jurisdictions.

Regulatory objectives typically include policyholder protection, market confidence, financial stability and fair treatment of customers; conduct rules cover product governance, disclosure and complaints.

Underwriting assesses hazard, selects risks and prices them; it protects the pool from adverse selection and maintains solvency.

Rating factors must be actuarially justified, statistically credible and non-discriminatory; proxy discrimination risk arises where factors correlate with protected characteristics.

Risk classification uses homogeneous groups: within-group homogeneity and between-group heterogeneity improve predictive accuracy.

Underwriting information sources include proposal forms, medical and financial evidence, loss history, sanctions and PEP screening, and third-party data.

Terms available: accept standard, accept with exclusion, accept with increased excess, accept with premium loading, postpone, or decline.

Moral hazard controls include deductibles, co-insurance and policy conditions; physical hazard controls include surveys, warranties and risk improvement requirements.

Aggregation and accumulation control: underwriters monitor line size, maximum probable loss and catastrophe exposure against treaty and capital capacity.

File documentation should record rationale for decisions, evidence relied on, and any deviation from guidelines to support audit and fair treatment.

Claims lifecycle: notification, registration, coverage verification, investigation, reserving, settlement negotiation, payment, recovery and closure.

Indemnity principle governs quantum: repair, replacement or cash value; betterment and salvage are deducted where appropriate.

Reserving uses case estimates plus incurred-but-not-reported (IBNR) estimates; adequacy is tested via chain-ladder or Bornhuetter-Ferguson methods.

Fraud indicators include late notification, inconsistent loss narratives, prior claim history, exaggerated values and staged documentation.

Subrogation and salvage recoveries reduce net claim cost; pursuit should be timely and evidenced.

Large or complex claims require escalation, expert instruction and reserving review; communication with the insured must be documented.

Complaint handling and root-cause analysis feed back to underwriting and product design; regulatory timeframes for response apply.

Claims metrics: settlement ratio, average severity, cycle time, leakage rate and complaint rate; benchmarking informs operational improvement.

Reinsurance transfers risk from cedant to reinsurer; types include facultative, treaty, proportional (quota share, surplus) and non-proportional (excess of loss, stop loss).

Quota share cedes a fixed percentage of premium and loss; surplus share cedes amounts above a retention in lines.

Excess of loss: reinsurer pays losses above an attachment point up to a limit; apply occurrence or aggregate basis as specified.

Stop loss protects the cedant's annual loss ratio above an agreed threshold; used for frequency or aggregate protection.

Retention selection balances cost, capital relief, volatility reduction and earnings stability; reinsurance credit requires collateral or acceptable rating.

Reinstatement provisions restore cover after a loss, often at additional premium; exhaustion of limits terminates cover.

Reinsurance recoverables are an asset subject to credit risk; disclosure and valuation rules apply under solvency regimes.

Captives and alternative risk transfer (ART) structures pool or securitise risk; they require governance and capital assessment.

Insurer financial statements: balance sheet (assets, liabilities, equity), income statement (premium, claims, expenses, underwriting result) and cash flow statement.

Technical provisions comprise best-estimate liabilities plus risk margin; discounting uses risk-free yield curves.

Solvency capital requirement (SCR) covers unexpected losses over a one-year horizon at a defined confidence level (e.g. 99.5%); MCR is a lower floor.

Own funds are classified by tier depending on loss absorbency and permanence; eligible own funds must cover SCR and MCR.

Key ratios: combined ratio = loss ratio + expense ratio; below 100% indicates underwriting profit.

Investment policy must match liabilities in duration, currency and liquidity; asset-liability management (ALM) reduces mismatch risk.

Reinsurance and special purpose vehicles can reduce capital requirements subject to regulatory approval and credit quality.

ORSA (Own Risk and Solvency Assessment) documents risk profile, capital adequacy and forward-looking solvency under stress scenarios.

Core systems: policy administration, claims, billing, underwriting and reinsurance; integration via APIs and middleware supports straight-through processing.

Data quality dimensions: accuracy, completeness, timeliness, consistency and validity; poor data undermines pricing and reserving.

Automation (RPA, rules engines, AI) improves cycle time but requires controls for model risk, bias and explainability.

Cybersecurity controls: access management, encryption, logging, incident response and third-party risk management; data protection laws impose breach notification.

Digital distribution channels require compliant disclosure, consent management and record retention.

Outsourcing and cloud arrangements need due diligence, exit plans and regulatory notification where material.

Operational resilience: identify important business services, set impact tolerances and test severe-but-plausible scenarios.

Change management and testing (UAT) reduce implementation risk; audit trails support regulatory and internal review.

Strategy formulation: analyse environment (PESTLE, Porter's five forces), assess capabilities, set objectives, choose options and implement with KPIs.

Corporate governance: board composition, independence, committees (audit, risk, remuneration, nomination) and clear delegation of authority.

Three lines model: first line owns risk, second line provides oversight and challenge, third line provides independent assurance.

Risk appetite statement translates strategy into quantitative and qualitative limits; it must be approved by the board and embedded in decisions.

Stakeholder management balances policyholders, shareholders, regulators, employees and distribution partners.

Leadership competencies: strategic thinking, ethical decision-making, communication, change management and talent development.

Performance management uses balanced scorecard or OKRs; align incentives with long-term and risk-adjusted outcomes.

Succession planning and diversity improve board effectiveness and reduce key-person risk.

Act with integrity: honesty, fairness and transparency in all dealings with customers, colleagues and regulators.

Treat customers fairly (TCF) outcomes: products designed for needs, clear communication, suitable advice, no post-sale barriers, and complaints handled fairly.

Conflicts of interest must be identified, disclosed and managed; personal account dealing and gifts/hospitality policies apply.

Confidentiality and data protection: use customer data only for stated purposes and secure it appropriately.

Competence and due care: maintain knowledge, follow procedures, escalate concerns and avoid misrepresentation.

Whistleblowing channels protect those reporting wrongdoing; retaliation is prohibited.

Regulatory cooperation: respond openly, accurately and promptly to regulator requests; never mislead.

Professional codes require objectivity, confidentiality, integrity and accountability; breaches may lead to disciplinary action.