BIBF Professional Award in Insurance Management (PAIM) flashcards

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

Pure risk

A risk with only two outcomes, loss or no loss, with no possibility of gain; this category is generally insurable, unlike speculative risk which involves gain or loss.

Law of large numbers

Statistical principle that as the number of independent similar exposure units increases, actual outcomes converge toward expected values, reducing relative uncertainty for insurers.

Moral hazard

Behavioural change caused by insurance cover, such as increased carelessness or deliberate loss, which underwriters manage through deductibles, conditions and monitoring.

Adverse selection

Tendency for higher-risk applicants to seek insurance more than lower-risk applicants, which can distort the risk pool unless underwriting and pricing controls are applied.

Insurable interest

A legal or financial relationship such that the insured benefits from preservation of the subject matter and suffers loss from its damage or destruction.

Proximate cause

The dominant and effective cause of a loss, used to determine whether an insured peril operated; remote or incidental causes are generally disregarded in coverage decisions.

Subrogation

The insurer's right, after indemnifying the insured, to pursue third parties responsible for the loss, preventing double recovery and supporting the indemnity principle.

Warranty breach

A warranty is a promissory condition; breach may discharge the insurer from liability for losses occurring after the breach, subject to statutory reform in many jurisdictions.

Risk classification

Grouping exposures into homogeneous categories with similar expected loss characteristics, aiming for within-group homogeneity and between-group heterogeneity to improve pricing accuracy.

Line size

The maximum amount of risk an underwriter may accept on a single exposure, set by capacity, treaty limits and accumulation controls.

Aggregation control

Monitoring total exposure across related risks, such as geographic or event-based accumulations, to avoid catastrophic losses exceeding capital and reinsurance capacity.

IBNR

Incurred but not reported reserves estimate losses that have occurred but are not yet notified, using actuarial methods such as chain-ladder or Bornhuetter-Ferguson.

Betterment

Deduction applied when a claim settlement leaves the insured in a better position than before the loss, such as replacing old property with new.

Claim leakage

Payments made beyond what the policy and evidence justify, including overpayment, duplicate payment or missed recovery, measured to improve claims control.

Quota share treaty

A proportional reinsurance arrangement where the cedant cedes a fixed percentage of premiums and losses on all business within the treaty scope.

Surplus share treaty

A proportional reinsurance arrangement where the cedant retains a fixed amount per risk and cedes amounts above that retention in lines, up to a stated limit.

Excess of loss

Non-proportional reinsurance where the reinsurer pays losses above an attachment point up to a limit, protecting the cedant against severity or catastrophe events.

Reinstatement

A treaty or policy provision that restores reinsurance or insurance cover after a loss, often requiring additional premium, until limits are exhausted.

Combined ratio

Loss ratio plus expense ratio; a result below 100% indicates underwriting profit before investment income, while above 100% indicates an underwriting loss.

Solvency capital requirement

The capital needed to cover unexpected losses over a one-year horizon at a specified confidence level, such as 99.5%, under a risk-based solvency regime.

Technical provisions

The insurer's liabilities for insurance obligations, comprising a best-estimate liability plus a risk margin, discounted using appropriate risk-free yield curves.

ORSA

Own Risk and Solvency Assessment: a forward-looking internal assessment of risk profile, capital adequacy and solvency under stress scenarios, documented and reviewed by the board.

Straight-through processing

Automated end-to-end handling of a transaction without manual intervention, enabled by integrated systems, rules engines and application programming interfaces.

Operational resilience

The ability to prevent, adapt to, recover from and learn from operational disruptions, tested against impact tolerances for important business services.

Model risk

The risk of adverse consequences from decisions based on incorrect or misused models, managed through validation, documentation, governance and ongoing monitoring.

Three lines model

A governance structure where the first line owns and manages risk, the second provides oversight and challenge, and the third provides independent assurance.

Risk appetite

The amount and type of risk an insurer is willing to accept in pursuit of its objectives, expressed through quantitative limits and qualitative statements approved by the board.

Balanced scorecard

A performance framework measuring financial, customer, internal process and learning perspectives to align strategy with operational activity and incentives.

Treating customers fairly

A conduct principle requiring fair treatment across the product lifecycle: design, communication, advice, servicing and complaints, with measurable customer outcomes.

Conflicts of interest

Situations where personal or organisational interests could compromise professional judgement; they must be identified, disclosed and managed appropriately.

Whistleblowing

A protected channel for reporting suspected wrongdoing or breaches, allowing concerns to be raised confidentially without fear of retaliation.