CPCU 520 cheat sheet

Meeting Challenges Across Insurance Operations

• Operational risk in insurance arises from internal process failures, people, systems, and external events; it is distinct from underwriting, market, and credit risk and is managed through a risk-control self-assessment cycle.

• The insurance value chain runs from product design and pricing through distribution, underwriting, policy administration, claims, and investment management; each link has its own operational metrics and control points.

• Loss ratio = incurred losses / earned premium; expense ratio = underwriting expenses / written premium; combined ratio = loss ratio + expense ratio; a combined ratio below 100 indicates an underwriting profit.

• Straight-through processing (STP) is the automated, touchless handling of a transaction from submission to completion; STP rate is a core operational efficiency measure for policy administration and claims.

• The claims handling cycle is: report/first notice of loss, coverage verification, investigation, loss evaluation, negotiation, settlement or denial, and recovery/subrogation; cycle time and leakage are the key operational metrics.

• Data quality dimensions used in insurance operations include accuracy, completeness, timeliness, consistency, and validity; poor data quality directly inflates loss ratios through mispricing and claims leakage.

• Segregation of duties, maker-checker controls, and audit trails are preventive/detective internal controls; control testing frequency is set by the residual risk rating of the process.

• Business continuity planning requires a business impact analysis, recovery time objectives (RTO), recovery point objectives (RPO), and tested alternate sites; untested plans are treated as unmitigated risk.

• Regulatory operations challenges include rate filing compliance, market conduct examinations, solvency/capital reporting (e.g., risk-based capital), and data privacy rules; compliance is a control environment, not a one-time project.