CPCU 520 key terms

The day-to-day functions an insurer performs to run its business, including underwriting, claims, product development, marketing, distribution, customer service, and the supporting technology and finance activities behind them.

The sequence of activities through which an insurer turns inputs such as capital and data into products and services customers value, from product design through distribution, underwriting, servicing, and claims.

The process of evaluating a risk, deciding whether to accept it, and setting the terms and price at which the insurer will provide coverage. It balances growth against profitability and retention.

Choosing which applicants or exposures to insure based on how their expected losses compare with the premium they would pay. Good selection keeps a book of business from being dominated by high-risk accounts.

A situation in which people with higher-than-average risk are more likely to buy or keep coverage, often because they know more about their risk than the insurer does. It tends to raise loss costs unless pricing and selection correct for it.

The tendency for insureds to behave less carefully, or to file claims more readily, because insurance absorbs part of the loss. Deductibles, coinsurance, and monitoring are common controls against it.

Written rules that tell underwriters which risks the insurer wants, which it will decline, and what terms apply. They translate the company's appetite and strategy into consistent day-to-day decisions.

The amount and type of risk an insurer is willing to accept in pursuit of its goals, stated in broad terms by line, segment, or geography. It guides underwriting, investment, and capital decisions.

The process of receiving, investigating, evaluating, and settling claims. It aims to pay what is owed promptly and fairly while controlling leakage, fraud, and expense, and it strongly shapes customer perception.

Money paid on claims that should not have been paid or that exceeds what is owed, caused by errors, fraud, poor documentation, or inconsistent handling. Reducing leakage improves results without raising prices.

The cost of investigating, defending, and settling claims, separate from the claim payment itself. It includes allocated expenses tied to specific claims and unallocated costs such as adjuster salaries and systems.

The insurer's right, after paying a claim, to pursue the party that caused the loss to recover the amount paid. It reduces net claim cost and encourages safer behavior by responsible third parties.

Property recovered or remaining after a loss that the insurer may sell to offset claim costs. The right to salvage typically passes to the insurer once it pays the claim in full.

A team within an insurer that investigates suspected fraudulent claims and applications. It works with claims staff and law enforcement and helps deter fraud that would otherwise raise costs for all policyholders.

The process of designing, pricing, testing, and launching insurance products that meet customer needs and regulatory requirements. It coordinates actuarial, underwriting, legal, marketing, and technology input before a product reaches the market.

The submission of proposed rates and supporting information to a regulator for review or approval. Requirements vary by jurisdiction and line, and a filing must show that rates are adequate, not excessive, and not unfairly discriminatory.

The condition in which premium is expected to cover expected losses, expenses, and a reasonable margin for profit and contingencies. Inadequate rates erode surplus over time and can threaten solvency.

Incurred losses and loss adjustment expenses divided by earned premium. It shows how much of each premium dollar goes to claims and is a core measure of underwriting performance for a line or book.

Underwriting expenses divided by written premium. It measures the cost of acquiring and servicing business, including commissions, advertising, and administrative overhead, relative to premium volume.

The sum of the loss ratio and the expense ratio. A result below 100 percent indicates an underwriting profit; above 100 percent indicates an underwriting loss that investment income must offset.

The profit or loss from insurance operations before investment income, calculated as earned premium minus incurred losses, loss adjustment expenses, and underwriting expenses. It isolates the performance of assuming risk.

The route through which an insurer reaches customers, such as independent agents, exclusive agents, brokers, direct sales, banks, or digital platforms. Channel choice affects cost, reach, and control over the customer relationship.

An agent who represents multiple insurers and owns the expirations, meaning the right to place and renew business. Independent agents typically serve commercial and personal lines and can offer customers choice among carriers.

An agent who represents a single insurer, often as an employee or under an exclusive contract. The insurer usually owns the customer accounts, giving it more control but requiring it to build the sales force.

An agent's records of policyholders, renewal dates, and coverage details, which represent the agent's ownership interest in the book of business. Ownership of expirations is a key issue in agency-insurer contracts.

Insurance bought by an insurer to transfer part of its risk to another insurer. It protects surplus against large or many losses, supports growth, and helps satisfy capital and regulatory requirements.

The portion of a risk that a primary insurer transfers to a reinsurer. Ceded premium and ceded losses are tracked separately so the insurer's net results reflect only the risk it keeps.

The amount of risk an insurer keeps for its own account after reinsurance, or the share of business it keeps rather than loses to competitors. The meaning depends on whether risk transfer or customer persistency is being discussed.

The proportion of policies that remain in force from one period to the next. High persistency lowers acquisition costs per policy year and signals customer satisfaction; low persistency raises expenses and disrupts underwriting results.

The practices and systems an insurer uses to track interactions with customers and agents, tailor service, and support retention and cross-selling. It links marketing, sales, service, and claims data around the customer.

The customer group an insurer deliberately aims to serve with a product or through a channel. A clear target market shapes product design, pricing, marketing, and underwriting guidelines.

A company-wide approach to identifying, assessing, and managing all significant risks, including underwriting, investment, operational, and strategic risks. It links risk limits to capital and strategy rather than treating risks in isolation.

The risk of loss from failed or inadequate internal processes, people, systems, or external events, such as processing errors, system outages, or employee misconduct. It is managed through controls, testing, and business continuity planning.

Preparing for and recovering from disruptions such as disasters, cyberattacks, or loss of key facilities. Plans identify critical functions, set recovery priorities, and are tested regularly so service to policyholders continues.

Government oversight of insurers, mainly by state authorities, covering solvency, market conduct, rates and forms, and consumer protection. Regulation aims to keep promises to policyholders and ensure fair treatment.

A regulatory review of how an insurer treats customers, including sales practices, claims handling, and complaint records. Findings can lead to fines, corrective orders, and reputational damage.

An insurer's ability to meet its obligations to policyholders as they come due. It depends on adequate surplus, sound reserves, and investment and underwriting discipline, and it is the central focus of insurance regulation.

The excess of an insurer's assets over its liabilities, representing the financial cushion that absorbs unexpected losses and supports growth. Regulators and rating agencies watch surplus closely as a measure of financial strength.

Handling a transaction end to end electronically without manual rekeying or intervention, common in small commercial and personal lines quoting and issuance. It lowers cost per policy and shortens response time to customers and agents.