CPCU flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Pure risk
- A risk that involves only the possibility of loss or no loss, with no possibility of gain; it is the primary category of risk traditionally insured.
- Speculative risk
- A risk that can produce either gain or loss, such as investing or launching a new product; it is generally not insurable by private insurers.
- Law of large numbers
- A statistical principle stating that as the number of independent exposure units increases, actual loss experience tends to approach expected loss experience, improving predictability for insurers.
- Moral hazard
- A condition arising from dishonest or fraudulent behavior by an insured that increases the likelihood or severity of loss, such as intentionally causing a fire to collect insurance.
- Underwriting cycle
- The recurring pattern of soft and hard insurance markets in which competition, premium rates, underwriting standards, and capacity fluctuate over time.
- Combined ratio
- A profitability measure calculated as the loss ratio plus the expense ratio; a ratio below 100 percent indicates an underwriting profit before investment income.
- Premium audit
- A review of an insured's records, commonly for workers compensation or general liability, to determine the final premium based on actual exposure units.
- Claims triage
- The process of evaluating and prioritizing a reported claim by coverage, liability, severity, and urgency to determine the appropriate handling path and resources.
- CGL occurrence trigger
- Coverage under a commercial general liability occurrence policy is triggered when bodily injury or property damage occurs, regardless of when the claim is reported.
- Products-completed operations
- CGL coverage for bodily injury or property damage occurring away from the insured's premises and arising from the insured's products or completed work.
- Coinsurance clause property
- A property insurance provision requiring the insured to carry insurance equal to a specified percentage of property value to avoid a penalty on partial losses.
- Business income coverage
- Coverage that replaces lost net income and continuing normal operating expenses during the period of restoration following a covered property loss.
- HO-3 special form
- A homeowners policy covering the dwelling and other structures on an open-perils basis and personal property on a named-perils basis, with liability and medical payments coverage.
- Personal auto liability
- Coverage for damages the insured becomes legally liable to pay because of bodily injury or property damage caused to others by an auto.
- Uninsured motorists coverage
- Personal auto coverage that pays for bodily injury damages caused by a hit-and-run driver or an at-fault driver who lacks liability insurance.
- Flood insurance exclusion
- Standard homeowners policies exclude flood and surface water damage; separate coverage is typically obtained through the National Flood Insurance Program or private insurers.
- Unearned premium reserve
- A liability representing the portion of written premium that has not yet been earned and must be returned if a policy is canceled before expiration.
- IBNR reserves
- An estimate for claims incurred but not reported, including development on known claims, recorded as a liability on the insurer's balance sheet.
- Written versus earned premium
- Written premium is the total premium charged for policies issued during a period; earned premium is the portion recognized as revenue over the policy term.
- Risk-based capital
- A regulatory framework that sets minimum capital requirements according to the insurer's size and risk profile, including asset, underwriting, and credit risk.
- Quota share reinsurance
- A proportional treaty in which the ceding insurer transfers a fixed percentage of every covered policy's premium and losses to the reinsurer.
- Excess of loss reinsurance
- A nonproportional treaty in which the reinsurer pays covered losses above a specified retention, up to a limit, for each risk or occurrence.
- Facultative reinsurance
- Reinsurance purchased for a single specified risk or policy; the reinsurer may accept or decline each submission individually.
- Retrocession
- The transfer of risk by a reinsurer to another reinsurer, effectively reinsuring the reinsurer's own assumed risk.
- SWOT analysis
- A strategic assessment identifying an organization's internal strengths and weaknesses and external opportunities and threats to inform planning and competitive positioning.
- Porter's five forces
- A framework analyzing industry competition through rivalry, supplier power, buyer power, threat of new entrants, and threat of substitutes.
- Span of control
- The number of subordinates who report directly to a manager; wider spans create flatter structures, while narrow spans create taller hierarchies.
- Agency problem
- A conflict that arises when managers or agents pursue their own interests rather than the interests of owners or principals they represent.
- Fiduciary duty
- A legal and ethical obligation to act in the best interest of another party, placing the beneficiary's interests ahead of the professional's own interests.
- Conflict of interest
- A situation in which a professional's personal, financial, or other interest could impair or appear to impair objective judgment in performing professional duties.
- Informed consent
- A client's agreement to a transaction or recommendation after receiving adequate disclosure of material facts, risks, costs, and alternatives.
- CPCU Code of Ethics
- A professional code requiring insurers and insurance professionals to act with integrity, maintain competence, serve the public good, and comply with laws and regulations.