CPRM common mistakes
CPRM · Understand the traps and how to avoid them.
Assuming any loss is covered because a premium was paid
Protection depends on the actual insured event, scope, exclusions and conditions.
What to do instead
Read the wording and evidence, identify the relevant coverage and distinguish a covered loss from a payment request.
Applying a deductible without reading its convention
Deductibles, limits and aggregation can be arranged in different contractual orders.
What to do instead
Write the supplied calculation sequence and apply the stated cap or layer without importing an unstated policy rule.
Treating insurance as physical loss prevention
A financing arrangement does not automatically remove a physical or operational hazard.
What to do instead
Compare prevention, reduction, retention and transfer as different tools and explain the residual exposure.
Calling an inconsistency proof of fraud
Incomplete records or an unusual pattern can have several explanations.
What to do instead
Preserve evidence and investigate through the authorized process, distinguishing a risk signal from a substantiated finding.
Equating a reserve with cash
A recognized liability or estimated obligation does not establish a matching liquid asset.
What to do instead
Review assets, payment timing and uncertainty separately from the estimate of the obligation.
Treating all premium receipts as earned profit
Coverage, claims and expenses occur across different periods.
What to do instead
Distinguish written, earned and unearned amounts within the specified model before evaluating the result.
Ignoring reinsurance counterparty risk
Transferring exposure under a contract does not guarantee collection from the reinsurer.
What to do instead
Review the actual terms, retained exposure, recovery assumptions and concentration rather than removing every risk from analysis.
Using a combined ratio as a complete solvency test
An underwriting performance measure does not incorporate every asset, capital or liquidity consideration.
What to do instead
State the component denominators, then evaluate investment results, reserves, assets and capital separately.