CIIG Diploma flashcards

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

Insurable interest

A financial relationship with the subject matter such that the insured gains from its survival and loses from its loss. Required at inception for life cover and at loss for indemnity policies.

Proximate cause

The dominant and effective cause of a loss that determines whether an insured peril operated. Courts weigh the strength of competing causes rather than the order in which they occurred.

Principle of indemnity

The insured is restored to the pre-loss financial position, no better and no worse, subject to the sum insured, limits and excess. Replacement cover is a policy exception, not a principle.

Subrogation

After paying an indemnity, the insurer acquires the insured's rights of recovery against a negligent third party. Recovery is capped at the amount paid and cannot prejudice the insured's uninsured losses.

Contribution between insurers

Where two or more indemnity policies cover the same interest against the same peril, each insurer pays a rateable share, commonly calculated by independent liability or maximum liability methods.

Moral versus morale hazard

Moral hazard is dishonest intent such as deliberate damage for profit; morale hazard is carelessness or indifference created by insurance. Underwriting controls and pricing responses differ for each.

Utmost good faith

A duty on the proposer to disclose every material fact a prudent underwriter would consider relevant to acceptance or rating, and not to misrepresent. Remedies vary by culpability under modern law.

Authorisation requirement

Carrying on regulated insurance business generally requires permission from the regulator, with criminal or civil sanctions for breach. Appointed representatives operate under a principal firm's authorisation.

Risk-based capital

Capital must cover a prescribed confidence level over a defined horizon, with a minimum floor and a higher risk-sensitive requirement, supported by governance and own-risk assessment reporting.

Contra proferentem

Ambiguous policy wording is construed against the party that drafted it, usually the insurer. Consumer law also requires contract terms to be fair and transparent.

Suspicious activity report

A report to the financial intelligence unit where there are grounds to suspect money laundering or terrorist financing. Firms must not tip off the customer and may need consent to proceed.

Combined ratio

The sum of the loss ratio and expense ratio. A result below 100% indicates an underwriting profit before investment income; above 100% indicates an underwriting loss.

Technical premium

Expected loss cost based on frequency times average severity, plus expenses, profit margin and a loading for uncertainty. Investment income is added separately to derive the office premium.

Excess of loss reinsurance

The reinsurer pays losses above an attachment point up to a limit per event or aggregate, often with paid reinstatements. It protects the cedant against severity rather than frequency.

Quota share treaty

A proportional reinsurance arrangement in which the cedant cedes a fixed percentage of every risk within the treaty scope, and receives the same percentage of premium and bears the same share of losses.

Probable maximum loss

An estimate of the largest loss likely from a single event under defined assumptions, used for catastrophe accumulation control and reinsurance purchasing decisions.

Warranty in insurance

A policy term that must be complied with exactly. Breach may discharge the insurer's liability from the date of breach, subject to the applicable statutory regime for consumer contracts.

Incurred but not reported

A reserve estimate for claims that have occurred but not yet been notified, plus development on known claims. It is a major component of technical provisions for liability classes.

Chain-ladder reserving

A development-factor method that projects ultimate losses from historical paid or incurred patterns. It assumes past development is representative and is unreliable where patterns change.

Coverage verification

Confirming a policy was in force, the loss falls within an insured peril, no exclusion applies, and conditions precedent were met. The insured generally bears the burden of proving an insured loss.

Salvage recovery

Proceeds from selling damaged property or its remains after a total loss settlement. Salvage rights are usually reserved to the insurer and reduce the net cost of the claim.

Claims fraud indicators

Red flags such as late notification, inconsistent accounts, undocumented or exaggerated losses, prior similar claims and pressure for fast cash settlement. Investigation must be proportionate and documented.

Unearned premium reserve

The portion of written premium relating to the unexpired part of the policy period, held as a liability and released to earned premium on a daily or monthly pro-rata basis.

Return on equity

Net profit after tax divided by shareholders' equity. Insurers compare it with cost of capital to judge whether underwriting and investment activity create value.

Reserve development

The change in estimated ultimate claims cost over time. Adverse development means prior reserves were insufficient and strengthens current-year results; favourable development releases surplus.

Asset-liability matching

Aligning investment duration, currency and liquidity with expected claim payment patterns so assets can meet liabilities as they fall due without forced selling at a loss.

Straight-through processing

Automated quote, underwrite, issue and renewal for low-complexity risks, with defined referral rules routing exceptions and high-risk cases to human underwriters.

Operational resilience

The ability to prevent, adapt to, recover from and learn from operational disruption, supported by tested recovery plans, third-party oversight and incident response arrangements.

Customer vulnerability

A customer characteristic such as health, life events, low resilience or low capability that raises the risk of harm. Vulnerability is dynamic and requires adapted communication and processes.

Fair value assessment

Evidence that product benefits are proportionate to price, including distribution costs and add-ons, and that the product meets the needs of the target market.

Risk appetite statement

A board-approved articulation of the amount and types of risk the firm is willing to accept to achieve its strategy, expressed in qualitative principles and quantitative limits.

RAROC

Risk-adjusted return on capital: risk-adjusted profit divided by economic capital allocated to the activity. Used to compare business units and guide capital allocation decisions.