Associate Commercial Insurance Underwriter (ACIU) flashcards

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

Underwriting decision framework

A sequence moving from exposure identification to hazard and loss assessment, coverage design, pricing, terms, and documentation. It ensures each decision is supported by recorded evidence rather than intuition.

Combined ratio

The sum of the loss ratio and expense ratio. A result above 100 percent means underwriting operations produced a loss before any investment income is counted.

Expected loss cost

Frequency multiplied by average severity. It converts loss history into a comparable expected cost so accounts of different sizes and exposure bases can be ranked.

Binding authority

The maximum premium, limit, or hazard level an underwriter may commit without referral. Risks beyond it must be escalated with full documentation to someone holding higher authority.

Protective safeguards endorsement

An endorsement that makes specified protections, such as alarms or sprinklers, a condition of coverage. Failure to maintain them can reduce or bar recovery for a loss.

Referral trigger

A characteristic requiring escalation, such as high-hazard occupancy, catastrophe concentration, poor loss history, or unverified safeguards. Referral rules keep decisions inside stated appetite.

Renewal underwriting inputs

Loss ratio trend, exposure changes in payroll or values, control improvements, market conditions, and whether prior subjectivities were satisfied. Together they determine whether terms are renewed, modified, or declined.

Current ratio

Current assets divided by current liabilities. A low result signals liquidity strain that limits an insured's ability to absorb deductibles and fund post-loss recovery.

Quick ratio

Current assets excluding inventory, divided by current liabilities. It is a stricter liquidity test than the current ratio because inventory may be difficult to convert to cash.

Loss ratio by year

Incurred losses plus loss adjustment expense divided by earned premium for a single year. Yearly comparison reveals deterioration that a multi-year average can conceal.

Credibility

The statistical weight given to an insured's own loss experience versus class experience. Small accounts have low credibility, so their losses are blended with broader data.

COPE factors

Construction, Occupancy, Protection, and Exposure. These four building and site characteristics drive fire and catastrophe loss potential in commercial property underwriting.

Exposure base by line

The unit premium is applied to: sales or payroll for liability, replacement values for property, fleet count for auto, and classified payroll for workers compensation.

Class code verification

Confirming the assigned classification matches actual operations using payroll or sales breakdowns. Misclassification misprices the account and creates audit and premium-dispute exposure.

Business income exposure

The earnings an insured would lose during restoration, measured by gross earnings or gross profit over a chosen period of indemnity, plus extra expense and contingent dependencies.

Portfolio concentration

The share of premium or limit tied to one class, territory, or catastrophe zone. High concentration raises aggregate volatility even when individual accounts look acceptable.

Appetite statement

A written definition of target, acceptable, and prohibited classes and characteristics. It aligns producer incentives, referral rules, and underwriter authority with intended portfolio composition.

Hit ratio

Quotes bound divided by quotes issued. An unusually high ratio can indicate underpricing, while an unusually low ratio can indicate poor distribution fit or uncompetitive terms.

Probable maximum loss

A modeled loss estimate at a selected return period, such as one-in-100 or one-in-250 years. It measures how much catastrophe capacity a single account consumes.

Treaty capacity

The limit reinsurers automatically accept under an agreement, above the insurer's retention. It sets the largest risk the carrier can write without facultative support.

Market cycle management

Adjusting strategy to soft or hard conditions. In soft markets protect deductibles and sublimits rather than price alone; in hard markets remediate poor-performing segments first.

Segmentation

Grouping accounts by hazard quality and loss experience so rate and terms reflect actual risk rather than a single level applied across an entire class.

Replacement cost

The cost to repair or replace property with new materials of like kind and quality, without deduction for depreciation. It typically exceeds actual cash value.

Actual cash value

Replacement cost minus depreciation. The valuation basis determines how much the insured recovers and therefore how much of the loss is effectively retained.

Coinsurance payment formula

Limit carried divided by limit required, multiplied by the loss, capped at the policy limit. Limit required equals the coinsurance percentage times value at risk.

Agreed value option

An option that suspends the coinsurance penalty when the insured submits a verified statement of values. It does not increase the policy limit.

Special causes of loss form

An open-perils form covering all risks of direct physical loss except those excluded. The insurer bears the burden of proving an exclusion applies.

Ordinance or law exclusion

Bars the added cost of rebuilding to current code, such as upgraded wiring or accessibility. Separate ordinance or law coverage is needed to fund that difference.

Blanket insurance

A single limit applying across multiple scheduled locations. It suits accounts whose values shift between sites during the year, avoiding a shortfall at any one location.

Occurrence trigger

Coverage under an occurrence form is activated by injury or damage happening during the policy period, regardless of when the claim is later reported.

General aggregate limit

The most the policy pays for all covered losses in a policy period other than products-completed operations. Each occurrence payment reduces the remaining aggregate.

Additional insured endorsement

An endorsement granting insured status to a party such as a landlord or client. Its scope varies, and the endorsement form, not a certificate, controls the rights granted.

Claims-made trigger

Coverage is activated when the claim is made during the policy period, provided the wrongful act occurred after the retroactive date. The extended reporting period preserves rights after expiry.

Umbrella versus excess

An umbrella can drop down over a self-insured retention or a gap in underlying coverage. Excess coverage follows the underlying terms and does not broaden them.

Utmost good faith

The mutual duty requiring applicants to disclose material facts and underwriters to avoid accepting risks built on misrepresentation or encouraged concealment.

Unfair discrimination

Pricing or denying coverage based on characteristics unsupported by actuarial data, such as protected traits or territory alone. Legitimate risk-based differentiation is permitted.

Confidentiality duty

Insured financial data, loss history, and claims information may be shared only for legitimate underwriting, reinsurance, or regulatory purposes, not casual or commercial disclosure.

Ethical decision test

Four checks before acting: is it legal, does it treat the customer fairly, would it withstand public and regulatory scrutiny, and does it match stated appetite.

Conflict of interest

Any arrangement, including compensation or ownership, that could bias an underwriting or recommendation decision. It must be disclosed and managed rather than ignored.

Documentation as ethical control

Recording exposure basis, rationale for rate deviations, and referral approvals at the time of decision. Contemporaneous records prevent after-the-fact justification of questionable choices.