Flash Cards
Gain familiarity with risk management concepts (297 cards)
1
Q
Big data
A
Sets of data that are too large to be gathered and analyzed by traditional methods.
2
Q
Smart product
A
An innovative item that uses sensors; wireless sensor networks; and data collection, transmission, and analysis to further enable the item to be faster, more useful, or otherwise improved.
3
Q
Internet of Things (IoT)
A
A network of objects that transmit data to and from each other without human interaction.
4
Q
Cloud computing
A
Information, technology, and storage services contractually provided from remote locations, through the internet or another network, without a direct server connection.
5
Q
Blockchain
A
A distributed digital ledger that facilitates secure transactions without the need for a third party.
6
Q
Telematics
A
The use of technological devices in vehicles with wireless communication and GPS tracking that transmit data to businesses or government agencies; some return information for the driver.
7
Q
Text mining
A
Obtaining information through language recognition.
8
Q
Risk appetite
A
Amount of risk an organization is willing to take on in order to achieve an anticipated result or return.
9
Q
Value at risk (VaR)
A
A technique to quantify financial risk by measuring the likelihood of losing more than a specific dollar amount over a specific period of time.
10
Q
Cost of risk
A
The total cost incurred by an organization because of the possibility of accidental loss.
11
Q
Exposure
A
Any condition that presents a possibility of gain or loss, whether or not an actual loss occurs.
12
Q
Volatility
A
Frequent fluctuations, such as in the price of an asset.
13
Q
Likelihood
A
A qualitative estimate of the certainty with which the outcome of a specific event can be predicted.
14
Q
Consequences
A
The effects, positive or negative, of an occurrence.
15
Q
Time horizon
A
Estimated duration.
16
Q
Correlation
A
A relationship between variables.
17
Q
Pure risk
A
A chance of loss or no loss, but no chance of gain.
18
Q
Speculative risk
A
A chance of loss, no loss, or gain.
19
Q
Credit risk
A
The risk that customers or other creditors will fail to make promised payments as they come due.
20
Q
Subjective risk
A
The perceived amount of risk based on an individual’s or organization’s opinion.
21
Q
Objective risk
A
The measurable variation in uncertain outcomes based on facts and data.
22
Q
Diversifiable risk
A
A risk that affects only some individuals, businesses, or small groups.
23
Q
Systemic risk
A
The potential for a major disruption in the function of an entire market or financial system.
24
Q
Market risk
A
Uncertainty about an investment’s future value because of potential changes in the market for that type of investment.
25
Liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss.
26
Risk management framework
A foundation for applying the risk management process throughout the organization.
27
Risk criteria
Information used as a basis for measuring the significance of a risk.
28
Risk threshold
The range or amount of risk that is acceptable.
29
Sensor
A device that detects and measures stimuli in its environment.
30
Radio frequency identification (RFID)
A technology that uses radio frequency to identify objects.
31
Artificial intelligence (AI)
Computer processing or output that simulates human reasoning or knowledge.
32
Computer vision
A technology that simulates human vision.
33
Risk treatment
The selection and implementation of actions to help manage or mitigate a risk.
34
Residual risk
The level of risk remaining after actions are taken to alter the level of risk.
35
Avoidance
A risk control technique that involves ceasing or never undertaking an activity so that the possibility of a future loss occurring from that activity is eliminated.
36
Loss prevention
A risk control technique that reduces the frequency of a particular loss.
37
Loss reduction
A risk control technique that reduces the severity of a particular loss.
38
Risk transfer
The shifting of risk from one individual or organization to another.
39
Retention
A risk financing technique that involves assumption of risk in which gains and losses are retained within the organization.
40
Risk financing
A risk management technique that includes steps to pay for or transfer the cost of losses.
41
Internet of Things (IoT)
A network of objects that transmit data to computers.
42
Machine learning
Artificial intelligence in which computers continually teach themselves to make better decisions based on previous results and new data.
43
Hedging
A financial transaction in which one asset is held to offset the risk associated with another asset.
44
Derivative
A financial instrument whose value is derived from the value of an underlying asset, which can be an index, an asset, yield on an asset, weather conditions, inflation, loans, bonds, an insurance risk, or other items.
45
Diversification
A risk control technique that spreads loss exposures over numerous projects, products, markets, or regions.
46
Covariance
The relative association between variables to move in tandem or independently of each other.
47
Insurance
A risk management technique that transfers the potential financial consequences of certain specified loss exposures from the insured to the insurer.
48
Property loss exposure
A condition that presents the possibility that a person or an organization will sustain a loss resulting from damage (including destruction, taking, or loss of use) to property in which that person or organization has a financial
49
Real property (realty)
Tangible property consisting of land, all structures permanently attached to the land, and whatever is growing on the land.
50
Personal property
All tangible or intangible property that is not real property.
51
Risk management process
The method of making, implementing, and monitoring decisions that minimize the adverse effects of risk on an organization.
52
Liability loss exposure
Any condition or situation that presents the possibility of a claim alleging legal responsibility of a person or business for injury or damage suffered by another party.
53
Damages
Money claimed by, or a monetary award to, a party who has suffered loss or injury for which another party is legally responsible.
54
Special damages
A form of compensatory damages that awards a sum of money for specific, identifiable expenses associated with the injured person's loss, such as medical expenses or lost wages.
55
General damages
A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific, measurable expenses.
56
Punitive damages (exemplary damages)
A payment awarded by a court to punish a defendant for a reckless, malicious, or deceitful act to deter similar conduct; the award need not bear any relation to a party’s actual damages.
57
Civil law
A classification of law that applies to legal matters not governed by criminal law and that protects rights and provides remedies for breaches of duties owed to others.
58
Tort
A wrongful act or an omission, other than a crime or a breach of contract, that invades a legally protected right.
59
Negligence
The failure to exercise the degree of care that a reasonable person in a similar situation would exercise to avoid harming others.
60
Intentional tort
A tort committed by a person who foresees (or should be able to foresee) that his or her act will harm another person.
61
Strict liability (absolute liability)
Liability imposed by a court or by a statute in the absence of fault when harm results from activities or conditions that are extremely dangerous, unnatural, ultrahazardous, extraordinary, abnormal, or inappropriate.
62
Fixture
Any personal property affixed to real property in such a way as to become part of the real property.
63
Money
Currency, coins, bank notes, and sometimes traveler's checks, credit card slips, and money orders held for sale to the public.
64
Securities
Written instruments representing either money or other property, such as stocks and bonds.
65
Auto
As defined in commercial general liability and auto forms, a land motor vehicle, trailer, or semitrailer designed for travel on public roads, including attached machinery or equipment; or any other land vehicle that is subject to a
66
Mobile equipment
Various types of vehicles designed for use principally off public roads, such as bulldozers and cranes.
67
Recreational vehicle
A vehicle used for sports and recreational activities, such as a dune buggy, all-terrain vehicle, or dirt bike.
68
Peril
The cause of a loss.
69
Replacement cost
The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation.
70
Actual cash value (ACV)
The cost to replace property with new property of like kind and quality less depreciation.
71
Agreed value method
A method of valuing property in which the insurer and the insured agree, at the time the policy is written, on the maximum amount that will be paid in the event of a total loss.
72
Bailee
The party temporarily possessing the personal property in a bailment.
73
Hold-harmless agreement (or indemnity agreement)
A contractual provision that obligates one of the parties to assume the legal liability of another party.
74
Loss of consortium
The loss of benefits that one spouse is entitled to receive from the other, including companionship, affection, and sexual relations resulting from the injury or death of a spouse.
75
Proprietary insurer
An insurer formed for the purpose of earning a profit for its owners.
76
Cooperative insurer
An insurer owned by its policyholders and usually formed to provide insurance protection to policyholders at minimum cost. Mutual insurance companies, reciprocal exchanges, and fraternal organizations are examples of
77
Mutual insurer
An insurer that is owned by its policyholders and formed as a corporation for the purpose of providing insurance to them.
78
Reciprocal insurance exchange (interinsurance exchange)
An insurer owned by its policyholders, formed as an unincorporated association for the purpose of providing insurance coverage to its members (called subscribers), and managed by an attorney-in-fact. Members agree to
79
Captive insurer
An insurance company formed primarily to cover the loss exposures of its owner(s) or members.
80
Fair Access to Insurance Requirements (FAIR) plans
An insurance pool through which private insurers collectively address an unmet need for property insurance on urban properties, especially those susceptible to loss by riot or civil commotion.
81
Residual market
The term referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market.
82
Independent agency and brokerage marketing system
An insurance marketing system under which producers (agents or brokers), who are independent contractors, sell insurance, usually as representatives of several unrelated insurers.
83
Direct writer marketing system
An insurance marketing system that uses sales agents (or sales representatives) who are direct employees of the insurer.
84
Exclusive agency marketing system
An insurance marketing system under which agents contract to sell insurance exclusively for one insurer (or for an associated group of insurers).
85
Underwriting
The process of selecting insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.
86
Adverse selection
In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance.
87
Internet of Things (IoT)
A network of objects that transmit data to each other and to central hubs through the internet.
88
Focus group
A small group of customers or potential customers brought together to provide opinions about a specific product, service, need, or other issue.
89
Hit ratio
The ratio of insurance policies written to those that have been quoted to applicants for insurance.
90
Retention ratio
The percentage of insurance policies renewed.
91
Market segmentation
The process of identifying and dividing the groups within a market that share needs and characteristics and that will respond similarly to a marketing action.
92
Target marketing
Focusing marketing efforts on a specific group of consumers.
93
Niche marketing
A type of marketing that focuses on specific types of buyers who are a subset of a larger market.
94
Distribution system
The necessary people and physical facilities to support the sale of insurance products and services.
95
Distribution channel
The channel used by the producer of a product or service to transfer that product or service to the ultimate customer.
96
Agency expiration list
The record of an insurance agency's present policyholders and the dates their policies expire.
97
Countersignature laws
Laws that require all policies covering subjects of insurance within a state to be signed by a resident producer licensed in that state.
98
Managing general agency (MGA)
An independent business organization that functions almost as a branch office for one or more insurers and that appoints and supervises independent agents and brokers for insurers using the independent agency and brokerage
99
Surplus lines broker
A person or firm that places business with insurers not licensed (nonadmitted) in the state in which the transaction occurs but that are permitted to write insurance because coverage is not available through
100
Line underwriter
An underwriter who is primarily responsible for implementing the steps in the underwriting process.
101
Staff underwriter
An underwriter who assists underwriting management with making and implementing underwriting policy.
102
Underwriting guidelines (underwriting guide)
A written manual that communicates an insurer’s underwriting policy and that specifies the attributes of an account that an insurer is willing to insure.
103
Underwriting policy (underwriting philosophy)
A guide to individual and aggregate policy selection that supports an insurer’s mission statement.
104
Underwriting authority
The scope of decisions that an underwriter can make without receiving approval from someone at a higher level.
105
Composite rating
An optional insurance pricing approach that uses a premium base other than the one specified in the rating manual to price an entire account.
106
National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners from the 50 U.S. states, the District of Columbia, and the five U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state
107
Premium-to-surplus ratio, or capacity ratio
A capacity ratio that indicates an insurer's financial strength by relating net written premiums to policyholders' surplus.
108
Statutory accounting principles (SAP)
The accounting principles and practices that are prescribed or permitted by an insurer's domiciliary state and that insurers must follow.
109
Return on equity (ROE) ratio
A profitability ratio expressed as a percentage by dividing a company's net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders' equity, owners' equity, or policyholders'
110
Market conduct examination
An analysis of an insurer's practices in four operational areas: sales and advertising, underwriting, ratemaking, and claims handling.
111
Underwriting audit
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines.
112
Predictive modeling
A process in which historical data based on behaviors and events is blended with multiple variables and used to construct models of anticipated future outcomes.
113
Underwriter
An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions.
114
Underwriting submission
Underwriting information for an initial application, or a substantive policy midterm or renewal change.
115
Loss exposure
Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs.
116
Hazard
A condition that increases the frequency or severity of a loss.
117
Information efficiency
The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it.
118
Premium audit
Methodical examination of a policyholder's operations, records, and books of account to determine the actual exposure units and premium for insurance coverages already provided.
119
Counteroffer
A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer.
120
Rating plan
A set of directions that specify criteria of the exposure base, the exposure unit, and rate per exposure unit to determine premiums for a particular line of insurance.
121
Treaty reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured.
122
Mix of business
The distribution of individual policies that compose the book of business of a producer, territory, state, or region among the various lines and classifications.
123
Loss costs
The portion of the rate that covers projected claim payments and loss adjusting expenses.
124
Combined ratio
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain.
125
Straight through processing (STP)
Automated processing of the underwriting transaction from initial application through policy processing.
126
Flash point
The lowest temperature at which a combustible liquid releases vapors that can be ignited by a spark or flame.
127
Fuel load (fire load)
The expected maximum amount of combustible material in a given area of a building, including both structural elements and contents, commonly expressed in terms of weight of combustibles per square foot.
128
Insurable interest
An interest in the subject of an insurance policy that is not unduly remote and that would cause the interested party to suffer financial loss if an insured event occurred.
129
Fee simple estate
A full ownership interest in property with the unconditional right to dispose of it.
130
Joint tenancy
A concurrently owned and undivided interest in an estate that transfers to a surviving joint tenant upon the death of the other.
131
Remainder estate
The right granted an individual (a remainderman) to hold an estate following the death of the life tenant.
132
Remainderman
The individual who acquires an estate following the death of a life tenant and who acquires a fee simple estate in the property.
133
Insurance to value
Insurance written for an amount approximating the full value of the asset(s) insured.
134
Insurance-tovalue provision
A provision in property insurance policies that encourages insureds to purchase an amount of insurance that is equal to, or close to, the value of the covered property.
135
Coinsurance condition
A condition that requires the insured to carry insurance equal to at least a specified percentage of the actual cash value (ACV) of the property insured.
136
Agreed Value optional coverage
Optional coverage that suspends the Coinsurance condition if the insured carries the amount of insurance agreed to by the insurer and insured.
137
Blanket insurance
Provides coverage for one type of property in more than one separately rated building or two or more types of property in one or more separately rated buildings under a single limit.
138
Blanket limit
The maximum dollar amount the insurer will pay for two or more items or classes of property at one or more locations.
139
Inflation Guard optional coverage
Coverage for the effects of inflation that automatically increases the limit of insurance by the percentage of annual increase shown in the declarations.
140
Fire division
A section of a structure so well protected that fire cannot spread from that section to another, or vice versa.
141
Fire wall
A floor-to-roof wall made of noncombustible materials; openings in the wall, if allowed, must be protected.
142
Construction
The type of materials and design used to fabricate a building, which underwriters analyze when evaluating submissions for property insurance.
143
Occupancy
The type or character of use of the property in question.
144
Protection
Measures taken to prevent or reduce the damage done by fire.
145
Public fire protection
Fire protection equipment and services made available through governmental authority to all properties within a defined area.
146
Private fire protection
Measures taken by property owners to protect their assets from loss by fire.
147
External exposure
A loss exposure outside the area owned or controlled by the insured.
148
Probable maximum loss (PML)
The largest loss that an insured is likely to sustain.
149
Period of restoration
The period during which business income loss is covered under the BIC forms; it begins 72 hours after the physical loss occurs and ends when the property is (or should have been) restored to use with reasonable speed. (With regard
150
Actual loss sustained
A valuation method in business income policies designed to make the insured whole by demonstrating the actual amount of loss that occurs during the period of restoration.
151
Business income worksheet
A worksheet for calculating the amount of insurance necessary to comply with the Coinsurance condition of business income insurance forms, for reporting business income values to the insurer, or for providing underwriters
152
Disaster recovery plan
post-disaster recovery to ensure that critical resources are available to facilitate the continuity of operations in an emergency situation.
153
Coinsurance basis
The sum of the insured’s estimated net income and operating expenses for the 12 months following policy inception, minus only those expenses listed in the business income worksheet as deductions.
154
Coinsurance
An insurance-to-value provision in many property insurance policies providing that if the property is underinsured, the amount that an insurer will pay for a covered loss is reduced.
155
Moral hazard
A condition that increases the likelihood that a person will intentionally cause or exaggerate a loss.
156
Commercial Lines Manual (CLM)
An ISO publication that includes rules and rating procedures for several major lines of commercial insurance.
157
Premium base
The unit in which the exposure is measured, such as gross sales or payroll.
158
Gross sales
A premium base that reflects the gross amount of money charged by the named insured for all goods or products sold or distributed, operations performed, or rentals made.
159
Intercompany sales
The exchange or sale of goods between two or more separate legal entities that are named insureds on the same policy.
160
Payroll
A premium base used in general liability insurance that reflects the insured's liability exposure arising from the work of employees.
161
Admissions
A premium base that reflects the insured's liability exposure arising from the number of persons, other than employees of the insured, admitted to an insured event or to events conducted on the insured's premises.
162
Area
A premium base that reflects the insured's liability exposure based on the total number of square feet of floor space at the insured's premises.
163
Premises liability loss exposure
The exposure to liability for bodily injury or property damage due to the ownership, occupancy, or use of the premises.
164
Operations liability loss exposures
The exposure to liability for bodily injury or property damage resulting from the insured's business activities conducted away from its own premises.
165
Products liability
A manufacturer’s or seller’s liability for harm suffered by a buyer, user, or bystander as a result of a product that has a dangerous manufacturing defect or design defect or that is not accompanied by a warning of an inherent hidden
166
Completed operations liability
The exposure to liability for bodily injury or property damage arising out of the insured’s completed work.
167
Claims-made coverage form
A coverage form that provides coverage for bodily injury or property damage that is claimed during the policy period.
168
Channels of distribution
A system whereby customers are provided access to an organization's products or services.
169
Morale hazard (attitudinal hazard)
A condition of carelessness or indifference that increases the frequency or severity of loss.
170
Class rating
A rating approach that uses rates reflecting the average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties.
171
Experience rating
A rating plan that adjusts the premium for the current policy period to recognize the loss experience of the insured organization during past policy periods.
172
Schedule rating
A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class
173
Gross vehicle weight (GVW)
Maximum loaded weight for which a single vehicle is designed, as specified by the manufacturer.
174
Gross combination weight
The maximum loaded weight specified by the manufacturer for a single vehicle plus the trailer designed for use with the vehicle.
175
Service use
A commercial vehicle use classification that applies to vehicles that are used principally to transport personnel and material to job sites.
176
Retail use
A commercial vehicle use classification that applies to vehicles that are used principally to make deliveries to households.
177
Commercial use
A commercial auto use classification that applies to vehicles that do not fall into service or retail use classifications.
178
Radius of operation
A measurement of road exposure used to classify commercial vehicles. It is measured on a straight line from the street address of the vehicle's principal place of garaging to the furthest point the vehicle operates.
179
Zone rating
A CLM commercial vehicle measurement of exposure that applies to trucks, truck-tractors, and trailers, other than light trucks and trailers used with light trucks, regularly operated beyond a 200-mile radius of the
180
Special industry classification
A CLM subclassification that applies to trucks, tractors, and trailers for listed categories of use that have unusual hazards.
181
Collision coverage
Coverage for direct and accidental loss or damage to a covered auto caused by collision with another object or by overturn.
182
Comprehensive coverage
Coverage for direct and accidental loss or damage to a covered auto by any peril except collision or overturn or a peril specifically excluded.
183
Specified causes of loss coverage
Coverage for direct and accidental loss caused by fire, lightning, explosion, theft, windstorm, hail, earthquake, flood, mischief, vandalism, or loss resulting from the sinking, burning, collision, or derailment of a conveyance
184
Towing and labor coverage
Coverage for necessary towing and labor costs (for labor performed at the place of disablement) due to the disablement of a covered private passenger auto.
185
Transportation expenses
Coverage extension for substitute transportation costs incurred when a private passenger type auto has been stolen.
186
Loss of use expenses
Coverage extension that pays for loss of use of a rental auto when an insured becomes contractually obligated to make such payments.
187
Stated amount
A method of valuing property often described in an insurance policy as the least of (1) the actual cash value, (2) the cost to repair or replace, or (3) the applicable amount of insurance for the property.
188
Age group
A classification of vehicles based on the vehicle's model year.
189
Original cost new
A valuation method for property based on the retail cost the original purchaser paid for the auto and its equipment.
190
Aggregate limit
The maximum amount an insurer will pay for all covered losses during the covered policy period.
191
Reinsurance
The transfer of insurance risk from one insurer to another through a contractual agreement under which one insurer (the reinsurer) agrees, in return for a reinsurance premium, to indemnify another insurer (the primary
192
Experience modification factor
A factor that tailors manual rates to an insured's experience based on the insured's payroll and loss record of certain prior years.
193
United States Longshore and Harbor Workers’ Compensation Act (LHWCA)
A federal statute that eliminates the right of most maritime workers (other than crew members of vessels) to sue their employers and, in return, requires such employers to provide injured or ill workers with benefits
194
Jones Act (United States Merchant Marine Act of 1920)
A federal statute that permits injured members of a vessel’s crew (or survivors of a deceased crew member) to sue their employer for damages due to the employer’s negligence.
195
Special hazards of the class
A characteristic typical of all occupancies in a given class that can cause or aggravate a loss. An example is the hazard of cooking, common to the restaurant class.
196
Special hazards of the risk
A condition that can cause a loss but that is not typical of an occupancy. An example is the use of a welding torch in an auto repair shop.
197
Third-party-over action
A separate legal action, brought by a defendant in a lawsuit, against a third party that might be liable to the defendant for all or part of the plaintiff ’s claim in the original lawsuit.
198
Dual capacity
A legal doctrine giving the employee the right to sue the employer when the employer acts in a capacity other than that of employer.
199
Facultative reinsurance
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted.
200
Exposure unit
A fundamental measure of the loss exposure assumed by an insurer.
201
Experience modification
A rate multiplier derived from the experience rating computation.
202
Exposure unit (unit of exposure)
The unit of measure (for example, area, gross receipts, payroll, or value insured) used to determine an insurance policy premium.
203
Test Audit
An audit conducted by an insurance advisory organization or bureau to check the accuracy of insurers' premium audits.
204
Premium pay (shift differential)
A payroll system that increases the regular hourly wage rate for the night shift or other special conditions.
205
Third-party administrator (TPA)
An organization that provides administrative services associated with risk financing and insurance.
206
Claims representative
A person responsible for investigating, evaluating, and settling claims.
207
Producer
Any of several kinds of insurance personnel who place insurance and surety business with insurers and who represent either insurers or insureds, or both.
208
Independent adjuster
An independent claims representative who handles claims for insurers for a fee.
209
Public adjuster
An outside organization or person hired by an insured to represent the insured in a claim in exchange for a fee.
210
Loss ratio
A ratio that measures losses and loss adjustment expenses against earned premiums and that reflects the percentage of premiums being consumed by losses.
211
Loss adjustment expense (LAE)
The expense that an insurer incurs to investigate, defend, and settle claims according to the terms specified in the insurance policy.
212
Claims guidelines
A set of guidelines and instructions that specify how certain claims handling tasks should be performed by setting policies and procedures for claims handling.
213
Access security
A security setting that controls an individual computer user's ability to review, enter, and change information in a claims information system.
214
Authority level
A designated dollar amount assigned to claims personnel to limit the reserve amounts they can set and the payment amounts they can make.
215
Claims audit
A review of claim files to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included.
216
Internal claims audit
A review of claim files conducted by an insurer's staff to examine the technical details of claim settlements; ensure that claims procedures are followed; and verify that appropriate, thorough documentation is included.
217
External claims audit
A review of claim files conducted by organizations other than the insurer that involves reviewing overall claims handling practices; reviewing reserves and other technical details of claim settlements; investigating
218
Reservation of rights letter
An insurer's letter that specifies coverage issues and informs the insured that the insurer is handling a claim with the understanding that the insurer may later deny coverage should the facts warrant it.
219
Nonwaiver agreement
A signed agreement indicating that during the course of investigation, neither the insurer nor the insured waives rights under the policy.
220
Diary, or suspense
A system to remind claims personnel to perform a particular task on a claim.
221
Activity log
A record of all the activities and analyses that occur while handling a claim.
222
Subrogation
The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.
223
Mediation
An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a mutually agreeable settlement.
224
Arbitration
An alternative dispute resolution (ADR) method by which disputing parties use a neutral outside party to examine the issues and develop a settlement, which can be final and binding.
225
Appraisal
A method of resolving disputes between insurers and insureds over the amount owed on a covered loss.
226
Mini-trial
An alternative dispute resolution method by which a case undergoes an abbreviated version of a trial before a panel or an adviser who poses questions and offers opinions on the outcome of a trial, based on the evidence presented.
227
Summary jury trial
An alternative dispute resolution method by which disputing parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel of mock jurors who decide the case.
228
Special form coverage
Property insurance coverage covering all causes of loss not specifically excluded.
229
Direct loss
A reduction in the value of property that results directly and often immediately from damage to that property.
230
Indirect loss
A loss that arises as a result of damage to property, other than the direct loss to the property.
231
Compensatory damages
A payment awarded by a court to reimburse a victim for actual harm.
232
Primary insurer
In reinsurance, the insurer (also referred to as the ceding company) that transfers or cedes all or part of the insurance risk it has assumed to another insurer in a contractual arrangement.
233
Reinsurer
The insurer that assumes some or all of the potential costs of insured loss exposures of the primary insurer in a reinsurance contractual agreement.
234
Reinsurance agreement
Contract between the primary insurer and reinsurer that stipulates the form of reinsurance and the type of accounts to be reinsured.
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Retention
A risk financing technique by which losses are retained by generating funds within the organization to pay for the losses.
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Ceding commission
An amount paid by the reinsurer to the primary insurer to cover part or all of the primary insurer's policy acquisition expenses and other costs.
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Retrocession
A reinsurance agreement whereby one reinsurer (the retrocedent) transfers all or part of the reinsurance risk it has assumed or will assume to another reinsurer (the retrocessionaire).
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Retrocedent
The reinsurer that transfers or cedes all or part of the insurance risk it has assumed to another reinsurer.
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Retrocessionaire
The reinsurer that assumes all or part of the reinsurance risk accepted by another reinsurer.
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Large-line capacity
An insurer's ability to provide larger amounts of insurance for property loss exposures, or higher limits of liability for liability loss exposures, than it is otherwise willing to provide.
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Line
The maximum amount of insurance or limit of liability that an insurer will accept on a single loss exposure.
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Surplus relief
A flow of funds into an insurer's policyholders' surplus when policyholders' surplus has been reduced by the insurer's rapid growth in written premiums.
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Policyholders' surplus
Under statutory accounting principles (SAP), an insurer's total admitted assets minus its total liabilities.
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Portfolio reinsurance
Reinsurance that transfers to the reinsurer liability for an entire type of insurance, territory, or book of business after the primary insurer has issued the policies.
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Novation
The act of substituting a contract with another contract, an obligation with another obligation, or a party with another party or adding an obligation.
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Professional reinsurer
An insurer whose primary business purpose is serving other insurers' reinsurance needs.
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Reinsurance intermediary
An intermediary that works with primary insurers to develop reinsurance programs and that negotiates contracts of reinsurance between the primary insurer and reinsurer, receiving commission for placement and other
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Reinsurance pools, syndicates, and associations
Groups of insurers that share the loss exposures of the group, usually through reinsurance.
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Reinsurance pool
A reinsurance association that consists of several unrelated insurers or reinsurers that have joined to insure risks the individual members are unwilling to individually insure.
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Syndicate
A group of insurers or reinsurers involved in joint underwriting to insure major risks that are beyond the capacity of a single insurer or reinsurer; each syndicate member accepts predetermined shares of premiums,
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Association
An organization of member companies that reinsure by fixed percentage the total amount of insurance appearing on policies issued by the organization.
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Pro rata reinsurance
A type of reinsurance in which the primary insurer and reinsurer proportionately share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses).
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Flat commission
A ceding commission that is a fixed percentage of the ceded premiums.
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Profit-sharing commission
A ceding commission that is contingent on the reinsurer realizing a predetermined percentage of excess profit on ceded loss exposures.
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Sliding scale commission
A ceding commission based on a formula that adjusts the commission according to the profitability of the reinsurance agreement.
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Quota share reinsurance
A type of pro rata reinsurance in which the primary insurer and the reinsurer share the amounts of insurance, policy premiums, and losses (including loss adjustment expenses) using a fixed percentage.
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Surplus share reinsurance
A type of pro rata reinsurance in which the policies covered are those whose amount of insurance exceeds a stipulated dollar amount, or line.
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Variable quota share treaty
A quota share reinsurance treaty in which the cession percentage retention varies based on specified predetermined criteria such as the amount of insurance needed.
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Reinsurance limit
The maximum amount that the reinsurer will pay for a claim and that is commonly stated in the reinsurance agreement.
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Excess of loss reinsurance
A type of reinsurance in which the primary insurer is indemnified for the portion of each loss that exceeds a specified dollar amount.
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Attachment point
The dollar amount above which the reinsurer responds to losses.
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Subject premium
The premium the primary insurer charges on its underlying policies and to which a rate is applied to determine the reinsurance premium.
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Per risk excess of loss reinsurance
A type of excess of loss reinsurance that covers property insurance and that applies separately to each loss occurring to each risk.
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Catastrophe excess of loss reinsurance
A type of excess of loss reinsurance that protects the primary insurer from an accumulation of retained losses that arise from a single catastrophic event.
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Co-participation provision
A provision in a reinsurance agreement that requires the primary insurer to retain a specified percentage of the losses that exceed its attachment point.
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Per policy excess of loss reinsurance
A type of excess of loss reinsurance that applies the attachment point and the reinsurance limit separately to each insurance policy issued by the primary insurer regardless of the number of losses occurring under each
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Per occurrence excess of loss reinsurance
A type of excess of loss reinsurance that applies the attachment point and reinsurance limit to the total losses arising from a single event affecting one or more of the primary insurer's policies.
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Aggregate excess of loss reinsurance
A type of excess of loss reinsurance that covers aggregated losses that exceed the attachment point, stated as a dollar amount of loss or as a loss ratio, and that occur over a specified period, usually one year.
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Finite risk reinsurance
A nontraditional type of reinsurance in which the reinsurer's liability is limited and anticipated investment income is expressly acknowledged as an underwriting component.
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Capital market
A financial market in which long-term securities are traded.
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Securitization of risk
The use of securities or financial instruments (for example, stocks, bonds, commodities, financial futures) to finance an insurer's exposure to catastrophic loss.
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Special purpose vehicle (SPV)
A facility established for the purpose of purchasing income-producing assets from an organization, holding title to them, and then using those assets to collateralize securities that will be sold to investors.
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Insurance derivative
Financial contract whose value is based on the level of insurable losses that occur during a specific time period.
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Contingent capital arrangement
An agreement, entered into before any losses occur, that enables an organization to raise cash by selling stock or issuing debt at prearranged terms after a loss occurs that exceeds a certain threshold.
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Insurance-linked security
A financial instrument whose value is primarily driven by insurance and/or reinsurance loss events.
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Surplus note
A type of unsecured debt instrument, issued only by insurers, that has characteristics of both conventional equity and debt securities and is classified as policyholders’ surplus rather than as a liability on the
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Strike price
The price at which the stock or commodity underlying a call option (such as a warrant) or a put option can be purchased (called) or sold (put) during a specified period.
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Strategic management process
The process an organization uses to formulate and implement its business strategies.
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Mission statement
A broad expression of an entity's goals.
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SWOT analysis
A method of evaluating the internal and external environments by assessing an organization's internal strengths and weaknesses and its external opportunities and threats.
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Functional structure
An organizational structure in which departments are defined by the operation they perform.
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Multidivisional structure
An organizational structure in which divisions are organized into separate profit centers.
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Cost leadership
A business-level strategy through which a company seeks cost efficiencies in all operational areas.
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Five Forces Model
A method of evaluating the external environment in which a company operates. Involves assessing five forces that drive competition: threat of new entrants, threat of substitute products or services, bargaining power of
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Trend analysis
An analysis that identifies patterns in past data and then projects these patterns into the future.
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Vertical integration strategy
A corporate-level strategy through which a company either produces its own inputs or disposes of its own outputs.
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Related diversification strategy
A corporate-level strategy through which a company expands its operations into areas that are similar to its existing operations.
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Unrelated diversification strategy
A corporate-level strategy through which a company expands its operations into areas that have no relation to its existing operations.
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Differentiation strategy
A business-level strategy through which a company develops products or services that are distinct and for which customers will pay a higher price than that of the competition.
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Focused cost leadership strategy
A business-level strategy through which a company focuses on one group of customers and offers a low-price product or service.
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Focused differentiation strategy
A business-level strategy through which a company focuses on one group of customers and offers unique or customized products that permit it to charge a higher price than that of the competition.
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Underwriting cycle
A cyclical pattern of insurance pricing in which a soft market (low rates, relaxed underwriting, and underwriting losses) is eventually followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before
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Profit cycle
A recurring increase and decrease in profits, usually regarding a single organization or industry.
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Operating ratio
A ratio that measures an insurer's overall pretax operational profitability from underwriting and investment activities and is calculated by subtracting the investment income ratio from the combined ratio.
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Nonadmitted insurer
An insurer not authorized by the state insurance department to do business within that state.
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Capacity
The amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus.
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Reunderwriting
The process of analyzing the characteristics of policies within a portfolio and the trends of those characteristics.
