CPCU 520 Exam Questions and Answers| New Update with 100% Correct Answers
Chapter 1
Proprietary insurers Insurer formed for the purpose of earning a profit for its owners.
Mutual insurer An insurer owned by its policyholders and incorporated to provide insurance
for them.
Reciprocal Insurance Exchange (interinsurance exchange) Insurer owned by policyholders,
formed as unincorporated association to provide insurance to members (called subscribers),
and managed by an attorney-in-fact. Members agree to mutually insure each other, with profits
and losses shared in proportion to amount of insurance purchased from the exchange by that
owner.
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.
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.
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 is permitted to write
insurance because coverage is not available through standard market insurers.
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.
,Direct writer marketing system An insurance marketing system that uses sales agents (or
sales representatives) who are direct employees of the insurer.
Exclusive marketing system An insurance marketing system under which agents contract to
sell insurance exclusively for one insurer (or for an associated group of insurers).
Distribution channel The channel used by the producer of a product or service to transfer
that product or service to the ultimate customer.
Probable maximum loss (PML) The largest loss that an insured is likely to sustain.
Underwriting The process of selecting insureds, pricing coverage, determining insurance
policy terms and conditions, and then monitoring the underwriting decisions made.
Book of business A group of policies with a common characteristic, such as territory or type
of coverage, or all policies written by a particular insurer or agency.
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.
Adverse selection In general, the tendency for people with the greatest probability of loss to
be the ones most likely to purchase insurance.
Chapter 2
National Association of Insurance Commissioners (NAIC) An association of insurance
commissioners from the fifty U.S. states, the District of Columbia, and the five U.S. territories
and possessions, whose purpose is to coordinate insurance regulation activities among various
state insurance departments.
, Model law A document drafted by NAIC, in a style similar to a state statute, that reflects the
NAIC's proposed solution to a given problem or issue and provides a common basis to the
states for drafting laws that affect the insurance industry. Any state may choose to adopt the
bill or adopt it with modifications.
Model regulation A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Domestic insurer An insurer doing business in the jurisdiction in which it is incorporated.
Foreign insurer An insurer licensed to operate in a state but incorporated in another state.
Alien insurer An insurer domiciled in a country other than the United States.
Capital stock A balance sheet value that represents the amount of funds that a corporation's
stockholders have contributed through the purchase of stock.
Paid-in surplus The amount stockholders paid in excess of the par value of the stock.
Reciprocal insurer 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 mutually insure each other, and they
share profits and losses in the same proportion as the amount of insurance purchased from the
exchange by that member.
Insolvency A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
Chapter 1
Proprietary insurers Insurer formed for the purpose of earning a profit for its owners.
Mutual insurer An insurer owned by its policyholders and incorporated to provide insurance
for them.
Reciprocal Insurance Exchange (interinsurance exchange) Insurer owned by policyholders,
formed as unincorporated association to provide insurance to members (called subscribers),
and managed by an attorney-in-fact. Members agree to mutually insure each other, with profits
and losses shared in proportion to amount of insurance purchased from the exchange by that
owner.
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.
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.
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 is permitted to write
insurance because coverage is not available through standard market insurers.
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.
,Direct writer marketing system An insurance marketing system that uses sales agents (or
sales representatives) who are direct employees of the insurer.
Exclusive marketing system An insurance marketing system under which agents contract to
sell insurance exclusively for one insurer (or for an associated group of insurers).
Distribution channel The channel used by the producer of a product or service to transfer
that product or service to the ultimate customer.
Probable maximum loss (PML) The largest loss that an insured is likely to sustain.
Underwriting The process of selecting insureds, pricing coverage, determining insurance
policy terms and conditions, and then monitoring the underwriting decisions made.
Book of business A group of policies with a common characteristic, such as territory or type
of coverage, or all policies written by a particular insurer or agency.
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.
Adverse selection In general, the tendency for people with the greatest probability of loss to
be the ones most likely to purchase insurance.
Chapter 2
National Association of Insurance Commissioners (NAIC) An association of insurance
commissioners from the fifty U.S. states, the District of Columbia, and the five U.S. territories
and possessions, whose purpose is to coordinate insurance regulation activities among various
state insurance departments.
, Model law A document drafted by NAIC, in a style similar to a state statute, that reflects the
NAIC's proposed solution to a given problem or issue and provides a common basis to the
states for drafting laws that affect the insurance industry. Any state may choose to adopt the
bill or adopt it with modifications.
Model regulation A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Domestic insurer An insurer doing business in the jurisdiction in which it is incorporated.
Foreign insurer An insurer licensed to operate in a state but incorporated in another state.
Alien insurer An insurer domiciled in a country other than the United States.
Capital stock A balance sheet value that represents the amount of funds that a corporation's
stockholders have contributed through the purchase of stock.
Paid-in surplus The amount stockholders paid in excess of the par value of the stock.
Reciprocal insurer 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 mutually insure each other, and they
share profits and losses in the same proportion as the amount of insurance purchased from the
exchange by that member.
Insolvency A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
