CPCU 520 Terms Exam Questions Answered Correctly Latest Update 2025-2026
Cost leadership - Answers A business-level strategy through which a company seeks cost
efficiencies in all operational areas.
Underwriting - Answers The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Loss ratio - Answers A ratio that measures losses and loss adjustment expenses against
earned premiums and that reflects the percentage of premiums being consumed by losses.
Premium audit - Answers 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.
National Association of Insurance Commissioners (NAIC) - Answers 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 insurance departments
Model law - Answers A document drafted by the 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 model bill or adopt it with modifications.
Model regulation - Answers A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Insolvency - Answers A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
Indemnify - Answers To restore a party who has sustained a loss to the same financial position
that party held before the loss occurred.
Third-party administrator (TPA) - Answers An organization that provides administrative services
associated with risk financing and insurance.
Claims representative - Answers A person responsible for investigating, evaluating, and settling
claims.
Producer - Answers Any of several kinds of insurance personnel who place insurance and surety
business with insurers and who represent either insurers or insureds, or both.
Public adjuster - Answers An outside organization or person hired by an insured to represent the
insured in a claim in exchange for a fee.
Loss adjustment expense (LAE) - Answers The expense that an insurer incurs to investigate,
, defend, and settle claims according to the terms specified in the insurance policy
Big data - Answers Sets of data that are too large to be gathered and analyzed by traditional
methods.
Internet of Things (IoT) - Answers A network of objects that transmit data to each other and to
central hubs through the internet.
Telematics - Answers 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.
Wearable sensor tag - Answers A sensor attached to or embedded in clothing and accessories.
Reservation of rights letter - Answers 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.
Nonwaiver agreement - Answers A signed agreement indicating that during the course of
investigation, neither the insurer nor the insured waives rights under the policy
Diary, or suspense - Answers A system to remind claims personnel to perform a particular task
on a claim.
Activity log - Answers A record of all the activities and analyses that occur while handling a
claim.
Subrogation - Answers 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.
Mediation - Answers 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
Arbitration - Answers 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.
Appraisal - Answers A method of resolving disputes between insurers and insureds over the
amount owed on a covered loss.
Mini-trial - Answers 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.
Summary jury trial - Answers An alternative dispute resolution method by which disputing
parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel
Cost leadership - Answers A business-level strategy through which a company seeks cost
efficiencies in all operational areas.
Underwriting - Answers The process of selecting insureds, pricing coverage, determining
insurance policy terms and conditions, and then monitoring the underwriting decisions made.
Loss ratio - Answers A ratio that measures losses and loss adjustment expenses against
earned premiums and that reflects the percentage of premiums being consumed by losses.
Premium audit - Answers 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.
National Association of Insurance Commissioners (NAIC) - Answers 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 insurance departments
Model law - Answers A document drafted by the 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 model bill or adopt it with modifications.
Model regulation - Answers A draft regulation that may be implemented by a state insurance
department if the model law is passed.
Insolvency - Answers A situation in which an entity's current liabilities (as opposed to its total
liabilities) exceed its current assets.
Indemnify - Answers To restore a party who has sustained a loss to the same financial position
that party held before the loss occurred.
Third-party administrator (TPA) - Answers An organization that provides administrative services
associated with risk financing and insurance.
Claims representative - Answers A person responsible for investigating, evaluating, and settling
claims.
Producer - Answers Any of several kinds of insurance personnel who place insurance and surety
business with insurers and who represent either insurers or insureds, or both.
Public adjuster - Answers An outside organization or person hired by an insured to represent the
insured in a claim in exchange for a fee.
Loss adjustment expense (LAE) - Answers The expense that an insurer incurs to investigate,
, defend, and settle claims according to the terms specified in the insurance policy
Big data - Answers Sets of data that are too large to be gathered and analyzed by traditional
methods.
Internet of Things (IoT) - Answers A network of objects that transmit data to each other and to
central hubs through the internet.
Telematics - Answers 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.
Wearable sensor tag - Answers A sensor attached to or embedded in clothing and accessories.
Reservation of rights letter - Answers 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.
Nonwaiver agreement - Answers A signed agreement indicating that during the course of
investigation, neither the insurer nor the insured waives rights under the policy
Diary, or suspense - Answers A system to remind claims personnel to perform a particular task
on a claim.
Activity log - Answers A record of all the activities and analyses that occur while handling a
claim.
Subrogation - Answers 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.
Mediation - Answers 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
Arbitration - Answers 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.
Appraisal - Answers A method of resolving disputes between insurers and insureds over the
amount owed on a covered loss.
Mini-trial - Answers 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.
Summary jury trial - Answers An alternative dispute resolution method by which disputing
parties participate in an abbreviated trial, presenting the evidence of a few witnesses to a panel
