CPCU 520 QUESTIONS & ANSWERS
Property-Casualty Insurer Classifications - Answers -1) Legal form of Ownership
2) Place of Incorporation
3) Licensing Status
4) Insurance Distribution Systems & Channels
(Chapter 1)
Legal form of Ownership - Answers -1) Proprietary Insurers
2) Cooperative Insurers
3) Other Insurers
(Chapter 1)
Proprietary Insurers - Answers -Remember acronym SALE
1) Stock Insurers 2) American Lloyds
3) Lloyd's of London
4) Insurance Exchanges
(Chapter 1)
Goal of Proprietary Insurers - Answers -Earn a profit for its owners
(Chapter 1)
Stock Insurers - Answers -Most prevalent type of proprietary insurer in the U.S. and
they are owned by their stockholders. Stockholders supply the capital needed to form
the insurer or the additional capital the insurer needs to expand operations.
Stockholders have the right to elect the Board of Directors which oversees corporate
goals and appoints a CEO to carry out operations.
(Chapter 1)
Lloyd's - Answers -Not actually an insurer. Insurance marketplace like a stock
exchange. Members are investors who hope to earn a profit. Provides coverage for
many unusual or difficult loss exposures
(Chapter 1)
American Lloyds - Answers -Associations are smaller than London, and are domiciled
in TX for favorable regulatory environment. Members (underwriters) are not liable
beyond their investment in the association.
(Chapter 1)
Insurance exchanges - Answers -Marketplace similar to Lloyd's but can be individuals,
partnerships, or corporations with limited liability. Members underwrite any insurance or
reinsurance purchased on the exchange (Chapter 1)
Goal of Cooperative Insurers - Answers -Provide insurance to policyholders/owners
(Chapter 1)
,Cooperative Insurers - Answers -Remember acronym FROM
1) Fraternal Organizations
2) Reciprocal Insurance Exchanges
3) Other exchanges
4) Mutual Insurers
(Chapter 1)
Mutual Insurers - Answers -Constitute the largest number of cooperative insurers and
provide low-cost insurance to their policyholders, who are the owners of the insurer.
Voting rights to elect board of directors. Some profit is retained to increase surplus, and
excess profit is usually returned to policyholders as dividends. Include large national
insurers and many regional insurers.
(Chapter 1)
Reciprocal Insurance Exchanges - Answers -Consists of a series of private contracts in
which subscribers, or members of the group, agree to insure each other. Reciprocity of
responsibility of all subscribers to each other. Each member is both an insured and an
insurer. Manager is called an attorney-in-fact who handles all the duties necessary to
manage the reciprocal.
(Chapter 1)
Fraternal Organizations - Answers -Resemble mutual insurers but they combine a
lodge or social function with their insurance function. They write primarily life and health
insurance.
(Chapter 1)
Pools - Answers -consists of several insurers joining together to insure exposures
individual insurers are unwilling to insure. Many pools are required by law
(Chapter 1)
Domestic Insurer - Answers -formed under the low of the state they are doing business
(Chapter 1)
Foreign Insurer - Answers -licensed to do business in states other than its domiciled
state.
(Chapter 1)
Alien Insurer - Answers -Incorporated or formed in another country
(Chapter 1)
Admitted insurer - Answers -granted a license to operate in a particular state
(Chapter 1 & 2)
Nonadmitted Insurer - Answers -Not licensed (or authorized ) in the insured's home
state, but it may be an admitted insurer in other states. Usually a surplus lines insurer,
, and commonly include products liability, professional liability, employment practices
liability, special events and excess and umbrella policies.
(Chapter 1 & 2)
Types of insurance distribution system - Answers -1) Direct Writer
2) Independent Agency Marketing System
3) Exclusive Agency Marketing System
(Chapter 1)
Common Distribution Systems - Answers -1) Internet
2) Call Centers
3) Direst Response
4) Group Marketing
5) Financial Institutions
(Chapter 1)
Major Goals of Insurers - Answers -1) Earn a profit
2) Meet customer needs
3) Comply with legal requirements
4) Diversify risk
5) Fulfill their duty to society
(Chapter 1)
Diversify Risk - Answers -Emerging goal for property casualty insurers
High concentration of losses in a geographic area highlights insurers need to spread
risk
This goal compliments goals of earning a profit and fulfilling duty to society
(Chapter 1)
Fulfill Duty to Society - Answers -AT a minimum the insurer should avoid causing public
harm
(Chapter 1)
Internal constraints of insurers - Answers -Several internal constraints might prevent an
insurer from meeting all of its goals. Some of these constraints are imposed only in
certain circumstances:
1) Efficiency
2) Expertise
3) Size
4) Financial Resources
(Chapter 1)
Size - Answers -A small insurer has more challenges than a large insurer in terms of
available resources. Large insurers can take advantage of economies of scale and may
have more financial resources to update technology, etc. Small insurers may also be
more nimble in adapting to change.
Property-Casualty Insurer Classifications - Answers -1) Legal form of Ownership
2) Place of Incorporation
3) Licensing Status
4) Insurance Distribution Systems & Channels
(Chapter 1)
Legal form of Ownership - Answers -1) Proprietary Insurers
2) Cooperative Insurers
3) Other Insurers
(Chapter 1)
Proprietary Insurers - Answers -Remember acronym SALE
1) Stock Insurers 2) American Lloyds
3) Lloyd's of London
4) Insurance Exchanges
(Chapter 1)
Goal of Proprietary Insurers - Answers -Earn a profit for its owners
(Chapter 1)
Stock Insurers - Answers -Most prevalent type of proprietary insurer in the U.S. and
they are owned by their stockholders. Stockholders supply the capital needed to form
the insurer or the additional capital the insurer needs to expand operations.
Stockholders have the right to elect the Board of Directors which oversees corporate
goals and appoints a CEO to carry out operations.
(Chapter 1)
Lloyd's - Answers -Not actually an insurer. Insurance marketplace like a stock
exchange. Members are investors who hope to earn a profit. Provides coverage for
many unusual or difficult loss exposures
(Chapter 1)
American Lloyds - Answers -Associations are smaller than London, and are domiciled
in TX for favorable regulatory environment. Members (underwriters) are not liable
beyond their investment in the association.
(Chapter 1)
Insurance exchanges - Answers -Marketplace similar to Lloyd's but can be individuals,
partnerships, or corporations with limited liability. Members underwrite any insurance or
reinsurance purchased on the exchange (Chapter 1)
Goal of Cooperative Insurers - Answers -Provide insurance to policyholders/owners
(Chapter 1)
,Cooperative Insurers - Answers -Remember acronym FROM
1) Fraternal Organizations
2) Reciprocal Insurance Exchanges
3) Other exchanges
4) Mutual Insurers
(Chapter 1)
Mutual Insurers - Answers -Constitute the largest number of cooperative insurers and
provide low-cost insurance to their policyholders, who are the owners of the insurer.
Voting rights to elect board of directors. Some profit is retained to increase surplus, and
excess profit is usually returned to policyholders as dividends. Include large national
insurers and many regional insurers.
(Chapter 1)
Reciprocal Insurance Exchanges - Answers -Consists of a series of private contracts in
which subscribers, or members of the group, agree to insure each other. Reciprocity of
responsibility of all subscribers to each other. Each member is both an insured and an
insurer. Manager is called an attorney-in-fact who handles all the duties necessary to
manage the reciprocal.
(Chapter 1)
Fraternal Organizations - Answers -Resemble mutual insurers but they combine a
lodge or social function with their insurance function. They write primarily life and health
insurance.
(Chapter 1)
Pools - Answers -consists of several insurers joining together to insure exposures
individual insurers are unwilling to insure. Many pools are required by law
(Chapter 1)
Domestic Insurer - Answers -formed under the low of the state they are doing business
(Chapter 1)
Foreign Insurer - Answers -licensed to do business in states other than its domiciled
state.
(Chapter 1)
Alien Insurer - Answers -Incorporated or formed in another country
(Chapter 1)
Admitted insurer - Answers -granted a license to operate in a particular state
(Chapter 1 & 2)
Nonadmitted Insurer - Answers -Not licensed (or authorized ) in the insured's home
state, but it may be an admitted insurer in other states. Usually a surplus lines insurer,
, and commonly include products liability, professional liability, employment practices
liability, special events and excess and umbrella policies.
(Chapter 1 & 2)
Types of insurance distribution system - Answers -1) Direct Writer
2) Independent Agency Marketing System
3) Exclusive Agency Marketing System
(Chapter 1)
Common Distribution Systems - Answers -1) Internet
2) Call Centers
3) Direst Response
4) Group Marketing
5) Financial Institutions
(Chapter 1)
Major Goals of Insurers - Answers -1) Earn a profit
2) Meet customer needs
3) Comply with legal requirements
4) Diversify risk
5) Fulfill their duty to society
(Chapter 1)
Diversify Risk - Answers -Emerging goal for property casualty insurers
High concentration of losses in a geographic area highlights insurers need to spread
risk
This goal compliments goals of earning a profit and fulfilling duty to society
(Chapter 1)
Fulfill Duty to Society - Answers -AT a minimum the insurer should avoid causing public
harm
(Chapter 1)
Internal constraints of insurers - Answers -Several internal constraints might prevent an
insurer from meeting all of its goals. Some of these constraints are imposed only in
certain circumstances:
1) Efficiency
2) Expertise
3) Size
4) Financial Resources
(Chapter 1)
Size - Answers -A small insurer has more challenges than a large insurer in terms of
available resources. Large insurers can take advantage of economies of scale and may
have more financial resources to update technology, etc. Small insurers may also be
more nimble in adapting to change.
