CPCU 520 (THE INSTITUTES) STUDY GUIDE
Cost Leadership - Answers -A business-level strategy through which a company seeks
cost efficiencies in all operational areas.
Underwriting - Answers -T he 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.
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.
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.
, Telematics - Answers -The use of technological devices to transmit data via wireless
communication and GPS tracking.
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 of mock jurors who decide the case
Cost Leadership - Answers -A business-level strategy through which a company seeks
cost efficiencies in all operational areas.
Underwriting - Answers -T he 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.
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.
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.
, Telematics - Answers -The use of technological devices to transmit data via wireless
communication and GPS tracking.
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 of mock jurors who decide the case
