CPCU 520 UPDATED EXAM SCRIPT QUESTIONS AND
ANSWERS GUARANTEE A+
✔✔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.
✔✔Guaranty fund - ✔✔A state-established fund that provides a system for the payment
of some of the unpaid claims of insolvent insurers licensed in that state, generally
funded by assessments collected from all insurers licensed in the state.
✔✔Good-faith claim handling - ✔✔The manner of handling claims that requires an
insurer to give consideration to the insured's interests that is at least equal to the
consideration it gives its own interests.
✔✔Bad faith (outrage) - ✔✔A breach of the duty of good faith and fair dealing.
✔✔Mortgagor - ✔✔The person or organization that borrows money from a mortgagee to
finance the purchase of real property.
✔✔Advisory organization - ✔✔An independent organization that works with and on
behalf of insurers that purchase or subscribe to its services.
✔✔Prospective loss costs - ✔✔Loss data that are modified by loss development,
trending, and credibility processes, but without considerations for profit and expenses.
✔✔Chapter 3 - ✔✔
✔✔Captive insurer, or captive - ✔✔A subsidiary formed to insure the loss exposures of
its parent company and the parent's affiliates.
✔✔Risk retention group - ✔✔A group captive formed under the requirements of the
Liability Risk Retention Act of 1986 to insure the parent organizations.
, ✔✔Market intelligence - ✔✔Information gathered and analyzed regarding a company's
markets to improve competitive decision-making.
✔✔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 the
pattern again repeats itself.
✔✔Focus group - ✔✔A small group of customers or potential customers brought
together to provide opinions about a specific product, service, need, or other issue.
✔✔Predictive analytics - ✔✔Statistical and analytical techniques used to develop
models that predict future events or behaviors.
✔✔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.
✔✔Target marketing - ✔✔Focusing marketing efforts on a specific group of consumers.
✔✔Niche marketing - ✔✔A type of marketing that focuses on specific types of buyers
who are a subset of a larger market.
✔✔Distribution system - ✔✔The necessary people and physical facilities to support the
sale of insurance products and services.
✔✔Agency expiration list - ✔✔The record of an insurance agency's present
policyholders and the dates their policies expire.
✔✔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.
✔✔Managing general agent (MGA) - ✔✔An authorized agent of the primary insurer that
manages all or part of the primary insurer's insurance activities, usually in a specific
geographic area.
✔✔Direct response distribution channel - ✔✔An insurance distribution channel that
markets directly to the customer through such distribution channels as mail, telephone,
or the Internet.
✔✔Affinity marketing - ✔✔A type of group marketing that targets various groups based
on profession, association, interests, hobbies, and attitudes.
✔✔Cold canvass - ✔✔Contacting a prospect without an appointment.
ANSWERS GUARANTEE A+
✔✔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.
✔✔Guaranty fund - ✔✔A state-established fund that provides a system for the payment
of some of the unpaid claims of insolvent insurers licensed in that state, generally
funded by assessments collected from all insurers licensed in the state.
✔✔Good-faith claim handling - ✔✔The manner of handling claims that requires an
insurer to give consideration to the insured's interests that is at least equal to the
consideration it gives its own interests.
✔✔Bad faith (outrage) - ✔✔A breach of the duty of good faith and fair dealing.
✔✔Mortgagor - ✔✔The person or organization that borrows money from a mortgagee to
finance the purchase of real property.
✔✔Advisory organization - ✔✔An independent organization that works with and on
behalf of insurers that purchase or subscribe to its services.
✔✔Prospective loss costs - ✔✔Loss data that are modified by loss development,
trending, and credibility processes, but without considerations for profit and expenses.
✔✔Chapter 3 - ✔✔
✔✔Captive insurer, or captive - ✔✔A subsidiary formed to insure the loss exposures of
its parent company and the parent's affiliates.
✔✔Risk retention group - ✔✔A group captive formed under the requirements of the
Liability Risk Retention Act of 1986 to insure the parent organizations.
, ✔✔Market intelligence - ✔✔Information gathered and analyzed regarding a company's
markets to improve competitive decision-making.
✔✔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 the
pattern again repeats itself.
✔✔Focus group - ✔✔A small group of customers or potential customers brought
together to provide opinions about a specific product, service, need, or other issue.
✔✔Predictive analytics - ✔✔Statistical and analytical techniques used to develop
models that predict future events or behaviors.
✔✔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.
✔✔Target marketing - ✔✔Focusing marketing efforts on a specific group of consumers.
✔✔Niche marketing - ✔✔A type of marketing that focuses on specific types of buyers
who are a subset of a larger market.
✔✔Distribution system - ✔✔The necessary people and physical facilities to support the
sale of insurance products and services.
✔✔Agency expiration list - ✔✔The record of an insurance agency's present
policyholders and the dates their policies expire.
✔✔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.
✔✔Managing general agent (MGA) - ✔✔An authorized agent of the primary insurer that
manages all or part of the primary insurer's insurance activities, usually in a specific
geographic area.
✔✔Direct response distribution channel - ✔✔An insurance distribution channel that
markets directly to the customer through such distribution channels as mail, telephone,
or the Internet.
✔✔Affinity marketing - ✔✔A type of group marketing that targets various groups based
on profession, association, interests, hobbies, and attitudes.
✔✔Cold canvass - ✔✔Contacting a prospect without an appointment.
