CPCU 520- Meeting Challenges Across
Insurance Operations Revision Exam
Questions And Correct Answers.
Cost leadership - Answer A business-level strategy through which a company seeks cost efficiencies in
all operational areas.
Underwriting - Answer The process of selecting insureds, pricing coverage, determining insurance
policy terms and conditions, and then monitoring the underwriting decisions made.
For underwriting to achieve its purpose, Insurers must minimize the effects of adverse selection on the
book of business
Loss ratio - Answer A ratio that measures losses and loss adjustment expenses against earned
premiums and that reflects the percentage of premiums being consumed by losses.
supply chain - Answer a network of connections between each of the entities (namely organizations)
that are used throughout the process of bringing a product or service to market—from suppliers to end
users. A supply chain model is used for identifying how reliant a business is on any point in the supply
chain and any potential weak links that could disrupt business.
value chain model - Answer is used for analyzing the input activities a single company performs to
create marketable outputs for customers and for identifying ways to maximize its competitive advantage.
Primary activities- Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service
Support activities- Infrastructure, Human Resources, Technology, and Procurement
three primary functions exist within the structure of a typical insurer - Answer marketing and
distribution- Marketing and distribution involves determining what products customers want and need,
advertising those products (communicating their value to customers), and delivering them to customers.
, underwriting- The goal of the underwriting function is to help the insurer write and maintain profitable
business. This requires selecting insureds whose covered losses are not likely to exceed the amount of
losses the insurer anticipated when it priced the insureds' coverage.
claims- An insurance policy is a promise by the insurer to make a payment to, or on behalf of, the
insured if an event covered under the policy occurs. The purpose of the claims function is to fulfill this
promise.
Support Activities - Answer 1) Risk control- can help marketing and sales by proving to applicants and
insureds that the insurer understands their business operations and associated hazards and is prepared
to help them protect their interests
2) Premium auditing
3) Actuarial
4) Reinsurance- Factors affecting a primary insurer's reinsurance limit selection are most accurately listed
as Maximum policy limit, extracontractual obligations, and loss adjustment expenses
5) IT- a rapidly growing value chain support function that provides the backbone that supports an
insurer's communications, operations, marketing, underwriting, investing, and claims handling
6) Investments- Insurers' operations frequently depend on investment earnings because premiums are
held competitively low to attract customers. As a result, investment earnings are frequently relied on to
off set high losses and rising costs.
7) Accounting and finance
8) Customer service
9) Legal and compliance
10) Human resources (HR)
,11) SIU
Marketing is an insurer's information portal to customers. Through this portal, which includes marketing
research and communication, insurers: - Answer Gather information about customers
Make decisions about segments of customers whose needs they can address and what products to sell
them
Disseminate information to existing and prospective customers
What are six of the methods that producers use to locate prospective clients:
1) Referrals from present clients
2) Referrals from strategic partners, such as financial institutions and real estate brokers
3) Advertising
4) Interactive websites, social media, and mobile marketing
5) Telephone solicitations
6) Cold canvassing
Premium audit - Answer 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.
Robin works for Taunton Insurance Company. She works directly with insureds and understands their
operations. Her responsibilities include accurately classifying an insured's loss exposures and
determining the exposure units on which the premium is based. Robin works as A premium auditor
Product Development Steps - Answer 1. Assessing opportunities:
Monitor market
Identify opportunity
Relate opportunity to business strategy
, Develop specifications
Secure senior management approval to proceed
2. Defining the product, underlying support, and pricing:
Specify the new product (or service)
Identify what's needed to support the new offering
Develop coverage and forms (for new policies)
Develop underwriting and claims guidelines (for new policies)
Develop pricing structure
Obtain approval from functional area managers to proceed
3. Creating a business forecast:
Identify performance metrics
Set performance expectations
expected premium volume
expected investment income
level of producer involvement
Develop a forecast
Obtain senior management approval to proceed/Senior management has SIGNED - OFF. SIGNED-OFF
EXAMPLE of Creating a Business Forecast- James is leading a multi-departmental team in the
development of a new insurance policy for transportation network companies. The team is currently
working on establishing benchmarks such as the expected premium volume, the expected investment
income, and the level of producer involvement required in the sales process. Which one of the following
steps of the product development process are they involved in?
4. Complying with regulatory requirements:
File with regulators (for new insurance products)
Develop statistical information systems
Communicate regulatory approval
Insurance Operations Revision Exam
Questions And Correct Answers.
Cost leadership - Answer A business-level strategy through which a company seeks cost efficiencies in
all operational areas.
Underwriting - Answer The process of selecting insureds, pricing coverage, determining insurance
policy terms and conditions, and then monitoring the underwriting decisions made.
For underwriting to achieve its purpose, Insurers must minimize the effects of adverse selection on the
book of business
Loss ratio - Answer A ratio that measures losses and loss adjustment expenses against earned
premiums and that reflects the percentage of premiums being consumed by losses.
supply chain - Answer a network of connections between each of the entities (namely organizations)
that are used throughout the process of bringing a product or service to market—from suppliers to end
users. A supply chain model is used for identifying how reliant a business is on any point in the supply
chain and any potential weak links that could disrupt business.
value chain model - Answer is used for analyzing the input activities a single company performs to
create marketable outputs for customers and for identifying ways to maximize its competitive advantage.
Primary activities- Inbound Logistics, Operations, Outbound Logistics, Marketing and Sales, and Service
Support activities- Infrastructure, Human Resources, Technology, and Procurement
three primary functions exist within the structure of a typical insurer - Answer marketing and
distribution- Marketing and distribution involves determining what products customers want and need,
advertising those products (communicating their value to customers), and delivering them to customers.
, underwriting- The goal of the underwriting function is to help the insurer write and maintain profitable
business. This requires selecting insureds whose covered losses are not likely to exceed the amount of
losses the insurer anticipated when it priced the insureds' coverage.
claims- An insurance policy is a promise by the insurer to make a payment to, or on behalf of, the
insured if an event covered under the policy occurs. The purpose of the claims function is to fulfill this
promise.
Support Activities - Answer 1) Risk control- can help marketing and sales by proving to applicants and
insureds that the insurer understands their business operations and associated hazards and is prepared
to help them protect their interests
2) Premium auditing
3) Actuarial
4) Reinsurance- Factors affecting a primary insurer's reinsurance limit selection are most accurately listed
as Maximum policy limit, extracontractual obligations, and loss adjustment expenses
5) IT- a rapidly growing value chain support function that provides the backbone that supports an
insurer's communications, operations, marketing, underwriting, investing, and claims handling
6) Investments- Insurers' operations frequently depend on investment earnings because premiums are
held competitively low to attract customers. As a result, investment earnings are frequently relied on to
off set high losses and rising costs.
7) Accounting and finance
8) Customer service
9) Legal and compliance
10) Human resources (HR)
,11) SIU
Marketing is an insurer's information portal to customers. Through this portal, which includes marketing
research and communication, insurers: - Answer Gather information about customers
Make decisions about segments of customers whose needs they can address and what products to sell
them
Disseminate information to existing and prospective customers
What are six of the methods that producers use to locate prospective clients:
1) Referrals from present clients
2) Referrals from strategic partners, such as financial institutions and real estate brokers
3) Advertising
4) Interactive websites, social media, and mobile marketing
5) Telephone solicitations
6) Cold canvassing
Premium audit - Answer 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.
Robin works for Taunton Insurance Company. She works directly with insureds and understands their
operations. Her responsibilities include accurately classifying an insured's loss exposures and
determining the exposure units on which the premium is based. Robin works as A premium auditor
Product Development Steps - Answer 1. Assessing opportunities:
Monitor market
Identify opportunity
Relate opportunity to business strategy
, Develop specifications
Secure senior management approval to proceed
2. Defining the product, underlying support, and pricing:
Specify the new product (or service)
Identify what's needed to support the new offering
Develop coverage and forms (for new policies)
Develop underwriting and claims guidelines (for new policies)
Develop pricing structure
Obtain approval from functional area managers to proceed
3. Creating a business forecast:
Identify performance metrics
Set performance expectations
expected premium volume
expected investment income
level of producer involvement
Develop a forecast
Obtain senior management approval to proceed/Senior management has SIGNED - OFF. SIGNED-OFF
EXAMPLE of Creating a Business Forecast- James is leading a multi-departmental team in the
development of a new insurance policy for transportation network companies. The team is currently
working on establishing benchmarks such as the expected premium volume, the expected investment
income, and the level of producer involvement required in the sales process. Which one of the following
steps of the product development process are they involved in?
4. Complying with regulatory requirements:
File with regulators (for new insurance products)
Develop statistical information systems
Communicate regulatory approval
