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CPCU 520 Chapter 1

CPCU 520 Chapter 1 Overview of Insurance Operations

TermDefinition
Surplus premium not immediately needed to pay operating expenses
Surplus notes issued by cooperatives to gain additional capital. Can be repaid only from profits; dependent on insurer's anticipated profitability
Mutual Insurer an insurer that is owned by its policy holders and formed as a corporation for the purpose of providing insurance to them. Cooperative.
Residual Market referring collectively to insurers and other organizations that make insurance available through a shared risk mechanism to those who cannot obtain coverage in the admitted market
Insured's total revenue premium and investment income
Insurers major goals Earn a profit; meet customer needs; comply with legal requirements; diversify risk; fulfill duty to society
Internal constraints on achieving insurer goals Efficiency, expertise, size of insurer, financial resources, other (lack of name/brand recognition or damaged reputation.)
External constraints on achieving insurer goals Regulation, rating agencies (financial strength), public opinion, competition, economic condition/downturn
Proprietary insurers Stock insurers (owned by stockholders), Lloyd's of London and American Lloyds, insurance exchanges
Cooperative insurers Mutuals (owned by policyholders), reciprocal insurance exchanges (agree to insure each other), fraternal organizations (Knights of Columbus), Other cooperatives (captives, risk retention groups, purchasing groups)
Other insurers Pools (join together to insure loss exposures indv insurers unwilling to insured alone), government insurers (NFIP, TRIA, FAIR)
Loss ratio formula Incurred losses divided by earned premium
Expense ratio formula incurred underwriting expenses divided by written premium
Combined ratio (Trade basis) formula loss ratio plus expense ratio
Overall gain/loss from operations formula net underwriting gain or loss plus investment gain or loss
Investment Income formula net investment income divided by earned premiums
Overall Operating ratio formula combined ratio minus investment income ratio
Return on Equity formula net income divided by owners' equity
Core functions performed by insurers Marketing and distribution, underwriting, claims
Supporting functions performed by insurers Risk control, premium auditing, actuarial, reinsurance, information technology
Other common functional areas Investment, accounting and finance, customer service, legal and compliance, human resources and SIU
Digitization of insurance data capture - data storage - data analytics
Blockchain virtual distributed ledger that maintains a dynamically updated list of data records that can't be changed once it has been validated.
Mining verification process removes intermediary validation and establishes trust without the use of a centralized authority.
Internet of Things a network of data that transmits data to insurers
Created by: CHahnCPCU
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