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CPCU 520 Chapter 5

CPCU 520 Chapter 5 Risk Control and Premium Auditing

Moral hazard a condition that increases the likelihood that a person will intentionally cause or exaggerate a loss
Morale hazard a condition of carelessness or indifference that increases the frequency or severity of loss
Exposure unit a fundamental measure of the loss exposure assumed by an insurer
Experience modification a rate multiplier derived from the experience rating computations
Exposure unit (unit of exposure) the unit of measure (i.e. area, gross receipts, payroll) used to determine an insurers policy premium
Test audit an audit conducted by an insurance advisory organization or bureau to check the accuracy of insurers’ premium audits
Premium pay (shift differential) a payroll system that increases the regular hourly wage rate for the night shift or other special conditions
Deposit premium the amount the primary insurer pays the reinsurer pending the determination of the actual reinsurance premium owed
Primary purpose of risk control function evaluate loss exposures to assist with underwriting decisions
Insurer risk control goals earn a profit; meet customer needs; comply with legal requirements; fulfill duty to society
Types of risk control services conducting physical surveys; performing risk analysis and improvements; developing safety managment programs
Factors affecting risk control service levels line of insurance; commercial insured size; types of loss exposures insured; potential legal liability
Departments risk control cooperates with underwriting; marketing and sales; premium auditing; claims, producers
Reasons for premium audits determine correct premiums; collect ratemaking data; meet regulatory requirements; deter and detect fraud; reinsurance insured's confidence; obtain additional information
Premium audit process planning; reviewing operations; determining employment relationships; finding/evaluating books and records; auditing books or records; analyzing and verifying premium related data; reporting the findings
Premium audit contributions ability to properly classify accounts; conducted in timely manner; verify employment classification regarding claims; provide information for risk control
Created by: CHahnCPCU
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