CPCU 520 Exam Questions

Jan 5, 2016

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    CPCU 520 Exam Question Format
    The CPCU 520 exam questions, similar to the CPCU 500 exam questions, require you to fully understand and apply every minor detail of the ten major CPCU 520 topics. When I say you must be able to apply your knowledge from these topics, I mean these questions will put you in the shoes of an insurance professional; it will be your job to analyze each question in order to select the best answer for the given scenario. You will NOT be simply repeating a definition.

    If you’ve already passed your CPCU 500 exam, then you’ll have no problem with the CPCU 520 exam format and question types. The CPCU 520 questions will be formatted in a similar manner to the CPCU 500 exam. Remember these questions are tricky; the hardest part will be staying focused and fully reading the question in order to select the best answer.

    For more insight into the CPCU 520 exam, see our blog on the CPCU 520 difficulty

    CPCU 520 Exam
    The CPCU 520 exam consists of 75 multiple choice questions split up into two sections:

    Part A: 49 concept questions
    • These questions will test your understanding of the topic or definition. The multiple choice answers will generally provide 2 or 3 partially correct answers and one “best” answer.
    • Part B: 29 case questions

    Part B: 29 case questions
    • These questions will test your application of the information. You will be given a real life scenario; your job will be to select the best recommendation to solve the scenario.

    CPCU 520 Part A: Concept Question Example
    ABC Mutual Insurance submits a proposal to the Department of Insurance to increase their homeowner liability rates by 7%. After 30 days without a response from the Department of Insurance, ABC Mutual Insurance implements their rate change.

    This is an example of which rating law?

    A. File and use
    B. Use and file
    C. Flex rating
    D. Prior approval

    Answer: D – Prior Approval

    As you can see, a concept question will not ask for you to define anything (as is common in a college exam), it will instead ask you a question in regard to a definition. This means you must fully understand the definition, fully understand all minor details about the definition and fully understand how this definition is applied, meaning you must know “what are the different rating laws” and “what rating law allows implementation after 30 days”

    The answer is D in this case because this is an example of a prior approval law with a deemer provision. The deemer provision states that if the insurer has not heard from the state insurance department within a set amount of time (usual 30-90 days), then the filing is considered to be approved and can be implemented.

    In a typical exam, such as a college exam, you might expect this question to ask “What is the deemer provision?” The CPCU exams will rarely format a question in this manner. You should always expect for the question and answers to be formatted using real life scenarios, often providing 2 or 3 partially correct answers and one BEST answer

    As mentioned in our blog about the CPCU 520 difficulty, the hardest part of the CPCU 520 will be learning the minor details and complexities of each insurance function. Notice in this example the deemer provision is a minor detail; missing this one little detail would result in choosing the wrong answer.

    For more concept questions, check out our CPCU 520 practice exam

    CPCU 520 Part B: Case Question Example
    Matrix Insurance has $100,000 written premium, $90,000 earned premium and $10,000 investment income for the year of 2014. Matrix incurred $50,000 in losses, $10,000 in underwriting expenses and $25,000 in total expenses for 2014. Total net income for 2014 was $30,000.

    What is Matrix’s operating ratio rounded to the nearest whole number?

    A. 66%
    B. 87%
    C. 55%
    D. 120%

    Answer: C – 55%

    A case question will give you a scenario like the one seen above; you will be required to select the correct answer based on the given scenario. For a scenario question you must fully understand what is being asked and fully understand how to apply the information you have learned from studying.

    In this example you are given a lot of information, some of which is useful to the scenario and some of which is intended to confuse you. In this case you must know:
    • How to calculate operating ratio
    • What numbers are needed to calculate operating ratio
    • How to calculate the components of operating ratio

    In this case the answer is C because: Operating ratio = combined ratio – investment income ratio (66% – 11% = 55)

    Combined ratio = loss ratio + expense ratio = (56% + 10% = 66%)
    • Loss ratio = Incurred loss ÷ earned premium ($50,000 ÷ $90,000 = 56%)
    • Expense ratio = underwriting expense ÷ written premium ($10,000 ÷ $100,000 = 10%)

    Investment income ratio = net investment income ÷ earned premium
    • Investment income ratio = $10,000 ÷ $90,000 = 11%

    These questions are tricky and will require a LOT of critical thinking and question analysis.For more concept question practice, download our CPCU 520 practice exam

    For the full blog post, see CPCU 520 Exam Questions