CFP CFP InsurTech & Lending Technology 2 — Questions and Answers
Question 1: What is 'embedded insurance' in the InsurTech context?
- Insurance bundled into non-insurance products or platforms at the point of sale (Correct answer)
- Insurance policies embedded in blockchain contracts
- Mandatory insurance included in mortgages
- Government insurance embedded in tax refunds
Correct answer: Insurance bundled into non-insurance products or platforms at the point of sale
Embedded insurance integrates coverage seamlessly into the purchase of a product or service (e.g., travel insurance offered when booking a flight), streamlining distribution.
Question 2: What is a 'parametric insurance' policy?
- An insurance policy with adjustable deductibles
- A policy that pays a fixed amount when a specific triggering event occurs, regardless of actual loss (Correct answer)
- Insurance pricing based on actuarial tables only
- A health insurance plan with copays based on income
Correct answer: A policy that pays a fixed amount when a specific triggering event occurs, regardless of actual loss
Parametric insurance pays a predetermined amount when a measurable event (e.g., earthquake above magnitude 6.0) occurs, eliminating lengthy claims investigations.
Question 3: What is 'buy now, pay later' (BNPL) and how is it regulated in the U.S.?
- A revolving credit line; regulated by OCC
- A short-term installment loan offered at point of sale; subject to CFPB oversight under TILA (Correct answer)
- A deferred payment agreement; exempt from all federal regulation
- A credit card feature; regulated solely by state laws
Correct answer: A short-term installment loan offered at point of sale; subject to CFPB oversight under TILA
BNPL is a short-term financing option splitting purchases into installments; the CFPB has asserted that BNPL products are subject to TILA protections including dispute rights.
Question 4: What does 'open banking' enable for lending fintech platforms in the U.S.?
- Banks to share customer data with third parties via APIs with customer consent (Correct answer)
- Fintechs to bypass credit bureau reporting requirements
- Lenders to offer unlimited credit without collateral
- Customers to access competitor banks' interest rates directly
Correct answer: Banks to share customer data with third parties via APIs with customer consent
Open banking allows consumers to share their financial data (bank account history, cash flow) with fintech lenders via secure APIs, improving underwriting accuracy.
Question 5: What is 'algorithmic bias' risk in fintech lending?
- Errors caused by slow processing algorithms
- When AI/ML models systematically disadvantage protected groups in credit decisions (Correct answer)
- Overcharging borrowers due to compound interest calculations
- Data errors from manual loan entry processes
Correct answer: When AI/ML models systematically disadvantage protected groups in credit decisions
Algorithmic bias occurs when lending models trained on historical data perpetuate or amplify existing discrimination, potentially violating ECOA and Fair Housing Act standards.
Question 6: What is the role of 'reinsurance technology' (reinsurtech) in the insurance ecosystem?
- Digitizing policyholder renewal notices
- Applying technology to improve risk transfer, pricing, and data exchange between insurers and reinsurers (Correct answer)
- Automating claim payments to policyholders
- Replacing human agents with chatbots
Correct answer: Applying technology to improve risk transfer, pricing, and data exchange between insurers and reinsurers
Reinsurtech uses data analytics, AI, and digital platforms to improve how insurers transfer risk to reinsurers, enabling more accurate pricing and faster contract execution.
CFP CFP InsurTech & Lending Technology 2
What is 'embedded insurance' in the InsurTech context?