insureds, Pricing coverage, Determining insurance policy terms and conditions, and then Monitoring the underwriting decisions made. An Underwriter is an insurance company employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage and determines policy terms and conditions.
UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 2 Underwriting Activities Selecting Insureds Adverse Selection Considerations Why When Capacity Considerations (Capacity Ratio) Maintaining a spread of risk (Different Coverage's, Different Geographical Areas) Optimizing the use of available resources Arranging Re-insurance UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 3 Underwriting Activities Pricing Coverage Premium Determination Type of Rates A) Class Rates (Manual Rates) Merit Rating Plans B) Individual Rates (Specific Rates) (Commercial Property Insurance on Unique Structures) Judgment Rates (Ocean Marine Insurance) UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 4 Underwriting Activities
Determining Policy Terms and Conditions Standard Forms (Insurance Advisory Organizations)
Monitoring Underwriting Decisions Book of Business (Portfolio) UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 5 Underwriting Management
Participating in the overall management of the insurance company Arranging Reinsurance Treaty Reinsurance Facultative Reinsurance Delegating underwriting authority Underwriting Authority Centralized Decentralized Making and enforcing underwriting guidelines Monitoring the results of the underwriting guidelines Underwriting Audits UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 6 The Underwriting Process An underwriting decision must be made on every new insurance application as well as on the renewal policies. The Underwriting process comprises the following steps: - Gathering the necessary information Making the Underwriting Decision Implementing the Decision Monitoring the decision UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 7 The Underwriting Process Gathering the necessary information Producers Consumer investigation reports Government records Financial rating services Inspection reports Field marketing personnel Claim files Production records Premium audit reports Applicants or insureds records UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 8 The Underwriting Process Making the Underwriting Decision Analyzing Hazards Physical hazards Moral hazards Morale (attitudinal) hazards Legal hazards Evaluating Underwriting Options Accept the application without modification Reject the application Accept the application with modifications. UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 9 The Underwriting Process Implementing the Underwriting Decision Monitoring the Underwriting Decision Monitoring of the Underwriting Decision involves: - Reevaluation of decision in relation to claims The fact that an insured has a serious loss or several losses is not necessarily an indication that the underwriter made a bad decision. Recommendation of additional loss control measures. Where there is a request for coverage changes underwriter must carefully evaluate each and every change and should make a decision. Modifying coverage, rate, terms and conditions as and when need arises. Finally cancel or rejection of renewal depending upon the experience on the particular account. UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 10 The Underwriting Process Regulation of Underwriting Activity Two important examples of the regulation of underwriting activity are: Prohibition of unfair discrimination Restrictions on cancellation and non renewal UNDERWRITING 5/28/2008 4:54 PM New Brand FMT-P2_28May08 11