7 Underwriting Flashcards
Exposure modelling
Concentration of exposure in one area. Eg. Stock throughout at warehouses. Property. Satellites. Can look down to postcode of each risk.
Loss modelling
Financial impact of certain events. Use Realistic Disaster Scenarios RDSs and assess gross vs net exposure (accounting for reinsurance)
Lloyds gives specific scenarios that all syndicates must analyse
Catastrophic modelling
Financial losses
Also non financial - staff requirements etc
considers frequency and severity
Law of large numbers
Easier to calc premium as lots of data
Premium base
what you’re applying the rate to
for liability insurances it is different
Employee liability - payroll
Product or public - turnover
Professional I - fees
Bipar
Not align premium upwards
Who agrees capacity of insurer
regulator
Why an insurer wouldn’t take 100% risk
Capacity, appetite, aggregations, broker influence, insured’s influence
Aim of electronic processes
Easier to do business, more accessible to customers, more cost effective and efficient services
Can reduce operating costs and therefore cheaper premiums for clients
Average operating cost of insurers
30-40%
Role of rating agency
Assessing how likely it is that an insurer can pay future claims. They consider financial position, management, business operations
Why are brokers concerned about ratings
If insurer unable to pay claims, might be found negligent
What does Principle 3 of Underwriting Profitability state
Expectation that leaders do pre bind analysis on all risks, and followers will do a sample
Insurance Act 2015 - knowledge of brokers
knowledge of brokers is deemed to be held by their client so must be disclosed
Probable maximum loss PML
what is the realistic likely maximum loss? use this to work out how much reinsurance you need
premium per cent vs premium per mille
cent - per GBP 100m, mille - per GBP 1000m
what does ‘open cover’ mean in marine cargo or stock throughput
it is where you declare exposure via declarations / charge premium in stages against actual values
how do insurers calculate a premium rate
consider operational costs, reinsurance costs, profit margin, contribution to claim reserves, taxes if applicable
how do insurers reserve
larger claims - individually
for high frequency low severity like motor, blanket reserves across entire book of business
what do claims adjusters consider
country of risk where legal proceedings take place / what is likely amount to be awarded / is it more expensive to go to court here
reserve for personal injury claims
0.25% extra
why do insurers not want to reserve full policy limits
reserves are liabilities so mean they need more capital to balance out solvency equation
IBNER
incurred but not enough reported - where claims are known but currently posted reserve is not adequate
situs funds / trust funds
some regulators require insurers to keep funds in that particular country’s borders.
