Chapter 1 Flashcards
Underwriter
Insurance professional who invests the capital of an insurer’s shareholders by accepting or rejecting risk to implement an insurer’s strategic plan.
Typical Risk
No such thing. Every risk has individualized needs.
Mercantile Risk
A corner bakery that offers only takeout service has different needs than a large bakery that offers full service.
Different Levels of Exposure
Different needs of insurance - i.e. garage policy, environmental impairment liability (EIL) policy.
Cross Border Operations
Carrier operating cross-border would need to meet certain financial requirements set out in the United States by the Interstate Commerce Commission (ICC)
Small and Large Accountants
Examples: Equipment floater, E&O, D&O
Underwriting Skills
Technical skills, analytical skills, communication skills, organizational skills
Technical Skills
These are the tools of the underwriter’s trade, and include rating and ratemaking, computer skills, research skills, and knowledge of the insurance product, loss control, and reinsurance.
Analytical Skills
All information that an underwriter obtains about a risk must be sifted, ordered and weighted to make a decision about the risk possible.
Communication Skills
To close deals and otherwise fulfill his or her duties, an underwriter must be able to communicate with the people he or she deals with - includes both written and orally.
Organizational Skills
Time management skill and the ability to set priorities.
Rating
The process that underwriters use when they apply the information developed by actuaries to the information that has been gathered about the risk to set a premium for a specific risk. Two basic approaches - class rating and schedule rating
Class Rating
Used when statistics can be gathered on a large number of risks that share common characteristics. Example - the same basic risk factors are either present or absent in all auto policies.
Schedule Rating
Used when the available statistical data is too fragmented for class rating. Example - commercial property insurance.
Better or Worse than Average
Rating as done by an underwriter essentially determines whether the particular risk is better or worse than the average risk in the class, and by how much.
Loadings
An underwriter could add loadings (additional charges) to the basic rate for features of the risk that are considered to be more hazardous than the average risk in that class.
Deductions
An underwriter could allow deductions (credits) for features that make a risk less hazardous than the average for that class.
Actuaries
Can provide additional insight into more complex risks that need more details, or more sophisticated analysis to be credibly rated. Example - adding Loss Development Factors (LDF’s). Can help project future loss ratio and the premium needed to make the risk profitable.
Computer Skills - Common Complaint
Generate massive amounts of information, and the sheer volume of reports containing this information can make it difficult to use them effectively.
Management by Exception
Underwriter establishes a set of acceptable boundaries for the risks in his/her portfolio, then asks for reports only on risks that fall outside these boundaries.
This approach is especially helpful for existing business and for managing the underwriter’s relations with the brokers or agents he/she deals with.
Adapting to Technological Change
The speed at which technology is changing means that all professionals have to adapt and change just as quickly. There are a number tips to overcome the unfamiliarity of a new system.
Learning Applications
Get acquainted with the new insurance system.
Time on Unfamiliar Tools
Get acquainted with non-insurance tools.
Database Applications
Learn about the insurer’s database.
Become familiar with other database applications.
