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.
Using the Internet
Learn about information available online.
Finding Help
find out where to get help when it is needed. Ex - Dunn and Bradstreet (D&B)
Product Knowledge
- Knowledge of the insurance product, the different insurance policies offered by his/her own insurer to cover different types of exposure, as well as the policies offered by competing insurers.
- Financial stability of competitors. Especially important in excess policies.
- How much the insurer can authorize.
- Policies of other departments of the insurer.
Manuscript Wordings
Unique wordings specially drafted to accommodate the unique needs of a particular risk.
Care is needed when drafting these as they are untested.
Research Skills
- Research not confined to libraries - must be comfortable using telephones, computers, faxes, emails.
- Information on the Internet.
- The Insurer’s own website.
- Reinsurers - can have additional information on exposures and different approaches to various risks.
- Research is continual.
Reinsurance Knowledge
- When to use treaties, and when to use facultative insurance instead.
Reinsurance Treaty
Automatically covers all risks written by the ceding company that fall within the treaty terms except exposure that are specifically excluded. Can be proportional (pro-rata), or non proportional (excess)
Facultative Reinsurance Contract
Covers an individual primary policy - the policy issued by the insurance company buying the reinsurance. Is negotiated for a specific risk. Can be proportional (pro-rata), or non proportional (excess).
Is often used to supplement, or protect the treaty, fill gaps in the primary policy due to exclusions, or to exclude certain hazardous operations.
Knowledge of Loss Control
- One of an underwriter’s greatest assets.
- Can offer a competitive edge.
On-site Inspection
- Can confirm information provided in the submission to the underwriter.
Detectable Hazards
- Moral Hazard: Attitude to loss prevention on the part of the risk’s management. Financial difficulties or poor attitude to loss prevention.
- Physical Hazards: Aspects of the physical risk that may make a loss more likely to occur.
- Housekeeping: Measures both moral and physical hazards.
- Neighbourhood: Source of external exposure to the risk. Buildings that surround it, distance to risk, occupants of adjacent buildings.
Loss-Control Matrix
Loss control inspector can help develop a matrix of the characteristics of an average, below average, and an above average risk in the class of risk being considered.
Financial Analysis Skills
- Especially important for commercial risks.
- Can tell a story about the risk and some of the risks’ needs:
- Whether the risk can accept deductibles. And if so, in what amounts.
- Whether the risk is a candidate for self-insured retention.
- Whether a risk has discontinued any operations.
- Whether the risk needs specialized coverage or help from the loss prevention control tema
- Whether the risk has the capital resources to implement any loss control plans that may be needed.
Self-Insured Retention
AKA, SIR.
The amount of a potential loss that is not covered by the insurance purchased by the insured and from the insurer. Insurer is not involved in risks that fall within the SIR. Insured is responsible for adjusting the claim.
Deductible
Reduces the amount of an insurer’s payment to or on behalf of an insured in the settlement of a loss. The insurer remains responsible for adjusting that claim.
Risk Analysis Skills
Determining:
- What perils does the risk face?
- Has the risk suffered any unusual losses (either small or large)?
- Frequency, severity of past claims.
- Addressing loss exposure (large deductibles, general ags)
- Policy limits (what can be accommodated)
- Are there any physical hazards that can be reduced or eliminated?
- Does this risk present a moral hazard?
- Does the risk have high employee turnover?
Communication Skills
- Open ended questions/curiosity.
- Listening for more than content.
- Avoid confrontation.
- Importance in tone of voice.
- Importance of preparation.
- Anticipation of questions and arguments.
- Repeating to confirm understanding.
- Writing simply and briefly.
- Account files not private - can be seen by others in the company.
- Documentation conveys underwriting intent.
Wrap Up Policy
Addresses liability exposures arising out of work on a particular project.
Builders Risk Policy
Covers a building while it is in the course of construction, along with the property related to the construction.
Owners and Contractors Protective Liability Policy
Would protect insured against liability arising from negligence on the part of the subcontractors or from the insured’s improper supervision
Surety Bonds
Financial guarantee - bid and performance bonds, labour and materials bonds
