Chapter 5 Flashcards
Underwriting
- calculates premiums and controls policy coverage
- generates income while managing claims-related losses for long term prosperity
- focused on a balanced book of business
Underwriting Department Structure
- Director of Underwriting
- Heads of Department
- Class Underwriters
- Section Supervisors
- Underwriters
- Assistants/Trainees
Underwriting Calculations
- details factors affecting premium (age etc)
- specified risk factors for additional charges (“loadings”)
- includes loss history considerations
Premium Calculation
Pure Risk Premium : Covers only losses and related expenses
Add-Ons : Expenses, profits and brokerage fees
Life Insurance Underwriting
- manuals contain premiums per £1000 assured
- adjustments made for smoking, health conditions or hazardous occupations
Underwriting Quotation Process
Internet : automated
Phone : call centres etc
Commercial Business : brokers
Information Required for Commercial Quotes
Buildings/Contents : survey and process descriptions
BI : past and project earnings
Liabilities : staff numbers, payroll, products and shareholders
Motor : vehicle details and security measures
Claims : 5 year loss history
Risk Management Team Structure
- head of risk management
- senior risk managers
- risk analysts
- specialists
Risk Identification Techniques
Brainstorming
Workshops
Site Visits
Scenario Analysis
Flow Process Analysis
Risk Management Strategy
Analysis
Reporting
Monitoring
Register
Inherent VS Residual Risks
Inherent - Risks without specialised controls
Residual - Remaining risks after applying controls
Risk Ranging (RAG)
Red (9-15) - immediate attention
Amber (5-8) - moderate
Green (1-4) - acceptable
Claims Philosophy
- defines goals, targets and service standards
- analysis of the claims process stage
- establishes KPIs
Disputed Claims
- negotiation
- mediation or ADR
- arbitration or litigation
Claims Recovery
- subrogation
- contribution
- reinsurance protections
Delegated Authority
Allows underwriting or policy administration by outside entities
Reduces management expenses and acquires business
Coverholder & Binding Authority
Coverholder : the party delegated with authority
Binding authority : agreement defining scope and extent of delegated authority
Specialised Schemes in Delegated Authority
Tailored policy wording for specific clients
Popular in Lloyds and London markets
Compliance Department Key Tasks
- communicating regulatory updates
- acting as a regulator contact
- checking customer protection procedures
- performing anti-money laundering and anti-fraud measures
Compliance Training and Legislation
- organises training on key issues like UK sanctions, anti-corruption and data protection
- covers senior management & certification regime (SM+CR)
Compliance Monitoring and Reporting
- audits practices for regulatory compliance
- reports performance and breaches to the board
- maintains compliance manuals detailing operational requirements
Actuarial Department Team
Headed by Chief Actuary
Includes qualified actuaries, students, analysts and part-qualified staff
Actuary Types
Pricing Actuaries : assess risks and set premiums
Reserving Actuaries : predict trends in reserve movements
Modelling Specialists : perform CAT modelling
Solvency Capital Experts : calculate solvency requirements
Catastrophe Modelling (CAT)
Simulates events like hurricanes, floods and earthquakes
Estimates losses and aids in premium setting
Solvency II
Requires internal models to assess capital needs
Calculation kernel central to solvency assessments
Customer Service Activities
Pre-transactional - training staff, complaint handling, warranties
Transactional - managing demand patterns and service delivery
Post-transactional - claims handling, complaint resolutions and cross-selling
Types of Assets
Shareholder Funds - retained profit and loans
Premiums - income from policies
Claims Reserve - funds to settle claims
Investment Strategy
Short-Tail : cash or short-term bonds
Long-Tail : long-term investments like equities or property
Returns on Investment
Composed of interest, dividends and capital growth
Supports the income of life and pension policies
Finance Management
Central to operations, profitability and returns to shareholder
Finance Leadership
Finance director (FD) or chief financial officer (CFO)
Supported by financial controllers, accountants, analysts and accounts staff
Accounting Responsibilities
Manages banking, reconciliation and income accounting
Main Income : premiums, investment income, fees, commissions, reinsurance recoveries
Credit Control
Ensures timely payment of premiums
Protects against credit risks via separate premium accounts
Capital Raising
Treasury team raises additional capital and maintains investor relations
Critical for funding business growth and solvency needs
Strategic Planning
Long-term resource deployment to meet objectives
Involves senior managers and specialists
Strategy Team
Undertakes projects on business expansion, new lines and operations
Uses internal and external resources
Strategy Research Areas
Supply & Demand : competitive environment, regulatory challenges and staff expertise
Investment : start-up or acquisition costs
Mergers & Acquisitions (M&A)
- advantages include cost efficiency, new markets and scale
- conduct detailed target analysis
Strategy Partnerships
- collaborate with brokers or organisations to develop niche products
White label strategy:
Sell products under another brand
Business Planning Process
- focuses on aligning operational management with strategy
- uses structured documents covering classes of business, premiums, loss ratios, expenses and reinsurance
Company Secretary Role
- ensures compliance with Companies Act 2006 and stock exchange listing rules
- handles filing with Companies House and manages share registers
Internal Audit
- ensures compliance with the control environment
- annual audit plan approved by the audit committee
Types of Audits
Themed Reviews : focus on topics like IT security, underwriting or complaints management
Accounting Audits : protects financial resources from fraud and errors
Other Positions
- IT Department
- Facilities Management
- Human Resources
- Recruitment
- Learning & Development
