Chapter 7: Underwriting Flashcards
Capacity
Maximum amount of business and insurer can insure in one year
Insurers can have their own internal capacity limits for individual CoBs
Subscription Market
More than one insurer can participate in a single risk
Appetite
Insurer has to consider if a risk fits the terms of its portfolio
- Looking to avoid putting a lot of their exposure in one basket
Aggregation
Insurers monitor the potential for accepting risks that would be exposed to one event (i.e. Fire/Earthquake)
Insured Influence
Insured may have a preference for how the risk is placed, preferring either 1 insurer or splitting amongst more
Why might other markets be used?
Lack of capacity in London
Loyalty of brokers/insured (might want to support home market)
PPL
Placing Platform Limited
System to handle whole process from quote to bind to post bind endorsements
Broker security committees
Responsible for considering the relative security of an insurer
Rating agencies
Grade individual insurers
- A.M Best
- Fitch
- Standard & Poors
- Moody’s
- Kroll Bond
Basis on which ratings are made
- Financial position
- Management and operation of the business as a whole
- Compare insurer to peer group (similar sized orgs)
When a drop in rating might not concern an insurer
If everyones rating drops no reason to concern
Why brokers are concerned about ratings
- Broker is agent of the insured and want to make sure an insurer will be able to pay claims
What makes a good leader
- Set good T+Cs for the client
- Be credible to other insurers so that following market will support
Broker must explain the difference in the various options of leader
IA2015 - Duties of the broker to principals
Under 2015 Insurance act, any knowledge held by broker is deemed to be known by client
Insurer duty under July 2023 Consumer Duty FCA requirement
Increase requirement that the insurers evidence positive steps to ensure clients have good outcomes
Consumer Duty outcomes that regulators focus on
- Products and services provided
- is it fit for purpose
- Price and value
- is it value for money
- Consumer understanding
- are communications provided understandable
- Consumer support
*Do customers benefit from product
Exposure modelling
Looks at the way different risks written combine to create a concentration in one area
Property Exposure
- Are there a number of separate properties in close proximity?
- What is the total sum insured of any combo of properties
- Are the same perils being covered
Stock throughput exposure
Are different clients storing goods in the same warehouse
Satellites exposure
- Are several satellites being launched using the same vehicle at the same time
PML
Probable Maximum loss
- not working out the total of all sums insured but the realistic likely maximum
Why might PML be lower than total sum insured
property may be over a very wide area, sum insured might be high but the likelihood of everything being destroyed is unlikely