Chapter 8: Underwriting Considerations Flashcards
What are the four main tasks of an underwriter?
- Assess the risk that a proposal would bring to the common pool
- Decide if the risk is acceptable (and if so how much)
- Determine the scope of cover that could be offered as well as any terms and conditions
- Calculate an equitable premium
What is assessed in the insurance underwriting process once a proposal has been made?
- The underwriting factors and claims experience for that particular type of business (eg a fireworks factory is likely to be more risky than a dog food factory)
- The “average” claim for that particular line of business
- A comparison between that specific proposer and the average for that line of business (eg a fireworks factory with robust health and safety procedures and new, regularly maintained machinery, is likely to present a lower risk than a different factory with old machinery and poor health and safety)
What are the main underwriting factors for motor insurance?
- Make and model
- Usage
- Driver’s age
- Driving record (convictions and claims history)
- Vehicle modifications
- Where the vehicle is stored
- Where the vehicle is located geographically
- Cover required
What are the main underwriting factors for health insurance?
- Age
- Medical history
- Occupation (this is the key one)
- Lifestyle (including personal health)
- Family circumstances
What are the two main underwriting factors for private household insurance?
- Construction materials
2. Location
What are the main underwriting factors for private contents insurance?
- Security
- Occupation
- Location
What are the main underwriting factors for private travel insurance?
- Area of travel
- Purpose of visit (including time spent there)
- Whether a group policy is requested
- Pre-existing health conditions
In commercial property insurance, what are the main underwriting factors for fire and special perils insurance?
- Construction materials
- Usage
- Goods stored
- Safety features (eg sprinklers, fire doors, etc)
- Risk controls (maintenance etc)
- Size of building (floors and square footage)
- Location
- Method of heating and lighting
In commercial property insurance, what are the main underwriting factors for theft insurance?
- Location
- Type of business
- Construction of premises
- Security features (alarms, CCTV, etc)
- Moral hazards of proposer
In commercial property insurance, what are the main underwriting factors for glass insurance?
- Location
2. Usage
In commercial property insurance, what are the main underwriting factors for money insurance?
- Volume of money handled
- Precautions (in storage and movement, eg safes, how many people accompany in transit, etc)
- How employees are paid (in cash or not)
- Type of business
What are the main underwriting factors for commercial legal expenses insurance?
- Occupation
- Compliance with legislation (health and safety)
- Employment criteria
- Breakdown of current staff diversity
What is the main underwriting factor for business interruption insurance and what are the considerations that feed into this?
How quickly would it take the proposer to resume business after an interruption?
- Could they conduct business from a different premises? Home working?
- Do they have any critical infrastructure eg machinery or IT equipment?
- Are replacements easy to obtain?
- Is there any dependency between sites or external to the company?
- Is the business seasonal?
- Physical features of the property
What is the main underwriting factor for both employer’s and public liability?
Type of business/occupation
What are the main underwriting factors for pollution liability?
- Type of business
- Materials used + storage
- Control measures
What are the main underwriting factors for products liability?
- Occupation of the business
- Potential damage of the product
- Where the products are sold
- Quality control measures
What are the main underwriting factors for professional indemnity insurance?
- Occupation
- Moral hazards
- Qualifications + experience
What is the main underwriting factor for extended warranty insurance?
Likelihood of the product breaking down over time
Usually sold as add-on to a product through a retailer so not really underwritten in the conventional sense
What is a common underwriting factor across most lines of business, for both commercial and consumer insurance?
Credit rating
What are some different types of fraudulent claims?
- Exaggerating effects
- Claiming for an event that never actually occurred
- Deliberately causing a loss
How does fraud affect both the insurer and their insureds?
The insurer has to pay out more in claims. impacting their profits and possibly causing them to raise their premiums. These higher premiums may cause policyholders to look elsewhere
Innocent policyholders may be affected by premium increases
Who mainly deals with the prevention of fraud in the insurance industry?
The Insurance Fraud Bureau
What do the Insurance Fraud Bureau do?
Publicly educate against insurance fraud
Assist with industry wide actions against fraud
Support the industry and law enforcement in detecting and preventing fraud
What are some of the databases insurers may use to try and prevent insurance fraud?
Motor Insurance Database (MID)
Motor Insurance Anti-Fraud and Theft Register (MIAFTR)
Claims and Underwriting Exchange (CUE)
Art Loss Register
What does the Motor Insurance Anti-Fraud and Theft Register contain?
Details of all claims for motor insurance involving total loss or theft
What is the main purpose of MIAFTR?
For insurers to check that a total loss or theft of a vehicle is not being claimed for more than once
(MIAFTR is the Motor Insurance Anti-Fraud and Theft Register)
What does the Motor Insurance Database contain?
Details of all registered vehicles in the UK, including their insurance details
What does the Claims and Underwriting Exchange contain?
Details of incidents reported to insurers by their personal insurance policyholders across buildings, contents, motor, and personal illness and injury
What is the purpose of CUE?
To help spot attempted fraud and prevent an insured claiming for the same loss from multiple insurers
What is the purpose of the Art Loss Register?
To deter theft by making the sale of stolen goods more difficult and assist in the recovery of stolen art and antiques
Other than claims, what other type of fraud do insurers need to prevent?
Application fraud
What are claims handlers trained to spot in order to help prevent fraud?
- Claims made soon after inception
- Similar claims within a short space of time
- Claims where is no documentation of the loss
What are some measures insures are taking to help prevent fraudulent claims?
- Taking details over the phone - people find it much harder to lie to another person rather than to a machine or form
- Settling claims with replacement items rather than cash payments
What is the purpose of the Equality Act 2010?
Sets out certain characteristics that are protected from discrimination
What are the protected characteristics under the Equality Act 2010?
Age Disability Sex (gender, including reassignment + orientation) Religion/Belief Race Marriage and civil partnership Pregnancy (including maternity)
Under the Equality Act 2010 what are the four types of discrimination?
- Direct
- Indirect
- Perceptive
- Associative
What is direct discrimination?
Treating someone less favourably because they possess a protected characteristic
What is indirect discrimination?
Having rules in place that apply to everyone but particularly disadvantage people who possess a protected characteristic
What is perceptive discimination?
Treating someone less favourably because of a belief they possess a protected characteristic, even if they actually do not
What is associative discrimination?
Treating someone less favourably because they associate with a third party who possesses a protected characteristic
What does the Test-Achats judgement mean for insurers?
Gender cannot be used in rating or pricing risks
What line of business was most affected by the Test-Achats judgement?
Motor insurance - women were historically judged to be less risky and so offered lower rates
Who does GDPR apply to?
Processors and controllers of data
What are controllers and processors of data?
A controller decides how and why personal data is processed
A processor carries out the controller’s instructions
What is personal data?
Data that can be used to identify a living individual
What types of data are considered sensitive personal data?
Also called special categories of personal data
Race and ethnicity Politics Religion Genetic Biometrics (for ID purposes) Trade Union membership Health Sex life or orientation
Under GDPR what must firms do in relation to their responsibilities around data protection principles?
They must show they comply with the principles of GDPR
What must be given by an individual under GDPR?
Positive consent
What are an individual’s rights under GDPR?
Erasure Informed Access Rectification Restrict Processing Data Portability Object In relation to automation
How could an individual see what data an insurer held on them?
By submitting a Data Subject Access Request (DSAR) either verbally or in writing
How long does a firm usually have to reply to a data subject access request?
One month
Which organisation is responsible for overseeing the use of personal data in the UK?
Information Commissioner’s Office
Can a firm charge for providing an individual with a copy of the personal data they hold on them following a subject access request?
Not for the first copy - it must be free of charge
Charges may be imposed for additional copies if the request is excessive or unfounded to cover admin costs
What must a firm ensure when transferring data outside the EU?
That an appropriate level of protection exists in those countries and GDPR is not undermined
Who must a breach of personal data be reported to?
The Information Commissioner’s Office
In some cases direct to the individuals
What is the purpose of GDPR?
To regulate the use of personal data and the systems used to hold and process this data
What impact has CIDRA had on proposal forms?
The questions have become more specific and detailed
What type of data does GDPR apply to?
Both automatic and manual personal data
