Section 3 - Underwriting Flashcards
What are some tools and resources that are available to the underwriting department to identify appropriate risk and rewards to align with company targets to the tactical plan?
Motor vehicle reports on drivers, automobile registrations with vehicle details, deeds of purchase and sale, reports, credit reports, permit data on home, construction and repairs, aerial imagery, flood zones, proximity to fire stations and fire, hydrants, artificial intelligence, predictive analytics, Telematics, agents, personal knowledge of an account, detailed financial statements, loss runs from prior carriers, loss, Control reports, premium audits, and NAICS codes and other codes
Name three considerations when structuring or restructuring the underwriting department.
- Company size.
- Geographic territory.
- Account types
Name the two types of market cycles analyze the characteristics of each
- Hard market, rates rise due to deteriorating loss results, restrict coverage, offerings, tighten underwriting standards.
- Soft market.. you are able to stabilize rates, or go down due to restore profitability, relaxation of underwriting guidelines, focus on retention rather than new business, more use of the E and S markets, increased market penetration, rollout new coverages, less use of E and S markets
According to the tactical plan, the underwriting department has identified a need for new product support and entrance into a Newmarket that is prone to wildfires. What kind of reinsurance would you need and why?
Excess of loss, reinsurance: use for catastrophic exposures. Catastrophic events can cause devastating losses for an insurance company. They can result into decreased earning and even possible insolvency. Reinsurance can be purchased to alleviate the potential consequences of hurricanes, earthquakes, tornadoes, and wildfires.
When a property policy is at renewal and hasn’t been reviewed in a few years how can loss control personnel help in this scenario?
The assessment or survey on the property can help the underwriter risk selection to determine in shareability of risk. Identify his risk exposures, to proper classify. A drone can be used to access the property of personal inspection cannot be completed.
What 3 functions does an underwriting department serve?
- Reviews, new business and renewal business, proper risk selection, and appropriate pricing.
- Maintains the companies risk appetite
- New business stays within the guidelines filed by the product development group.
Who is responsible for selling products to consumers and collecting all the information Company needs to properly underwrite the business?
The distribution force
Are commodity lines such as passenger auto or homeowners insurance allowed a credit deviation?
No, because they are heavily regulated
Are high performing agents and brokers eligible for additional credit consideration?
Yes, Agency stratification or segmentation present opportunity to provide credit
What are the six steps in the underwriting process?
- Initial review.
- Additional information request.
- Coverage determination.
- Pricing.
- Policy issuance
- Follow up.
What lines of business are considered a referred to as commodity lines?
Personal lines and small commercial accounts
What would be a trigger or a need for a renewal review on a commodity line renewal?
Loss frequency, a large loss, or change in exposure
What are the three different account lines normally used to underwrite renewal policies?
- Commodity lines, the process is automated unless triggered for a review.
- Middle market accounts, where the exposure base changes need to be updated each year. The agent retrieves this information and modifications are made to the renewal if necessary.
- Large account renewals demand more hands-on underwriting approach, can be vigorous as the rest are large and complex, pricing may need to be adjusted, they may have been subject to reinsurance. Underwriting may require new applications and new inspection.
How are production underwriters different from regular underwriters?
Regular underwriters perform their job in an office environment and don’t venture into the field. Production underwriters, travel to different insurance agencies to develop relationships and promote the companies, products and services
What tasks is artificial intelligence able to perform?
Visual perception, speech, recognition, decision-making, and translation between languages
What tool analyzes with tracking devices installed in a vehicle, downloaded via an app, or onto a smart phone to access driving habits?
Telematics
To cede or give up, how does does a ceding company work with another insurance company?
It is a primary insurance company that is transferring part of its liability to another insurance company
What is reinsurance?
Contractual agreement which one company agrees to ensure the assumed liabilities of another insurance company
What is a reinsurer?
An insurance company that accepts all liabilities from a ceding company for a stated premium
What are the two types of reinsurance contracts?
- Treaty reinsurance, seating company, and reinsure enter into an agreement for certain classes of business. This ensures the seating company that coverage is in place for all classes of business.
- Facultative reinsurance, written on a risk by risk basis. The reinsure is not obligated to accept any submission. Most commonly used when ensuring large property exposures or high hazard risks
What is pro rata reinsurance?
Pro Rata reinsurance is an agreement between the ceding company and the reinsurer to share insurance based on an agreed percentage
The two forms of quota share and surplus share is what type of reinsurance?
Pro rata insurance
Why would a company use reinsurance?
Market entrance, exposure is greater than the earned premium.
Stabilizing loss, experience, companies can experience wide variations and financial results from year to year reinsurance can smooth these fluctuations
Underwriting assistance, reinsurers can provide guidance and council if Company wants a venture into new line of business or different geographical territory
Catastrophe protection, to protect losses that result in in solvency, such as hurricanes, earthquakes, tornadoes, and wildfires
Retirement, when a company choose not to renew any business, cancel existing policies of allowed to do so by the regulator, purchase portfolio reinsurance
What is the purpose of a premium audit?
To ascertain an actual exposure, so the insurance company can collect premium developed by that exposure. Commercial general liability, business, auto, and workers compensation, are examples
