Study 10 - Applications of Property Insurance - Underwriting and Claims

Question 1

Underwriter

Answer 1

1) The insurance company or group that underwrites or insures a particular risk
2) The individual within an insurance company whose responsibility is to accept or reject business in the particular line in which they specialize and, in this way choose the risks their principals are prepared to underwrite

Question 2

Underwriting Strategy (Building a profitable portfolio)

Answer 2

1. Identifying the types of risk the insurer want to pursue
2. The lines of insurance it wants to underwrite
3. The reinsurance it can arrange
4. The amounts of insurance it will offer for risks of different types and sizes
5. The approach it will take to pricing, among other considerations

Question 3

The Underwriting Process (3 steps)

Answer 3

1. Evaluating the risk
2. Making the underwriting decision
3. Pricing the risk

Question 4

Evaluating the Risk

Answer 4

Considerations include:

• Acceptable and unacceptable risks
• Claims history
• Financial factors
• Physical factors (COPE - construction, occupancy, protection, and exposure)
• COPE and a single-family dwelling
• Heritage and historic dwellings

Question 5

Line Guide

Answer 5

A listing of the maximum amounts of exposure an insurance company is prepared to accept on various classes of risk

Question 6

Frequency of Loss

Answer 6

This is a measure of how often losses are likely to occur in the future. Assuming the average size of loss is constant, the higher the loss frequency, the worse the loss experience.

Question 7

Severity of Loss

Answer 7

This is the average size of the losses. The larger the average loss, the higher the loss severity is said to be. And assuming the loss frequency is constant, the higher the loss severity, the worse the loss experience.

Question 8

Underwriters generally only reject a risk if forced to by one or more of 3 considerations

Answer 8

1. The risk is of a class not permitted by the underwriting or line guide or in some other way falls short of minimum requirements specified in the underwriting or line guide
2. Market conditions or competitive considerations.
3. The risk is, on its own merits, too flawed to be accepted, and it is not possible to negotiate terms on which the risk could be made acceptable

Question 9

Rate

Answer 9

Amount charged to an insured that reflects the expectation of loss for a covered risk, insurance company expenses, and profit. In other words, it is the basis of premium calculation for the insurance provided for the exposure.

Question 10

Actuary

Answer 10

One who specializes in the mathematics of insurance, mortality rates, and the like

Question 11

Ratemaking

Answer 11

The process of compiling and analyzing data to establish rates that accurately reflect the level of risk. Usually performed by actuaries.

Question 12

Rating

Answer 12

The process by which underwriters apply the rates developed by actuaries to the information that underwriters have gathered to determine premium for individual risks

Question 13

Premium

Answer 13

The price of insurance protection for a specified risk for a specified period of time

Question 14

Adjuster

Answer 14

One who investigates insurance claims, makes recommendations regarding the payment of benefits from insurance policies, and negotiates payments and settlements

Question 15

Proof of Loss Form

Answer 15

• Required to be provided to an insured within 60 days of the notice of loss (not in QC)

Formal, sown, completed proof of loss not needed when:

• The amount of the loss falls below a specific threshold
• There is no suspicion of fraud in the claim
• There is no possibility of subrogation
• There is no threat of litigation by the insured

Question 16

Investigation of a Loss (4 steps)

Answer 16

1. Obtaining a written statement from the insured
2. Interviewing the insured
3. Obtaining photographs of the damaged property from before and after the loss
4. Arranging emergency services and assigning a contractor

Question 17

Steps in Claim Adjustment (10 Steps)

Answer 17

1. Does the loss fall within the policy period?
2. Does the loss fall within the insuring agreement?
3. Do any exclusions apply?
4. Do any endorsements apply?
5. Have all policy conditions been met?
6. Is there a deductible to be applied?
7. How much should be paid?
8. Any other reason not to pay the claim?
9. Pay the claim
10. Notify the underwriter of any information material to the risk that insurer may be unaware of