Study 9 - The Underwriting Envrionment

Question 1

What are the two types of insurers?

Answer 1

Centralized and decentralized

Question 2

How does an underwriter role change with a centralized insurer?

Answer 2

They follow a very structured line guide and if it is outside of that; it gets referred

Question 3

How does an underwriter role change with a decentralized insurer?

Answer 3

They receive much more autonomy and discretion

Question 4

What are the two types of business interruption insurance?

Answer 4

Gross earnings form

Gross profit form

Question 5

Describe gross earnings form

Answer 5

American model

Considered indemnified when loss is repaired and they are able to open their doors

Question 6

Describe gross profit form

Answer 6

British model

Businesses will continue to be effected by the loss even after operations resume

Question 7

What was the Walkerton Tragedy?

Answer 7

Walkerton water supply was contaminated by e.coli, number of people died and a large amount of people were ill; lawsuits were filed against the municipality

Question 8

When courts made decisions for toxic mould, what were the potential insurance implications?

Answer 8

• Policy forms under which claims are made
• Willingness of insurers to provide coverage for people or businesses with an exposure to toxic mould
• Terms under which insurers through underwriters will offer coverage

Question 9

How is an insurance reciprocal similar to an insurance company?

Answer 9

They issue policies, charge premiums and pay claims

Question 10

When is a captive insurance company usually created?

Answer 10

To write the parent company’s own insurance

Question 11

What was the relevance of the fire at Place Alexis Nihon in 1986?

Answer 11

Led to bylaw changes that required sprinklers as mandatory installations in future buildings of that type

Question 12

Canadian-owned insurance companies account for approximately what percentage of the Canadian industry’s annual premium volume?

Answer 12

One-third

Question 13

What has the rise in concern over pollution liability led to in governments?

Answer 13

More extensive statutes governing pollution control and the emergence of environmental regulation as an independent field of law

Question 14

What needs to be considered when there has been a merger or an acquisition between two or more insurance entities?

Answer 14

The different corporate cultures are aligned and supported.

Question 15

When matters are not directly addressed in the insurer’s manuals, underwriters must use good judgment. How is this developed?

Answer 15

Trial and error

Question 16

When the economy is sluggish, what do insurers notice about their business?

Answer 16

There are more claims

Question 17

When the economy is thriving, what do insurers notice about their business?

Answer 17

There is an increase in mergers and acquisitions activity among their clients’ businesses.

Question 18

What is the effect of mergers and acquisitions among insurance companies on underwriters?

Answer 18

• Effect of mergers and acquisitions on the corporate cultures depends on whether or not the companies involve have the same corporate culture or not:
o If they are similar in terms of classes of business pursued
o Aggressive or conservative in pursuing and accepting risk
o And in terms under which they would accept risk
o Merger may not pose many obstacles
o If they are quite different in their approach to business, such as having a hard market or soft market cycle
o Being centralized vs. decentralized in their underwriting
o Pursuing different classes of business
o Or having different marketing strategies
o Merger may produce a clash of corporate cultures

Question 19

Discuss the impact of technology on the underwriting function.

Answer 19

• Incredible volume has created an information overload (feeling confronted with more information than one can absorb)
• And the reluctant stress of feeling overwhelmed
• Danger that the volume of information is too great to be properly digested in the timeframe an underwriter needs to make a decision
• This may lead the underwriter to hurry through information selectively or skim through it and base the decision on a superficial, perhaps misleading, understanding of the exposures presented by a risk
• Rate of technology has led to more pressure being put on those who make decisions to make them faster and more effectively
• The turnaround time for submissions have been drastically reduced
• Flow of information has opened the door to the insurance consumer
• Leads to a savvier insurance buyer who is likely to ask questions directly to the insurer

Question 20

What are the privacy concerns that have arisen in the wake of the use of technology when paying for
insurance?

Answer 20

• There are concerns around the safety, security, and improper sharing of personal information
• Another cause for concern in insurance is around the increasing use of electronic means for payment at a point of sale, such as credit cards, electronic funds transfer (EFTs), and other means of payment, such as mobile wallets and biometric payments
• The payment options may require insurers to obtain legal authorization from insureds to debit their bank accounts or obtain credit information about them
• Therefore part of the price insureds pay for the increased payment flexibility is a loss of some privacy
• And an increased risk that the access they have granted to personal information could be misused

Question 21

What are some sources of external information available to underwriters?

Answer 21

• Whitepapers and articles about subjects generally of interest to an underwriter
• Journals, newsletters, blogs, discussion boards, and forums pertaining to the industry
• Websites such as LinkedIn and the Canadian Underwriter allow users to see the movement of people between companies and sectors of the industry, industry and company underwriting and financial results, and initiatives and changes in product or marketing strategy on the part of various companies in the industry, among other information
• Data analytics and databases (a few examples include CGI, OPTA, iClarify) of largescale aggregate information
• Company-circulated emails and updates to an intranet; these usually contain news regarding items such as results, developments, new initiatives, contests, and updates topolicies

Question 22

What are some pitfalls of the information available through technology?

Answer 22

• For many people, the incredible volume and availability of information has created the problem of information overload—that is, the feeling of being confronted with more information than they can absorb and the resultant stress that comes from feeling
overwhelmed
• There is the danger that the volume of information is too great to be properly digested in the timeframe that an underwriter must make a decision
• In hurrying to review the information about a risk or a process, an underwriter may review information selectively or skim through it and base the decision on a superficial, perhaps misleading, understanding of the exposures presented by a risk
• The rate at which technology allows underwriters to receive and process has also created a pressure on the people who make decisions to make them faster and more effectively
• The flow of information made available by technology has also opened the door to the insurance consumer, resulting in insurance buyers becoming savvier and more likely to ask questions directly of the insurer
• Technology adds to the pressure on underwriters
• Pressure to work quickly is also felt by brokers who often must work faster at gathering information about a risk and prepare submissions to various underwriters on behalf of the clients who want to receive quotes ever more quickly

Question 23

How have you needed to re-evaluate technology as an underwriter?

Answer 23

• Global influences: Insurance is a global industry and Canadian insurers are influenced by their US and European counterparts, so what is trending in other parts of the world will influence the Canadian market
• Social trends: Technology has contributed to a faster-paced society, increasing expectations that organizations become more responsive to the needs and demands of the client, and it has also created a more mobile society
• Judicial trends: Court decisions on novel situations can set a precedence for future proceedings and will impact what underwriters will need to think about when making decisions
• Economic trends: Depending on whether or not the economy is thriving or is sluggish; the state of the global economy
• Legislation and regulation: The underwriter’s external environment and many of the changes to it are reflected in government legislation and regulation; laws and regulations are required, and they shape both society and the environment in which underwriters
work
• Reciprocal and captive insurers
• Pollutions liability
• Public health and safety