The Underwriting Function Flashcards
Policyholders’ surplus
Under statutory accounting principles (SAP), an insurer’s total admitted assets minus its total liabilities
Capacity
The amount of business an insurer is able to write, usually based on a comparison of the insurer’s written premiums to its policyholders’ surplus
Underwriting authority
The scope of decisions that an underwriter can make without receiving approval from someone at a higher level
Line underwriter
Underwriter who is primarily responsible for implementing the steps in the underwriting process
Staff underwriter
Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy
Manuscript policy
An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer
Underwriting policy (underwriting philosophy)
A guide to individual and aggregate policy selection that supports an insurer’s mission statement
Advisory organization
An independent organization that works with and on behalf of insurers that purchase or subscribe to its services
Prospective loss costs
Loss data that are modified by loss development, trending, and credibility processes, but without consideration for profit and expenses
Loss development
The increase or decrease of incurred losses over time
Trending
A statistical technique for analyzing environmental changes and projecting such changes into the future
Treaty reinsurance
A reinsurance agreement that covers an entire class or portfolio of loss exposures and provides that the primary insurers’s individual loss exposures that fall within the treaty are automatically reinsured
Underwriting audit
A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines
National Association of Insurance Commissioners (NAIC)
An association of insurance commissioners from the fifty U.S. states, the District of Columbia, and the five U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments
Premium-to-surplus ratio or capacity ratio
A capacity ratio that indicates an insurer’s financial strength by relating net written premiums to policyholders’ surplus
Statutory accounting principles (SAP)
The accounting principles and practices that are prescribed or permitted by an insurer’s domiciliary state and that insurers must follow
Return on equity (ROE)
A profitability ratio expressed as a percentage by dividing a company’s net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders’ equity, owners’ equity, or policyholders’ surplus
Market conduct examination
An analysis of an insurer’s practices in four operational areas: sales and advertising, underwriting, ratemaking, and claim handling
Predictive modeling
A process in which historical data based on behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes
Underwriter
An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, or a substantive policy midterm or renewal change
Underwriting submission
Underwriting information for an initial application, or a substantive policy midterm or renewal change
Expert systems, or knowledge-based systems
Computer software programs that supplement the underwriting decision-making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked
Information efficiency
The balance that underwriters must maintain between the hazards presented by the accountant and the information needed to underwrite it
Application
A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claim handling purposes
Counteroffer
A proposal an offer makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer
(a) rated classification
The rate classifications provided by the ISO Commercial Lines Manual that describe operations with unique characteristics or for which inadequate statistical experience exists
Estimated loss potentials (ELP)
Rate development factors used for operations with unique characteristics or for which inadequate statistical experience exists. ELPs are multiplied by loss cost multipliers to develop rates
Experience rating
A ratemaking technique that adjusts the insured’s premium for the upcoming policy period based on the insured’s experience for the current period
Schedule rating
A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees, to modify the final premium to reflect factors that the class rate does not include
Retrospective rating
A ratemaking technique that adjusts the insured’s premium for the current policy period based on the insured’s loss experience during the current period; paid losses or incurred losses may be used to determine loss experience
Facultative reinsurance
Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted
Account underwriting
A method of underwriting in which all of the business from a particular applicant is evaluated as a whole
Unfair trade practices
Methods of competition or advertising or procedures that tend to deprive the public of information necessary to make informed insurance decisions
Binder
A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued
Certificate of insurance
A brief description of insurance coverage prepared by an insurer or its agent commonly used by policyholders to provide evidence of insurance
Combined ratio
A profitability ratio that indicates whether an insurer has made an underwriting loss or gain
Production underwriting
Performing underwriting functions in an insurer’s office as well as traveling to visit and maintain rapport with agents and sometimes clients
Hit ratio
The ratio of insurance policies written to those that have been quoted to applicants for insurance
