Underwriting Flashcards
What is an underwriters job?
To calculate premiums and ensure there is sufficient capital in the pool to pay claims.
What are underwriters responsible for in the design of a policy contract?
Knowing what’s included and not, dictating how you can behave through conditions.
What are underwriters responsible for?
Selection and classification
Classification
Assigning the insured a group to which they have the same risk profile and loss probability’s as the other members.
Pooling
The premium paid by each insured is sufficient to cover the risk they bring to the pool.
What are the principal’s insurance is based on?
Solidarity and equity
Describe the principle of solidarity
Everybody shares the cost and benefits of everybody else. The many compensate the few
How is solidarity maintained?
Discriminating people based on risk
Describe the principle of risk defined equity
The contribution is in line with the persons’ risk level
When assessing multiple risk factors, what must you consider?
How they relate and together they may be worse than their individual parts.
What are pools based on?
Risk profiles
What tools do underwriters use to assess risk
Morbidity tables, mortality tables
Mortality tables
Chance of death based on age
Morbidity tables
Chance of getting sick, accounts for recovery
What is the difference between equity and fairness
Fairness is subjective, equity is where everybody pays what is right
What are the consequences of social fairness aspersions
Not discriminating against certain groups that leads to higher premiums is unfair but it creates equity.
How does adverse selection affect premiums?
You a higher risk but are paying less than you should for that risk
What are the 2 forms of adverse selection?
Non-disclosure, misleading
How do insurers protect against adverse selection?
Proposal form and laws that require you to disclose material facts.
What can you ask for in underwriting
Age, Medical conditions, smoking, personal history, family history, occupation, Alcohol and drug use, hazardous spots AIDS risk, aviation, residence
What can you not ask for in underwriting (4)
Sex, Race, Sexuality, genetic test results
What are the 2 systems of underwriting?
Judgement and numerical
When is the judgement method used?
When there is not sufficient data
