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V Underwriting

The document discusses the history and process of underwriting in the insurance industry. It began 400 years ago when merchants needed protection for cargo shipments. Today, underwriting involves gathering risk information, evaluating risks, selecting risks, setting premiums and policy terms, and maintaining policies. The duties ensure proper risk assessment and management to benefit customers, shareholders, and the financial stability of the insurer.

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tsioney70
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53 views36 pages

V Underwriting

The document discusses the history and process of underwriting in the insurance industry. It began 400 years ago when merchants needed protection for cargo shipments. Today, underwriting involves gathering risk information, evaluating risks, selecting risks, setting premiums and policy terms, and maintaining policies. The duties ensure proper risk assessment and management to benefit customers, shareholders, and the financial stability of the insurer.

Uploaded by

tsioney70
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPS, PDF, TXT or read online on Scribd
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1.

Background
 Started some 400 years back (17th c.)
 Merchants depended on the safe arrival
of cargo/ship going on sea/ocean
 Promise to contribute certain amount
 Member required to write his name
underneath a document
 Underwrite – in acceptance of the risk.
 Person who wrote his name -
“Underwriter”
2. Definition of Underwriting:
2.1. Literal: -
 signing & accepting risk liability under

an insurance policy,
 guaranteeing payment in event of loss

2.2. Practical: -
 selection of risk and rating it properly
 Selection of risks based on information

 Decision whether to accept risks or not

 If so, on what terms/conditions & at

what rate
3. Basic Functions of Underwriter
 Gather risk information
 Assess & evaluate risk

 Risk selection

 Risk classification

 Rating of risks

 Policy coverage (terms/conditions &

exclusions)
 Retention and re-insurance
4. Auxiliary Duties of the Underwriters
 Coordination of U/W tasks
 Maintain policies in force/renewals
 Customer visit, follow up (risk data/bus.)
 Proper handling of UW Files & records
 U/W Report preparation
 Handling of alteration/cancellation
 Provide information to claim handler
5. Importance of Underwriting
 U/W - needs emphasis in insurance
 U/W - direct impact on performance

 U/W’r responsible to investors


(shareholder)
 Responsible to the public

 Employees

 Provide protection to public fund

 etc
Poor U/W means

More claim (frequency & severity)


 More time to h handle claims
 Less time for new businesses

& keep existing ones.


 Re-insurance rates will increase

 Premium to be ceded will go up


 Premium rates sour & loss of clients
 Cash out flow increases

 Less fund for investment

 Less profit or eventually loss

 It may eat up capital/reserve

 Bad public image

 Collapse of insurer & lay off of staff


6. Basic Requirement for Underwriting
 Large number of similar risks

 SMI (property, life, Liab.)

 Insurable Interest

 Loss must not be imminent but


accidental
 Insurable risk: Pure risks, not
speculative
 Not catastrophic,

 Loss should be definite in time, place,

cause and amount.


 No room for sentimental values.
 Scope of cover should be legal & not
against public interest.

E.g.
 PA/GPA: not for self-injury and suicide,

 Motor: not for traffic offence

 Professional Indemnity: not for misconduct

 Marine Inland: not for smuggling of goods


7.1. New Policies
Cover Negotiation
 Risk proposal made by prospective
client (tender PF & get it completed &
signed)
 Assess the risk per inf. in PF
 Brief explanation of policy
 Examine survey report, evaluate risk
 Negotiate cover & agree on premium
Additional Source of U/W Information:-
 Further probing from proposer
 From Acquaintances

 The agent, sales person or brokers

 Physical inspection by insurer’s staff

 Report of risk surveyors

 Other inspection report (banks )


Good Proposal Form should at least
have the following information:
Details of the proposer & address

Details of property to be insured

Details of claims history

State of ownership of property

Use of property

Type of cover required

Period of Insurance

Truthful declaration of Statements of facts


presented
Signature & date of proposal.
Policy preparation

 Enter relevant U/W data

 Appropriate endorsement, clauses, excess,


warranties etc to be included/attached.

 Make sure that underwriting slip is signed


by both parties and witnessed.
7.2. Renewals:-

No legal duty to send notice

 Renewal list of policies to be prepared 60


days ahead of expiry date.

 Notices to be prepared & dispatch before 45


days.

2nd & 3rd notice if no response before 15 days


U/W procedures to be followed as applicable.
7.3. Treatment of Alteration

 Request for alteration should be in writing,


signed & stamped as applicable.
 Disclosure of material facts
 Evaluation of the change.
 Act upon the request (accept/reject)
 Charge premium where applicable.
 Issuance of relevant endorsement.
8. U/W Consideration by Class

Four classes to be discussed briefly:


8.1. Motor Insurance:-
Proposal Form
 Details of proposer ( name & address)
 Details of vehicle ( type, plate #, c.c. year make)
 Ownership of vehicle (insurable interest)
 Use of vehicle ( Pvt., own goods or G/C etc)
 Type of cover required ( Comp. , TP etc)
 Period of Insurance
 Names, experience & age of regular drivers
 Insurance & claims history of proposer
 Declaration & statement.
 Signature & date.

* Exceptional Cases: - big corporate companies


Pre-risk survey
Objectives of Pre-acceptance inspection
 check mere existence of the vehicle
 examine physical & other conditions

 record mileage traveled

 Verify particulars stated in the ownership

title VS ones on the vehicle (Plate#,


engine # & chassis #)
 The reasonability of S/I proposed
 Photographing essential
 Exception for new vehicles upon

o securing of pro forma invoice

o short-period covers while being imported

(while being driven Djibouti)


o survey not be mandatory for TP covers.
Evaluation
 On the basis of the information gathered
through the above two methods, the
underwriter is expected to evaluate the
proposal in view of potential risk
associated (physical & moral) and
company’s directives and procedures
 then either:- Reject or accept.

Rejection: e.g. old vehicles with bad


physical standings/condition. But in some
cases the rejection could be made
automatically with outgoing any further,
like vehicles with no dealers.
Acceptance:-
 Decide on type of cover to be given.
 Premium computation per rate chart

& directives
 Decide on Excess/deductible to charge

 Secure approval from HO if applicable

 Communicate with the proposer.

 Negotiate mode of premium payment


Issuance of policy:- Policy documents
 Standard policy wording (Motor Private &
Motor Commercial) plus Debit Note, Schedule,
clause &
fleet)
 Endorsements s applicable
 if credit sales (Conditions for continuity

of cover or claims)
 Open UW file: to keep copy of policy and other

relevant documents for record and follow up purpose.


8.2. Fire & Lightning
Property movable and immovable and
having peculiar value needs fire insurance.
Almost all materials are exposed to fire risk
with different degree.
e.g.
 Buildings

 Furniture

 Fixture and fittings

 Household contents

 Plant and machinery

 Stock etc
Proposal Form: - who could sign Proposal
Forms?

 Owners, Lessee, Tenants


 Mortgagor or mortgagee

 Trustees or bailees (Laundry, garages)

 Financial Institutes (like Banks )


Important information for fire risk rating
 Pre-risk survey

 Construction

 Occupancy

 Commercial, industrial, Residential

 Manufacturing Risk ( rubber, paper, food)

 Go downs/Warehouse

 Storage in open

 Shops, hotels etc


Building construction

Ability of building to stand fire without


collapsing.

 Walling
 Window & glazing
 Flooring
 Roofing & ceiling
 Electrical Wiring
 Electrical Installation
Other considerations:-
Fire protection/minimization (fire
extinguisher, Fire alarm system, Heat/Smoke
detector, fire escape)
Location of Fire brigade from the site

Accessibility of the site from the main road

 Availability of trained workers in safety.


 Distance b/n buildings
 Neighborhood activities
Evaluation:- Based on the pre-risk survey,
the risk is rated as 1st class, 2nd class or
3rd class.
Acceptance:-

Premium computation (class, occupancy,


area, S/I, application of warranties &
special perils, like EQ,) then issuance of
cover with appropriate attachment
(electrical clause, Mortgage clause etc.) &
collection of premium.
Marine:- cargo cover.
 Proposal form/PF/marine declaration
 No pre-risk survey except in transit risks

 Infn sources – PF & supplier’s invoice.

 Premium computation based on S/I

(FOB, CIF + some margin)


 Type of goods, type of conveyance,
mode of packing, transshipment).
 Cover could be given: in open cover or

individual basis
Attachments:-
Institute Classification clause (sea)

Institute Cargo clauses (A) ,(B), (C) (sea)

Institute Air cargo clauses ( Air)

 Carriers Liability

 WAR, SRCC clauses , if applicable

Others:-
Excess

Exclusions per rate chart (leakage)

Conditions:- subject to label clause

pharmaceuticals
8.4. Bonds:-

UNIC is issuing the following list of Bonds:-

• Bid Bond
• Customs Bond
• Performance Bond
• Advance Bond

Since Dec. 2002, NBE prohibited the issuance of


Unconditional Bond & Financial Guarantee
(includes Credit guarantee)
Unique features of Bonds:-
 Involvement of three contracting parties

 Bond business not insurance (guarantee)

 Principal & surety enters into a joint obligation

 Subrogation right against the principal

 Non-cancellation of the cover until the


fulfillment of the obligation.
 Return of bond on exipry of obligation

 Disfavored by Reinsurers
Documents:-
Risk Assessment & evaluation
Contract copy

 Company profile & credentials regarding

past projects
 Proposal form

 Financial statement if applicable

From other sources


Moral Hazard:- Principal’s integrity, history
from other insurers
UW Consideration:
 His capacity to undertake the contract
 Expertise & skill of manpower.

 Size of project

 Whether contract price offered by him is

adequate to finance the awarded project.


 Financial position of the contractor/

statement/his liability, liquid asset and cash


flow
Collateral
 Adequate collateral (more 1 to 1 of
penal sum)
 Evidence kept preferably in safe

 Approval from HO

 Indemnity/counter indemnity

 Collateral Receipt signed & witnessed

 Customs bond :

 post-dated cheque &/or Promissory


Note
 Collateral Receipt in 3 copies
Other Conditions:-

 Existing UNIC’s customers.


 Charge appropriate premium

 Follow-up the project progress, if possible

 Recover original documents

 Get at least employer’s acceptance letter


Thank You all & good stay!

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