Study 1 - Underwriting Tools and Needs Analysis Flashcards
Technical Tools
- Rating and Ratemaking
- Technology
- Product Knowledge
- Research Skills
- Reinsurance Knowledge
- Knowledge of Loss Control
2 basic approaches to rating
- Class Rating
- Schedule Rating
Class Rating
Uses rates that reflect the average probability of loss for businesses within large groups of similar risks; the predominant method used for rating commercial properties
Schedule Rating
A method of rating risks by measuring them against fixed standards of construction and protection. Risks below standards earn a charge that increases the rate; risks above earn a credit that reduces the rate.
Management by Exception
- The UW establishes a set of acceptable boundaries for the risks in the portfolio and then asks for reports only on risks that fall outside those boundaries
Product Knowledge
- One of an UW’s most important skills is the ability to choose and perhaps modify coverage to address the needs of an existing or prospective insured
- Rooted in the knowledge of the insurance product
- Insurance policies offered by the UW’s insurer, but also competitors
- Competitors financial stability
- General understanding of policies offered by other departments
Manuscript wording
Policy wording that does not conform to the standard wording in general use within the insurance industry and that is unique to the policy involved
Increased care is needed when drafting a manuscript wording since it is unique and therefore untested in law
Research Skills
- UW must be familiar with doing research and must be confident in using all the research tools available, including website, online databases and articles, trade associations, publications, etc.
- Reinsurers can be an excellent source of information since they encounter a wide variety of risk and may be more familiar with the types of exposure on unusual or unfamiliar risks
Reinsurance Knowledge
- One decision for the UW is whether to use the capacity afforded by one or more of the insurer’s reinsurance treaties or to protect them and buy facultative reinsurance instead
- A reinsurance treaty automatically covers all risks written by the ceding company that fall within the treaty terms except exposures that are specifically excluded.
- A facultative reinsurance contract covers an individual primary policy - the policy issued by the insurance company buying the reinsurance
When UW’s use Facultative Reinsurance
- Facultative reinsurance is often purchased or placed on a risk that has catastrophic or unusual risk exposures to which the underwriter would rather not expose the insurer’s treaty
- Thus it is often used to supplement or “protect” the treaty
Loss control inspectors typically group hazards in 4 main categories
- Attitude to loss prevention on the part of the risk’s management
- Can suggest how great of a moral hazard the risk might represent - Physical Hazards
- Comprises all aspects of the physical risk that may make a loss more likely - Housekeeping
- The standard of housekeeping maintained by a risk is an important measure of both physical and moral hazard - Neighbourhood
- Is a source of external exposure to the risk. The chance of loss is greater or less according to the size and construction of the buildings around it, their distance from the risk, and the use that their occupants make of those buildings
Analytical Tools
- Financial Analysis
- Risk Analysis
Financial Analysis Skills
- Important factor, particularly for commercial risks is the financial state of a given risk
- Whether the risk has financial resources to continue in business and ultimately pay the insurance premiums
- Whether the risk can accept deductibles, and if so, what amounts
- Whether the risk is a candidate for an SIR
- Whether the risk has any discontinued operations
Deductible
- An agreed specified amount that the insured must pay on a claim before the insurance company will cover the rest of the claim
- This amount is agreed upon by both the insurer and the insured.
- An insured’s obligation to pay a deductible is not based on whether the insured is at fault
Self Insured Retention (SIR)
A dollar amount specified in an insurance policy (usually a liability policy) that must be paid by the insured before the insurance policy will respond to a loss