Study 1 - Underwriting Tools and Needs Analysis

Question 1

Technical Tools

Answer 1

• Rating and Ratemaking
• Technology
• Product Knowledge
• Research Skills
• Reinsurance Knowledge
• Knowledge of Loss Control

Question 2

2 basic approaches to rating

Answer 2

1. Class Rating
2. Schedule Rating

Question 3

Class Rating

Answer 3

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

Question 4

Schedule Rating

Answer 4

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.

Question 5

Management by Exception

Answer 5

• 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

Question 6

Product Knowledge

Answer 6

• 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

Question 7

Manuscript wording

Answer 7

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

Question 8

Research Skills

Answer 8

• 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

Question 9

Reinsurance Knowledge

Answer 9

• 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

Question 10

When UW’s use Facultative Reinsurance

Answer 10

• 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

Question 11

Loss control inspectors typically group hazards in 4 main categories

Answer 11

1. Attitude to loss prevention on the part of the risk’s management
   - Can suggest how great of a moral hazard the risk might represent
2. Physical Hazards
   - Comprises all aspects of the physical risk that may make a loss more likely
3. Housekeeping
   - The standard of housekeeping maintained by a risk is an important measure of both physical and moral hazard
4. 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

Question 12

Analytical Tools

Answer 12

1. Financial Analysis
2. Risk Analysis

Question 13

Financial Analysis Skills

Answer 13

• 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

Question 14

Deductible

Answer 14

• 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

Question 15

Self Insured Retention (SIR)

Answer 15

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

Question 16

How an SIR differs from a deductible

Answer 16

• The insurer is not involved in losses that fall within the SIR
• Thus, the insured and not the insurer is responsible for adjusting any claim within the SIR
• Conversely, a deductible reduces the amount of an insurer’s payment to or on behalf of an insured in settlement of a loss
• The insurer remains responsible for adjusting the claim

Question 17

Risk Analysis Skills/Questions an UW should ask

Answer 17

• What perils does the risk face?
• Has the risk suffered any unusual losses (either large or small)?
• Are there physical hazards that can be reduced or eliminated?
• Does the risk present a moral hazard?
• Does the risk have high employee turnover?

Question 18

Critical Workplace Skills

Answer 18

1. Communication Skills
   - Use natural curiosity
   - Good communication is not adversarial
   - Good documentation is important
2. Organization Skills
   - Requires good time-management skills and the ability to set priorities