Chapter 13 - Underwriting

Question 1

What functions does underwriting consist of?

Answer 1

1) consideration of the acceptance or rejection of a risk
2) if the risk is accepted, the terms of the policy
3) the premium for the policy

• most modern insurers write large volumes of similar risks, and their underwriters carry out risk screening and rate allocation
• therefore, underwriting takes place at 2 levels
  i) head office underwriting
  ii) individual underwriting

Question 2

Explain how head office underwriting takes place.

Answer 2

WHAT TO INSURE

• management establishes a marketing philosophy that will produce a profit
• some insurers write broadly because of the nature of their agency force and production methods and others are niche writers, seeking selected classes in which they have expertise, yet other insurers mass market to selected groups or they may use a combo of all of the above
• every insurer puts its expertise to work by creating underwriting and rate manuals, and systems of operation to attract and classify profitable business
• the insurers auto manager for canada (or VP of underwriting) creates an underwriting manual for all branch underwriters which might include:
  1) an acceptance or rejection list
  2) a senior underwriter only acceptance list
  3) a limit table ( max liability limits which can be accepted)
  4) a classification guide
  5) other instructional material
• the more comprehensive the underwriting manual, the greater the description provided for acceptable risks and the more likely it is that corp goals will be met

Question 3

Explain the limit tables and acceptable lists in the underwriting manual for head office underwriting.

Answer 3

HOW MUCH TO INSURE

• the underwriting manual outlines the kind of risks that are acceptable to the insurer
• it includes a limit table for section 3 (liab) limits, based on insurers reinsurance treaties and the extent to which the insurer is willing to expose its own net account