what is an underwriter?
an underwriter is the person who makes the decision on
behalf of an insurer whether to accept any risk presented.
If the insurer accepts a risk, the underwriter determines the terms and conditions on which the acceptance is made.
functions of an underwriter
- assess the risks being presented to the pool
- decide whether or not to accept the risk and if so – how much of the risk to accept;
- determine the terms and conditions to be offered
- calculate an appropriate premium.
what is a subscription market?
risks can either be placed 100% with one insurer (but this is rare) or on a ‘subscription basis’.
This means that more than one insurer participates in the same risk, each taking a fixed percentage of the risk.
why may an underwriter only take a proportion of a risk?
- Size of risk and authority levels – each underwriter has a level of personal authority granted to them by their employer, i.e. a maximum share in financial terms of any risk which they can accept.
- Balancing the portfolio – all underwriters constantly monitor their business to ensure balance across such areas as geographical exposures. maybe business almost fills the available capacity to insure a risk in a
certain part of the world - Insurance broker input – it might be that a risk is very good and the broker wishes to spread it amongst many insurers.
- New class of business – if an insurer is just starting out in a certain class of business
then it is more prudent to take smaller shares in a number of risks in order to spread the
exposure of its pool.
Characteristics of a good lead underwriter
essential that the leader is both able to provide a good quotation to the client and at the same time be credible and supportable by what is known as the ‘following
market’.
competition law
the law prohibits behaviour whereby the normal competitive nature of the insurance market is removed.
It is also trying to prevent a situation where the market acts together to the detriment of the client
European Federation of Insurance Intermediaries (BIPAR) principles…
- specify the demands and needs of the client as well as the underlying reasons for any advice.
- an intermediary will review and advise a client on market structures available to meet its needs
- If the client instructs to place the risk with multiple insurers, the intermediary will review, explain the relative merits and advise the client
- In the case of a placement of a risk with a lead insurer and following insurers on the same terms and conditions, the previously agreed premiums of the lead insurer and
any following insurers will not be aligned upwards should an additional follower require a higher premium to complete the risk placement - keep the client informed of progress.
Overall leader
the overall leader of a risk may be overseas and when the broker presents the risk to the London Market underwriters they
will tell them the terms that the overall leader has set.
Slip leader
London Market underwriters are not obliged to follow the overall leader’s
terms
The broker may have
gone to see a London Market leader in either the Lloyd’s or the company market. If that underwriter is happy to lead the broker’s London Market slip, they become the slip leader
Bureau leader
If the slip leader is
from a company then the first Lloyd’s underwriter on the slip is called the bureau leader
for Lloyd’s and the slip leader is also the bureau leader for the company market
why do market agreements exist?
Market agreements exist to streamline the process for agreeing changes to the risk and for claims.
what is the problem with multiple market leaders?
Multiple leaders created by different terms and conditions being agreed by different insurers in the Market reduces the effectiveness of these agreements.
