The purpose and functions of underwriting in insurance
• In view of the above definitions the underwriting goal for insurance, we define as ensuring the specified loss ratio of the insurance type and the insurance portfolio as a whole through risk selection and selection of insurance conditions and coverage of insurance objects.
The underwriting goal is specified in the underwriting policy, which should take into account:
• the financial capacity of the insurer to pay on liabilities (the amount of net deduction of the insurer);
• the relationship with the budget, financial, investment, payment, personnel policies of the insurer;
• the amount of forecasted underwriting income, the sustainability and manageability of the portfolio of risks;
• reinsurance policy;
• scope of powers of underwriters and their motivation;
• forecast of the level of unprofitability determining the amount of allocations to the fund of large (non-statistical) losses and the value of statistical indices of payments, as well as deviation of the actual amount of losses from the forecast;
• the presence of competitors and their offers on the market;
• allowable rates of accounts receivable;
• changes in legislation and the possibility of their prompt accounting in the policy of the insurer;
• programs to develop new types of insurance.
The underwriting policy of an insurance company largely determines the pace of its development. "If the policy is restrictive, the company may lose a significant market share, but ensure profitability itself," said A. Kaba, president of the Association of Insurance and Reinsurance Brokers. - If the underwriting policy is more liberal, it will lead to an increase in both incomes and risks of occurrence of insured events and, as a result, amounts paid as reimbursements. "
The policy is implemented by performing underwriting functions.
1. Analytical function:
• identification of the insurance object;
• Definition of the list of factors that significantly affect the probability of occurrence of the insured event, depending on the types of insurance cases and insurance objects specified in the rules, as well as the possibility of taking them into account when calculating the insurance tariff;
• checking and confirming the insured's insured interest;
• an assessment of the acceptability of the risks claimed for insurance;
• the establishment of numerical values of raising (lowering) correction factors, taking into account the presence (absence) of factors that significantly affect the probability of occurrence and severity of the consequences of the insured event;
• evaluation (agreement with the insured) of the insured value, the insured amount;
• Determination of the most probable places of occurrence of risks at the insurance object and estimation of the average and maximum losses;
• Analysis of the loss ratio of the insurance portfolio for the appropriate type of insurance for a certain period for issuing recommendations on raising (decreasing) tariffs for the next tariff period.
• market valuation for objects and types of insurance.
2. Practical function:
• Decision on admission to insurance or refusal for specific claimed insurance objects;
• Determination of compliance of the list of risks covered by insurance to the risks provided for in actuarial calculations;
• Definition of the list of basic and additional terms of the insurance contract;
• Definition of the insurance rate for a particular insurance object;
• coordination with the insured of the sum insured;
• development and implementation of a risk reduction plan (risk management);
• observation of the insurance object in order to control changes in the degree of insured risks;
• development of reinsurance protection;
• Recommendations for changing the tariff guide.
3. Methodical function:
• development of underwriting policies, working instructions for underwriting by type of insurance;
• training of sellers in methods and methods of risk assessment for standard (standard) insurance contracts (standard underwriting).
4. Control function:
• monitoring of the insurance object and the level of risks;
• monitoring the implementation of the risk reduction plan;
• quality control of standard underwriting by sellers;
• monitoring of the parameters of the insurance portfolio and correction of the product and tariff policy.
The implementation of these functions is an insurance underwriting procedure that will be considered throughout the course.
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