Terms | Definitions |
|---|---|
 What role does Lloyd's of London play in the development of the insurance industry? | created centres of social, intellectual and commercial activity where insurance was sold |
| Where does the term "underwriter" come from? How has the meaning of the term changed over the years? | started as the person literally writing their name under a contract. signatures of underwriters were replaced with those of company officers. |
| Explain the function of the line guide. | it is a set of criteria determined by an insurer to accept or reject a risk. |
| Why is licensing an important consideration for an underwriter? | different locations require different licenses to sell insurance. |
| How does territory affect an underwriter's assessment of risk? | some territories may be more prone than others to certain kinds of environmental hazard. |
| What is a table of limits, and how are the amounts in the table determined? | the amounts of insurance an underwriter may authorize for risks of varying types are set out in a table of limits. It is determined by occupancy of the risk, level of public fire protection and type of construction. |
| What is reinsurance? Explain the difference between facultative reinsurance and treaty reinsurance. | an insured transfers part of its risk to another insurer. Facultative is negotiated on an individual risk or policy. Treaty is reinsurance of a portfolio of business. |
| How is reinsurance beneficial to insurance companies? | one benefit is that it makes more capital available. |
| In what ways might an underwriter be responsible for applying the line guide? | file underwriter - individual risk portfolio underwriter - group of risks |
| What is the difference between a first-party loss and a third-party loss? Give an example of each. | first party- loss of damage to property e.g. car, house. third party - loss from legal liability for loss or damage or harm caused to another business. |
| What is the difference between a physical hazard and a moral hazard? Give an example of each. | physical - a hazard that makes a loss more likely e.g. safety equipment moral - the attitudes and character traits that lead to an loss |
| Why is it important for underwriters to look for ways to say yes to risks? | the insurer's business relies on a premium earned on a risk. |
| Discuss the THREE (3) main reasons why an underwriter might reject a risk. | 1. class of risk is not permitted in line guide 2. market conditions 3. risk is too flawed to be accepted |
| How does the approach of a reinsurance underwriter differ from that of an underwriter for a primary insurer? | reinsurance underwriter is looking for the approach of risk of the underwriting team whereas primary is looking to accept risk |
| What is the difference between hard skills and soft skills? Give an example of each type of skill as it would apply to an underwriter. | hard skills are tangchible whereas soft skills are intangible and hard to measure. hard skill - technical computer skills soft skill - communication skills |
| What does the power of "why" refer to? Why is this an important characteristic of an underwriter? | it refers to the curiosity of an underwriter. it is important as they should seek to understand a risk and its context as thoroughly as possible |
Terms | Definitions |
|---|---|
| Underwriter | 1) insurance professional employed to accept or reject risk on behalf of an insurer 2) an investor of shareholder capital 3) insurance professional employed to implement an insurer's strategic plan |
| Evolution of Underwriting | • Code of Hamurabii 1750 - 1800 BC • Bottomry - loan extended to owner of goods/ship in transit - journey completed loan is repaid with interest, if not loan kept for indemnity • Coffee houses - Lloyd's of London • Underwriters |
| Underwriting Process | 1) Licensing - where insurer can accept business, also part of strategic plan 2) Types of Business- market insurer wants to deal with & seek business 3) Lines of Insurance - part of strategic plan, lines of insurance being offered 4) Territory - urban vs rural, overlaps capacity, pricing performance, u/w should know the territory 5) Capacity - capital available to the u/w to invest in various business, max amount of insurance u/w can commit 6) Table of Limits - amounts of insurance an u/w max authorized, set out in a matrix determined by: a. Occupancy b. Level of public fire protection c. Construction |
| Line Guide criteria are | - part of the insurer's strategic plan |
| Reinsurance | - two types, closely related to capacity 1) Facultative - negotiated between insurer and reinsurer on an individual risk 2) Treaty Reinsurance - agreement between insurer and reinsurer to reinsure a block or portfolio of business |
| Applying the Line Guide | • Underwriters job can be described as applying the line guide ( expresses insurers strategic plan) • U/W assignment can be individual risks or groups of risks • As he gains experience will be given larger more complicated risks • Giving brokers "the pen" vesting u/w authority to brokers with line guide limits, the broker underwrites, insurers u/w becomes portfolio manager |
| Assessing the Risk | Using criteria in line guide to assess whether to accept or reject a risk & to determine what terms would make it acceptable... questions like: • Who is the applicant • What kinds of losses might be incurred • What perils does the risk face • Physical hazards making some losses more likely • Moral hazards, more subjective than physical hazards • How much information is needed • What to know vs need to know |
| Making a Decision | Insurers business is to earn premium while minimizing loss. Reject a risk if : o Risk on it's own Class not permitted by the line guide, short of min. requirements o Market conditions, competitive considerations o merits is too flawed to be accepted not possible to negotiate terms • Risk maybe improved with, deductible, premium rates, modification of coverage, implementation of loss control recommendations. • Process of u/w is continual, reassess at midterm change and renewals. |
| Reinsurance Underwriter | • Underwriters the underwriter, especially those who negotiate treaties • Facultative reinsurer may not have as much information about the risk as the insurers u/w • Treaty reinsurance consider whole portfolios therefore most concerned about u/w or team of underwriters • Verify by audit insurers underwriting files |
| Tools of an Underwriter | 1) Knowledge a. Must understand the risk in context with industry, economy, larger society b. u/w is a generalist with a natural curiosity, desire to learn c. extensive general knowledge as well as specialized about business and law d. should understand exposures to loss represented by the risks |
| BIG 5 catagories of knowledge | 1. Environment - political, social economic 2. Legal System - 3 systems of laws, common, statute, civil code , jurisdictions, federal, provincial, criminal, civil, tort - Law of contracts, insurance contracts 3. The Business - insurance and other industries ris is in 4. The Product - Insurance promise of indemnity , evidence of contract 5. The Risk - the applicant and the risk itself |
| Skills | a. Hard Skills - tangible measurable, unique to particular job - Technical: computer, rating - Analytical: decision based on info b. Soft Skills - intangible, hard to measure generally useful to any job - Communication - Organizational |
| Other Requirements | a. Co-operation with other professionals b. People skills required c. Reconcile conflicting environmental consideration d. u/w suited by temperament e. power of why - not a mechanical approach |
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