Page 15 - RMAI BULLETIN Jan - Mar 2020

RMAI BULLETIN JANUARY TO MARCH 2020

EvaluationofLossExposures house) that is not covered by the underwriter's
In the first step, information is gathered about a reinsurance treaty or if the amount of insurance
needed exceeds net treaty capacity, the
proposer’s loss exposures to match with what
underwriter could transfer a portion of that risk
information is given in underwriting guideline. In the
covertoafacultativereinsurer.
other words, on the basis of what information is
available on a proposal form and what information
actually expected. Underwriter go through rigorous The underwriter has to decide whether to accept
proposal with modifications, or reject it. Rejection is
investigation to proposal form is divided into many
sometimes unavoidable; however, rejections produce
section like personal and family health history, medical
neither premium nor commission, only expense.
report, agent’s inspection report and previous data
Therefore, underwriters try to make the proposal
that refers to insured. An underwriter has to
understand activities, operations, and character of acceptable because one of the insurer's goals is to
every applicant and take into account available produceprofitablebusiness.
information. For example, an underwriter is to
thoroughly investigate an applicant’s health history if, SettingupAppropriatePremium
hegotthatapplicantwasunfitinpreviousissue.
Underwriters, first, ensure that each loss exposure is
properly classified into standard, sub-standard and
Determining and Selecting Underwriting preferred classes so that it can be properly rated.
Alternatives Insurancecostistypicallybasedontheseclassifications
If, there are some differences between expected and in which similar loss exposures are combined into the
available information, underwriter tries to trace out same rating classification method. When underwriting
finds that application fulfill all basic requirements
those deviations and provides available alternative
whichneededbyunderwritingguidelineputthatpolicy
carefully after that chooses a suitable one under the
into standard class. When applicant is standard than
practicable circumstances. The three underwriting
alternatives which are; accept the proposal as it is or underwriting standard company does not want to miss
reject the proposal or make a counter offer to accept that kind of policy and issue it at priority basis. In class
theproposalwithafewcertainmodificationswhichare of sub-standard when a risk is deemed to be outside
underwriting standard that is considered to be of high
fourtypesasfollows:
risk within those standards. The insurer, generally, has
i) Tools for risk control to reduce hazards- Some loss
control measures are relatively inexpensive and three options a) issue the policy with a higher
simple to implement, while others, such as fire premium; b) issue the policy with limited benefits; and
extinguish, require considerable capital c) issue the policy with certain exclusions. This provides
basetosetuppremium.
investment;
ii) Amended insurance rates, policy limits or rating
plans - A proposal that is not acceptable at ImplementingUnderwritingDecision
standard rate could be issued at modified rate or For implementing underwriting decisions company
could be set some limit or could be use a different contact to the proposer with clear decision. If decision
rating plan. An amended rate could either is to accept the proposal with modifications, the
increase or decrease the premium. Smokers can reasons must be clearly communicated to the
not get the best life insurance rates while healthy applicant, and the applicant must agree to accept
cangetapreferredriskcover. implemented modifications. If the application is
rejected, a clear and rational reason must be given.
iii) Amend policy terms and conditions - A proposal
After all authentications, put coverage into effect and
might become acceptable to modify terms and
issue insurance certificates. Recording applicant’s
conditions of policy to exclude certain causes of
policy details and save information for accounting,
loss, add or increase a deductible sum, or make statistical, and monitoring purposes, into information
anotherchanges,ifneeded.and
system. It must be coded so that the insurer and the
iv) If required, use facultative reinsurance method - If industry can evaluate and interpretate information for
a proposer wants to cover an unexpected big risk statutory filing, and financial accounting. Monitoring
to cover (in case of celebrities or great business the underwriting process- When underwriting decision

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