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Underwriting in Insurance Sector

PROJECT ON:

UNDERWRITING IN INSURANCE SECTOR

BY:

Ms. MONALI P. !OIR T.". .Co# $ an%ing & Insurance'

Underwriting in Insurance Sector

INTRODUCTION

Inside story8

E#)*o2#ent in t(e +ie*d o+ underwriting Training/ ot(er 1ua*i+ications/ and ad,ance#ent gi,en to t(e underwriter Nature o+ t(e wor% o+ t(e underwriters Underwriting in genera* Underwriting in insurance

INTRODUCTION OF UNDERWRITING

T(e )rocess t(at a *arge +inancia* ser,ice )ro,ider -.an%/ insurer/ in,est#ent (ouse0 uses to assess t(e )rocess o+ )ro,iding access to t(eir )roduct *i%e )ro,iding e1uit2 ca)ita*/ insurance or credit to a custo#er3 T(e na#e deri,es +ro# t(e L*o2d4s o+ London insurance #ar%et in London/ United 5ingdo#. 6inancia* .ac%ers/ w(o wou*d acce)t so#e o+ t(e ris% on a gi,en ,enture -(istorica**2 a sea ,o2age wit( associated ris%s o+ s(i)wrec%0 in e7c(ange +or a )re#iu#/ wou*d *itera**2 write t(eir na#es under t(e ris% in+or#ation w(ic( was written on a L*o2d4s s*i) created +or t(is )ur)ose.
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Underwriting in Insurance Sector

In .an%ing/ underwriting is t(e detai*ed credit ana*2sis )receding t(e granting o+ a *oan/ .ased on credit in+or#ation +urnis(ed .2 t(e .orrower/ suc( as e#)*o2#ent (istor2/ sa*ar2/ and +inancia* state#ents9 )u.*ic*2 a,ai*a.*e in+or#ation/ suc( as t(e .orrower4s credit (istor2/ w(ic( is detai*ed in a credit re)ort9 and t(e *ender4s e,a*uation o+ t(e .orrower4s credit needs and a.i*it2 to )a2. Underwriting can a*so re+er to t(e )urc(ase o+ cor)orate .onds/ co##ercia* )a)er/ Go,ern#ent securities/ and #unici)a* genera* o.*igation .onds .2 a co##ercia* .an% or dea*er .an% +or its own account/ or +or resa*e to in,estors. an% underwriting o+ cor)orate securities is carried

out t(roug( se)arate (o*ding co#)an2 a++i*iates/ ca**ed securities a++i*iates/ or Section :; a++i*iates.

EMPLOYMENT IN THE FIELD OF UNDERWRITING:

Insurance

underwriters

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A))ro7i#ate*2 : out o+ ? underwriters wor% +or insurance carriers. Most o+

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Underwriting in Insurance Sector

t(e re#aining underwriters wor% in insurance agencies or +or organi@ations t(at o++er insurance ser,ices to insurance co#)anies and )o*ic2(o*ders. A s#a** nu#.er o+ underwriters wor% in agencies owned and o)erated .2 .an%s/ #ortgage co#)anies/ and rea* estate +ir#s.

Most underwriters are .ased in t(e insurance co#)an2As (o#e o++ice/ .ut so#e/ #ain*2 in t(e )ro)ert2 and casua*t2 area/ wor% out o+ regiona* .ranc( o++ices o+ t(e insurance co#)an2. T(ese underwriters usua**2 (a,e t(e aut(orit2 to underwrite #ost ris%s and deter#ine an a))ro)riate rating wit(out consu*ting t(e (o#e o++ice.

TR INING! OTHER "U LIFIC TION#! ND D$ NCEMENT GI$EN TO THE UNDERWRITER: 6or entr2B*e,e* underwriting =o.s/ #ost *arge insurance co#)anies )re+er co**ege graduates w(o (a,e a degree in .usiness ad#inistration or +inance wit( courses or e7)erience in accounting. Underwriting can .e a satis+2ing career +or )eo)*e w(o en=o2 ana*2@ing in+or#ation and )a2ing attention to detai*. In addition/ underwriters #ust )ossess good =udg#ent in order to #a%e sound decisions. E7ce**ent co##unication and inter)ersona* s%i**s a*so are essentia*/ as #uc( o+ t(e underwriterAs wor% in,o*,es dea*ing wit( agents and ot(er insurance )ro+essiona*s.
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Underwriting in Insurance Sector

Continuing education is necessar2 +or ad,ance#ent. Insurance co#)anies usua**2 )a2 tuition +or underwriting courses t(at t(eir trainees co#)*ete9 so#e a*so o++er sa*ar2 incenti,es. Inde)endentBstud2 )rogra#s +or e7)erienced )ro)ert2 and casua*t2 underwriters are a,ai*a.*e as we**. T(e Insurance Institute o+ A#erica o++ers .ot( a )rogra# ca**ed CIntroduction to Underwriting3 +or .eginning underwriters/ and t(e s)ecia*t2 designation o+ Associate in Co##ercia* Underwriting -ACU0/ a +or#a* ste) in de,e*o)ing a career in underwriting .usiness insurance )o*icies. T(ose interested in de,e*o)ing a career underwriting )ersona* insurance )o*icies #a2 earn t(e Associate in Persona* Insurance -API0 designation. To earn eit(er t(e ACU or API designation/ underwriters co#)*ete a series o+ courses and e7a#inations t(at genera**2 *ast < to : 2ears. N TURE OF THE WOR% OF THEUNDERWRITER#: Insurance co#)anies )rotect indi,idua*s and organi@ations +ro# +inancia* *oss .2 assu#ing .i**ions o+ do**ars in ris% eac( 2ear. Underwriters are needed to identi+2 and ca*cu*ate t(e ris% o+ *oss +ro# )o*ic2(o*ders/ esta.*is( a))ro)riate )re#iu# rates/ and write )o*icies t(at co,er t(is ris%. An insurance co#)an2 #a2 *ose .usiness to co#)etitors i+ t(e underwriter a))raises ris%s too conser,ati,e*2/ or it #a2 (a,e to )a2 e7cessi,e c*ai#s i+ t(e underwriting actions are too *i.era*. Tec(no*og2 )*a2s an i#)ortant ro*e in an underwriterAs =o.. Underwriters use co#)uter a))*ications ca**ed Cs#art s2ste#s3 to #anage ris%s #ore e++icient*2 and
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Underwriting in Insurance Sector

accurate*2. T(ese s2ste#s auto#atica**2 ana*2@e and rate insurance a))*ications/ reco##end acce)tance or denia* o+ t(e ris%/ and ad=ust t(e )re#iu# rate in accordance wit( t(e ris% and dose .etter e1ui))ed to #a%e sound decisions and a,oid. Most underwriters s)ecia*i@e in one o+ t(ree #a=or categories o+ insurance8 *i+e/ (ea*t(/ and )ro)ert2 and casua*t2. Pro)ert2 and casua*t2 underwriters usua**2 s)ecia*i@e in eit(er co##ercia* or )ersona* insurance and t(en .2 t2)e o+ ris% insured/ as in +ire/ (o#eownersA/ auto#o.i*e/ #arine/ or *ia.i*it2 insurance/ or wor%ersA co#)ensation. In cases w(ere casua*t2 co#)anies )ro,ide insurance t(roug( a sing*e C)ac%age3 )o*ic2 co,ering ,arious t2)es o+ ris%s/ t(e underwriter #ust .e +a#i*iar wit( di++erent *ines o+ insurance.

UNDERWRITING IN GENER L: As +inancia* #ar%ets de,e*o)/ t(e *ines .etween ca)ita* #ar%ets and insurance )roducts are .*urring. T(e conce)tua* si#i*arities .etween +inancia* o)tions and insurance contracts are se*+Be,ident B a )a2out occurs gi,en a certain e,ent +or an under*2ing )(2sica* or +inancia* o.=ect. 6inancia* o)tions o,er t(e )ast +ew 2ears (a,e #ode*ed increasing*2 co#)*e7 structures/ wit( e,er #ore under*2ing ,aria.*es/ and t(ese ,aria.*es t(e#se*,es are su.=ect to increasing ,agaries. 6or centuries/ t(e insurance industr2 (as )riced

Underwriting in Insurance Sector

)re#iu#s .ased on a co#.ination o+ 1uantitati,e #ode*s/ +inancing needs and a co##ercia* assess#ent o+ su))*2 and de#and. Ris% Care (a,e underta%en )ro=ects +or a ,ariet2 o+ insurance sectors/ re)*icating )re#iu# )ricing +unctiona*it2 t(at (as .een )rotot2)ed in a s)reads(eet into ro.ust data.ase so*utions/ ca)a.*e o+ (and*ing a *arge ,o*u#e o+ users and )ro,iding internet access. T(ese (a,e .een tig(t*2 integrated wit( wor%+*ow s2ste#s/ su))orting t(e +u** range o+ )rocesses +or a))*ications/ renewa*s and c*ai#s. O,er t(e co#ing 2ears/ we e7)ect to .e satis+2ing a su.stantia* range o+ custo#er re1uire#ents as we a))*2 an e,erB increasing a#ount o+ our ca)ita* #ar%ets %now*edge and e7)erience. Our )ricing e7)ertise wi** .e use+u* +or insurance )re#iu#s/ and our ris% #anage#ent e7)ertise wi** .e use+u* +or ca)ita* )ro,isioning.

Underwriting is--<. T(e )rocess o+ issuing insurance )o*icies :. T(e )rocess .2 w(ic( in,est#ent .an%ers raise in,est#ent ca)ita* +ro# in,estors on .e(a*+ o+ cor)orations and go,ern#ents t(at are issuing securities -.ot( e1uit2 and de.t0.

Underwriting in Insurance Sector

In,esto)edia Sa2s8 T(e word DunderwriterD is said to (a,e co#e +ro# t(e )ractice o+ (a,ing eac( ris%Bta%er write (is or (er na#e under t(e tota* a#ount o+ ris% t(at (e or s(e was wi**ing to acce)t at a s)eci+ied )re#iu#. In a wa2/ t(is is sti** true toda2/ as new issues are usua**2 .roug(t to #ar%et .2 an underwriting s2ndicate in w(ic( eac( +ir# ta%es t(e res)onsi.i*it2 -and ris%0 o+ se**ing its s)eci+ic a**ot#ent.

UNDERWRITING IN IN#UR NCE: Underwriting #a2 a*so re+er to insurance9 insurance underwriters ca*cu*ate (ow ris%2 it is to insure )eo)*e and .usinesses. T(e2 a*so decide (ow #uc( co,erage t(e2 s(ou*d recei,e and (ow #uc( t(e2 s(ou*d )a2 +or it. Underwriting in,o*,es #easuring ris% e7)osure and deter#ining t(e )re#iu# t(at needs to .e c(arged to insure t(at ris%. T(e +unction o+ t(e underwriter is to write .usiness t(at wi** #a%e t(e insurance co#)an2 #one2/ and to )rotect t(e co#)an24s .oo% o+ .usiness +ro# ris%s t(at t(e2 +ee* wi** #a%e a *oss. In si#)*e ter#s/ it is t(e )rocess o+ issuing insurance )o*icies. Eac( insurance co#)an2 uses its own set o+ underwriting guide*ines in order to deter#ine w(et(er or not t(e co#)an2 s(ou*d acce)t a )ro)osa*. In *i+e insurance t(is decision )rocess so#eti#es re1uires t(at a))*icants )ro,ide +urt(er #edica* e,idence. T(e underwriters can decide to #a%e a countero++er
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Underwriting in Insurance Sector

in w(ic( t(e )re#iu#s (a,e .een *oaded/ or in w(ic( ,arious e7c*usions (a,e .een sti)u*ated/ w(ic( restrict t(e circu#stances under w(ic( a c*ai# wou*d .e )aid. So#e co#)anies use auto#ated underwriting s2ste#s to encode t(ese ru*es.

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Underwriting in Insurance Sector

RE$IEW OF LITER TURE

Inside story8 Underwriting #anage#ent .oo%

www.goog*e.co# www.#otor insurance.co#

Insurance #anage#ent )rinci)*e and )ractices Indian insuranceBa )ro+i*e

UNDERWRITING M N GEMENT :
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Underwriting in Insurance Sector

Insurance is created w(en )eo)*e *i%e 2ou and 2our neig(.ors )oo* t(eir resources to )rotect t(e#se*,es +ro# t(e e++ects o+ a *oss. WWW&GOOGLE&COM: 6ire underwriting3 descri.es t(e tec(nica* as)ects o+ conducting t(e .usiness o+ insurance o+ +ire ris% as o))osed to t(e ad#inistrati,e/ +inancia* and organi@ationa* as)ects o+ t(e .usiness. WWW& MOTOR IN#UR NCE&COM : T(e #otor Insurance re1uires t(e )ro)oser to co#)*ete a )ro)osa* +ro# t(at re,ersa*/ .2 t(e answers to t(e 1uestions t(e #ateria* +acts t(at a++ected t(e ris%. IN#UR NCE M N GEMENT PRINCIPLE ND PR CTICIE# : In t(is .oo% t(e aut(or (a,e gi,en a descri)ti,e e7)*anation a.out ,arious as)ects o+ insurance sector. T(e2 (a,e ,er2 strong*2 (ig(*ig(ted t(e i#)ortance o+ underwriting INDI N IN#UR NCE' PROFILE8 It (as +ocused on underwriting ru*es and regu*ation. !e gi,es a descri)ti,e e7)*anation on underwriting ru*es and regu*ation and *ega* +ra#ewor%.

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Underwriting in Insurance Sector

BOUT IN#UR NCE ND IT(# WOR%ING

Inside story8 Conce)t o+ ris% )oo*ing and s(aring C*assi+ication o+ insurance

Underwriter decision #a%ing

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Underwriting in Insurance Sector

 CONCEPT OF RI#% POOLING ND #H RING: Man2 )eo)*e *oo% at insurance co#)anies as .ig/ i#)ersona* institutions t(at can a.sor. *oss regard*ess o+ cause or conse1uence. Not(ing cou*d .e +urt(er +ro# t(e trut(. T(e conce)t o+ insurance can .e 1uic%*2 reduced to ,er2 )ersona* ter#s i+ 2ou t(in% a.out it as ris% s(aring or )oo*ing. Insurance is created w(en )eo)*e *i%e 2ou and 2our neig(.ors )oo* t(eir resources to )rotect t(e#se*,es +ro# t(e e++ects o+ a *oss. W(et(er t(e *oss t(e2 are atte#)ting to )rotect t(e#se*,es +ro# is *oss o+ *i+e/ disa.i*it2/ +ire/ or w(ate,er/ t(e .asic conce)t re#ains t(e sa#e8 i+ t(e ris% o+ *oss can .e s)read o,er a *arge enoug( grou)/ t(e e++ects o+ t(e *oss to an2 one indi,idua* can .e #ini#i@ed. Rat(er t(an one )erson .earing t(e +u** .runt o+ econo#ic *oss/ eac( )erson in t(e grou) s(ares a )art o+ t(e ris% .2 #a%ing a )a2#ent into a +und +ro# w(ic( c*ai#s are )aid. W(i*e t(is descri)tion #a2 see# too si#)*e/ t(e trut( is t(at #an2 o+ toda24s #odern insurance co#)anies (ad t(eir .eginnings in =ust t(ese t2)es o+ grass roots settings. Ear*2 *i+e insurance associations were o+ten grou)s o+ wor%ers .anding toget(er to )rotect against t(e econo#ic *oss t(at a #e#.er4s +a#i*2 #ig(t e7)erience/ s(ou*d a wor%er die )re#ature*2. 6ire associations started .ac% in co*onia* ti#es were not #uc( #ore t(an a grou) o+ )ro)ert2 owners )oo*ing t(eir resources in case one o+ t(e# *ost )ro)ert2 to +ire. W(i*e t(is e1uation (as .eco#e so#ew(at #ore intricate and
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Underwriting in Insurance Sector

co#)*e7 o,er t(e 2ears/ it sti** (as at its core t(e sa#e .asic conce)t o+ ris% )oo*ing or s(aring.

CL ##IFIC TION OF IN#UR NCE: Li+e is +u** o+ uncertaint2. Tria*s and tri.u*ations a.ound in eac( and e,er2 as)ect o+ *i+e. No one can tru*2 )redict or e,en esti#ate w(at t(e +uture (as in store +or (i#. Li+e o++ers no guarantees .2 itse*+/ e7ce)t t(e incidences o+ deat( and ta7ation. T(is *ac% o+ securit2 )resent t(roug(out *i+e can .e o,erco#e )artia**2 t(roug( insurance. Insurance can ne,er re)*ace or re)air a *oss. ut t(e #onetar2 ,a*ue o++ered .2 insurance (e*)s in ad=usting to t(e new circu#stances. Des)ite o++ering innu#era.*e o)tions and i##ense sco)e/ insurance can .e c*assi+ied into +our #ain categories. Insurance o+ Person Insurance o+ Pro)ert2 Insurance o+ Interest Insurance o+ Lia.i*it2

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Underwriting in Insurance Sector

)* Ins+r,n-e O. Person: Under t(e )ur,iew o+ t(is c*ass o+ insurance/ t(e ris%s associated wit( (u#an *i+e in genera* can .e co,ered u) to t(e *i#it s)eci+ied. A )erson can insure (is or (er *i+e and (is (ea*t( against an2 un)*anned contingencies. In e,ent o+ (is deat(/ (is de)endants wi** .e rei#.ursed to t(e +u** a#ount t(at (e was insured +or. Or i+ t(e insured )erson #eets wit( an accident or su++ers +ro# an i**ness t(at cri))*es (i# +ore,er/ (e wi** .e co#)ensated wit( t(e co#)*ete su# assured an2wa2 since (e #a2 not .e a.*e to *ead a nor#a* *i+e again. In case/ t(e accident is not t(at se,ere/ (e s(ou*d .e a.*e to reco,er a+ter #edica* treat#ent and re(a.i*itation. I+ (e (as o)ted +or #edica* co,er/ t(en (is #edica* e7)enses/ treat#ent and #edication wi** .e )aid +or .2 (is insurance )o*ic2.

/* Ins+r,n-e O. Pro0erty: E,er2one )ossesses #ateria* ,a*ue in t(e +or# o+ tangi.*e assets. Assets can .e in t(e +or# o+ a *anded estate or a ,e(ic*e/ s(are (o*dings or )*ain o*d )a)er #one2. Since tangi.*e )ro)ert2 (as a )(2sica* s(a)e and consistenc2/ it is su.=ect to #an2 ris%s ranging +ro# +ire/ a**ied )eri*s to t(e+t and ro..er2. An indi,idua*4s *i+eti#e o+ (ard wor% can .e wi)ed out in a .*in% o+ an e2e. ut i+ a )erson =udicious*2 in,ests in insurance +or (is
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Underwriting in Insurance Sector

)ro)ert2 )rior to an2 une7)ected contingenc2 t(en (e wi** .e suita.*2 co#)ensated +or (is *oss as soon as t(e e7tent o+ da#age is ascertained.

1* Ins+r,n-e O. Interest: E,er2 indi,idua* (as to disc(arge certain s)eci+ic duties. E,er2one is e7)ected to #aintain a standard o+ conduct. ut t(en/ it is an intrinsic )art o+ (u#an nature to err. No one is in+a**i.*e and no one wi** e,er .e. Owing to an occasiona* error or o#ission co##itted .2 us/ our c*ients or custo#ers #ig(t su++er a *oss. In turn we #ig(t (a,e to )a2 t(ose da#ages or co#)ensation out o+ our own )ersona* resources. !owe,er/ i+ our c(osen )ro+ession 1ua*i+ies +or insurance o+ interest/ t(en our insurance )o*ic2 wi** #ore t(an su++ice in arranging +or t(e +unds and court +or#a*ities t(at #ig(t ensue in t(e a+ter#at( o+ *ega* *i.e*.

2* Ins+r,n-e O. Li,3i4ity: E,er2 )erson (as to regu*ate (is actions and .e(a,ior so as not to

cause in=ur2 or da#age to ot(er )eo)*e and t(eir )ro)ert2. E,er2one is )ersona**2 res)onsi.*e and *ia.*e +or (is actions. I+ due to *ac% o+ contro* o,er (is actions or )re=udiced .e(a,ior/ a )erson incurs an2 *ia.i*it2 t(en (e (as to )ro,ide co#)ensation out o+ (is )ersona* resources. Lia.i*ities8 *ega*/ ci,i* or cri#ina* can (a,e se,ere re)ercussions on socia* standing and )restige .esides t(e +inancia* status.
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Underwriting in Insurance Sector

2 in,esting in *ia.i*it2 insurance/ an indi,idua* can ward o++ an2 *ia.i*ities (e #ig(t incur due to (is actions and .e(a,ior. esides/ t(e

)re#iu#s )a2a.*e on *ia.i*it2 insurance are +air*2 #ini#a* w(en co#)ared to t(e da#ages t(at (a,e to .e co#)ensated in t(e *ong run. UNDERWRITER DECI#ION M %ING: ased on t(e in+or#ation )ro,ided t(e a))*ication/ agent and de,e*o)#ent o++icer/ t(e underwriter ana*2ses t(e a))*ication. T(e underwriter a+ter ana*2@ing t(e in+or#ation ta%es t(e a))ro)riate decision. T(e2 are as +o**ows8

<. Acce)t t(e )ro)osa* at t(e co#)an2As )u.*is(ed rates +or t(e )*an. :. Acce)t on Modi+ied ter#s su.=ect to additiona* +inance o+ an2 ot(er #edica* e7a#ination. ?. Post)one t(e consideration o+ t(e insurance )ro)osa*. >. Dec*ine t(e case.

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Underwriting in Insurance Sector

UNDERWRITING IN LIFE IN#UR NCE

Inside story8 Met(ods o+ underwriting Nu#erica* rating #et(od Ad,antage o+ nu#erica* rating #et(od

Co#)onents o+ *i+e insurance )ricing 6actors are considered in indi,idua* *i+e insurance underwriting

outsourcing o+ underwriting acti,ities in insurance ad,antage and disad,antages

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Underwriting in Insurance Sector

UNDERWRITING IN LIFE IN#UR NCE: T(e underwriting o+ a *i+e insurance )o*ic2 is t(e )rocess o+ t(e *i+e insurance co#)an2 underwriter deciding w(et(er to insure )eo)*e and at w(at rate .ased on )eo)*e #edica* (istor2 and t(e acti,ities t(at 2ou #a2 engage in suc( as certain s)orts or +*2ing an air)*ane. Li+e insurance (as Crating c*asses3 suc( as )re+erred rates/ standard rates and a*so Crated )o*icies3 w(ic( #eans t(at 2ou are c(arged e7tra .ecause o+ (ea*t( or w(at #a2 .e considered dangerous acti,ities. In t(e *ast +ew 2ears ,er2 (ea*t(2 indi,idua*s #a2 1ua*i+2 +or newer discounted rate *e,e*s suc( as C)re+erred )*us3 or Csu)er )re+erred3. T(ese are strict *e,e*s w(ere 2ou (a,e to 1ua*i+2 .2 e7ce**ent #edica* test resu*ts/ certain (eig(t and weig(t ratios/ no (istor2 o+ #edica* di++icu*ties and wit( a +a#i*2 (istor2 o+ *onge,it2. Cigarette s#o%ers get c(arged +or a s#o%er *i+e insurance )o*ic2 w(ic( is #ore e7)ensi,e. METHOD OF UNDERWRITING: S)ecia* Treat#ent to Ladies and Minor Li,es Ro*e o+ Insurance Inter#ediaries in Underwriting Eudg#enta* Met(od Nu#erica* Rating Met(od
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Underwriting in Insurance Sector

 Re*ati,e Merits & De#erits Met(ods o+ rating nonBstandard *i,es in Underwriting T(ere is ,arious #et(od o+ underwriting. Underwriter uses t(e +o**owing #et(od to underwrite t(e a))*ications. T(e2 are as +o**ow as8

NUMERIC L R TING METHOD:

Nu#erica* rating #et(od #eans t(e identi+ication o+ i#)air#ent/ assess#ent o+ t(e ,a*ue o+ eac( i#)air#ent and t(en trans*ates t(e ,a*ue into nu#era* to +aci*itate t(e uni+or#it2 o+ underwriting decisions. A su. standard *i+e is regarded as on w(ic( re)resents s)ecia* (a@ard in res)ect o+ one or #ore +actors o+ insura.i*it2. T(e2 are as +o**ow.

<. 6a#i*2 !istor2 :. Persona* !istor2. ?. ui*d.

>. Present state o+ (ea*t( and (a.its. F. Occu)ation and residence. G. Race. In addition to t(e a.o,e t(e )*an and a#ount o+ assurance (a,e an i#)ortant .earing on t(e ,a*ue o+ t(e ris%. T(e 1uestion o+ #ora* (a@ard (as a*so to .e gi,en due weig(t.
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Underwriting in Insurance Sector

T(e )rocess o+ nu#erica* rating assess#ent is as +o**ows8 <0 Under t(is )rocess/ t(e ,a*ue o+ an2 s)ecia* (a@ard in res)ect o+ eac(

o+ t(e a.o,e +actors is #easured in ter#s o+ a))ro)riate e7tra #ora*it2 rating. 6or t(is )ur)ose/ )oint s(ou*d .e o.tained +ro# t(e sc(edu*es w(ic( s(ow t(e nu#.er o+ )oints w(ic( #ust .e added +or eac( ad,erse +eature and t(e nu#.er o+ )oints w(ic( #ust .e su.tracted +or eac( +a,ora.*e +eature.

:0

T(e ne7t stage in t(e nu#erica* rating is to trans*ate t(e e7tra #orta*it2

into e7tra )re#iu# necessar2 to co#)ensate t(ereo+. 6or t(is )ur)ose regu*ar*2 sca*ed e7tra #orta*it2. 6or e7a#)*e/ C*ass I rating co,ers e7tra #orta*it2 o+ :;B?;H/ C*ass II >;BG;H/ C*ass III GFBIFH/ C*ass IJ K;B<:;H and so on.

?0

Ta.*es9 o+ e7tra )re#iu# re1uired +or eac( e7tra #orta*it2 c*ass under

eac( )*an o+ assurance is t(en )re)ared. W(en t(e tota* e7tra #orta*it2 +or a ris% is arri,ed at/ co#)an2 deter#ine wit(in w(ic( standard c*ass it +a** and

22

Underwriting in Insurance Sector

t(en t(e e7tra )re#iu# is o.tained .2 re+erence to t(e ta.*es. T(e e7tra #orta*it2 +a**ing .e*ow C*ass I a# ignored.

D$ NT GE OF NUMERIC L R TING METHOD:

<0 T(e #ain ad,antage o+ nu#erica* rating #et(od is t(at t(e ,a*ue o+ an2 s)ecia* (a@ard as i**ustrate a.o,e is #easured in ter#s o+ e7tra #orta*it2 rating. :0 T(e e7tra #orta*it2 ratings +or ,arious +actors are t(en aggregated to arri,e at t(e ,a*ue o+ t(e ris% o+ #orta*it2. ?0 T(e ne7t stage is to trans*ate t(e e7tra #orta*it2 into an e7tra )re#iu# necessar2 to co#)ensate t(e e7tra ris% o+ #orta*it2.

COMPONENT# OF LIFE IN#UR NCE PRICING:

As we (a,e seen/ t(e )ur)ose o+ underwriting in Li+e Insurance is to see t(at on*2 t(ose *i,es/ w(ic( (a,e a*#ost si#i*ar e7)osure to t(e ris% o+

23

Underwriting in Insurance Sector

deat(/ enter t(e )oo* o+ Li+e Insurance and to c(arge e,er2one wit( a )re#iu# co##ensurate wit( t(e ris% t(at (e s(e .rings in to t(e )oo*. W(i*e t(ere are e*a.orate wa2s to c(ec% t(e )(2sica* condition o+ (ea*t( o+ a )erson/ it is e7tre#e*2 di++icu*t to ,eri+2 t(e intention o+ a )erson w(o )ro)oses a *i+e +or insurance )rotection. One ste) in t(is direction is to ensure t(at t(e a#ount o+ insurance co,er t(at is )ro,ided to t(e )erson is in *ine wit( (is inco#eL)re#iu# )a2ing ca)acit2L +inancia* *oss t(at t(e .ene+iciaries o+ insurance wou*d su++er in case o+ t(e deat( o+ t(e *i+e insured. T(is )rocess o+ c(ec%ing w(et(er t(e insurance co,er soug(t +or is wit(in a *i#it in re*ation to t(e inco#e o+ t(e *i+e to .e assured is ca**ed +inancia* underwriting.
F CTOR#

RE CON#IDERED ININDI$IDU L LIFE

IN#UR NCE UNDERWRITING:

Li+e insurance co#)anies eac( (as t(eir own e7tensi,e )o*ic2 and )rocedure #anua*s t(e2 are su))osed to +o**ow in deter#ining w(et(er or not to issue an Indi,idua* Li+e insurance )o*ic2/ and in )ricing t(at )o*ic2. T(e insurer4s underwriters t2)ica**2 use a co#.ination o+ +actors t(at e7)erience s(ows e1uates wit( t(e ris% o+ deat( -and )re#ature deat(0.

T(e2 inc*ude t(e a))*icant4s answers to a series o+ 1uestions suc( as8

24
Underwriting in Insurance Sector

<. Age/ :. Se7 -e7ce)t in se,era* states t(at re1uire DuniBse7D rates/ e,en t(oug( actuaria* data s(ows wo#en *i,e *onger t(an #en0 ?. !eig(t and weig(t. >. !ea*t( (istor2 -and o+ten +a#i*2 (ea*t( (istor2 BB )arents and si.*ings0/ F. T(e )ur)ose o+ t(e insurance -suc( as +or estate )*anning/ or .usiness or +or +a#i*2 )rotection0. G. T(e a#ount o+ insurance t(e a))*icant a*read2 (as/ and an2 additiona*

insurance sL(e )ro)oses to .u2 Mas )eo)*e wit( +ar #ore *i+e insurance t(an t(e2 need tend to .e )oor insurance ris%s0 N. Marita* status and nu#.er o+ c(i*dren/ I. Occu)ation -so#e are (a@ardous/ and increase t(e ris% o+ K. Inco#e -to (e*) deter#ine suita.i*it20/ <;. S#o%ing or to.acco use -t(is is an i#)ortant +actor/ as (a,e s(orter *i,es0 / <<. A*co(o* -e7cessi,e drin%ing serious*2 (urts *i+e e7)ectanc20/ <:. Certain (o..ies -suc( as race car dri,ing/ (angBg*iding/ )i*oting nonB co##ercia* aircra+t0/ <?. 6oreign tra,e* -certain +oreign tra,e* is ris%20. s#o%ers deat(0/

25

Underwriting in Insurance Sector

 OUT#OURCING OF UNDERWRITING CTI$ITIE# IN IN#UR NCE D$ T GE ND DI# D$ NT GE#: De*(iB.ased ount2 Li+e Insurance Co#)an2 - ount20 (as .ranc(es

a** o,er India and it +o**ows an aggressi,e #ar%eting strateg2 in order to o.tain #ore custo#ers. Soon a+ter t(e *i.era*i@ation o+ t(e insurance sector/ ount2 started se**ing its )roducts aggressi,e*2. Initia**2/ it #ade )ro+its. In +act/ t(e nu#.er o+ its custo#ers e7ceeded t(e #anage#ent4s e7)ectations. T(e )o)u*arit2 o+ t(e co#)an2 a*so increased. In addition/ t(ere was a stead2 increase in t(e nu#.er o+ custo#ers. T(e reason was t(at ount2 o++ered inno,ati,e )roducts t(at

suited t(e ,aried re1uire#ents o+ )eo)*e. T(e co#)an2 ado)ted t(e #ar%eting strateg2 o+ o++ering custo#i@ed )roducts. T(us/ it .eca#e one o+ t(e *eading insurance co#)anies/ o++ering #a7i#u# nu#.er o+ )roduct ,ariants in t(e industr2. O,er a )eriod o+ ti#e/ t(ere was a gradua* increase in t(e nu#.er o+ )*a2ers in t(e industr2. Conse1uent*2/ co#)etition in t(e industr2 intensi+ied. A** insurance co#)anies in t(e #ar%et were strugg*ing to #aintain and increase t(eir #ar%et s(are. Des)ite t(e intense co#)etition t(at )re,ai*ed in t(e industr2/ ount2 Li+e Insurance Co#)an2 #anaged to increase its #ar%et s(are. Its )er+or#ance in t(e co#)etiti,e scenario was +air*2 good.
26
Underwriting in Insurance Sector

!owe,er/ during t(e *ast +ew #ont(s/ its )ro+its (a,e decreased s(ar)*2. T(e co#)an2 (as .een +acing di++icu*ties re*ated to ad#inistration and interde)art#enta* coordination.

Inside story8

UNDERWRITING IN FIRE IN#UR NCE De+inition o+ +ire insurance

Need +or +ire insurance Standard +ire & s)ecia* )eri*As )o*icies 6ire s)ecia* )o*icies in t(e underwriting Underwriting9 ac1uire/ e,a*uate/ act/ #onitor
27
Underwriting in Insurance Sector

5e2 underwriting c*ues +or *oss and )re,ention

 DEFINITION OF FIRE IN#UR NCE: section : o+ Indi,n Ins+r,n-e -t! )516 de+ines O6ire insurance usinessA as t(e .usiness o+ e++ecting ot(erwise t(an incidenta* to so#e ot(er c*ass o+ .usiness/ contract o+ insurance against *oss .2 or incidenta* to +ire or ot(er occurrence custo#ari*2 inc*uded a#ong t(e ris%s insured against in +ire insurance )o*ic2.

NEED FOR FIRE IN#UR NCE: CFire Under7ritin89 descri.e t(e tec(nica* as)ects o+ conducting t(e .usiness o+ insurance o+ +ire ris% as o))osed to t(e ad#inistrati,e/ +inancia* and organi@ationa* as)ects o+ t(e .usiness. In #ost cases/ +ire ris%s *ead t(e#se*,es to t(e )retension o+ intentiona* *osses and +raudu*ent c*ai#s. In t(e +ire insurance )o*icies/ tota* *oses in,o*,ing )a2#ent o+ t(e +u** su# insured is in+re1uent and )artia* *osses are to .e #et +re1uent*2. T(e )ure ris% )re#iu# in +ire insurance #ust )ro,ide +or .ot( tota* *osses and )artia* *osses. A +ire underwriter is =udged .2 (is a.i*it2 to a,oid wide +*uctuation in t(e *oss ratio and t(e )ro+it ratio. T(e grater t(e sta.i*it2 (e can i#)art to
28
Underwriting in Insurance Sector

t(ese two +igures t(e #ore (e is acc*ai#ed. A +ire underwriter #ust used wea)on o+ di++erentia* *i#its to t(e ut#ost. T(e need +or +ire insurance arises as t(e #ateria* )ro)ert2 is susce)ti.*e to da#age or destruction .2 +ire or ot(er )eri*s and t(e #ateria* )ro)ert2 (as so#e #easura.*e #onetar2 ,a*ue. A*so/ t(e occurrence o+ a +ire ends to ot(er conse1uentia* *osses suc( as *oss o+ )roduction causing *oss o+ )ro+its. 6ire Insurance is t(e o*dest +or# o+ insurance and it co,ers erected +i7ed assets and #o,a.*e assets w(i*st *2ing in a )articu*ar *ocation and dec*ared according*2 +*oor insurance. T(e )o*ic2 o+ +ire co,ers .ui*ding/ e*ectrica* insta**ation in .ui*dings/ contents o+ .ui*dings suc( as )*ant and e1ui)#ents/ #ac(iner2/ +urniture/ +i7tures and +ittings/ )i)e*ine *ocated inside or outside t(e )re#ises. T(e )o*ic2 o+ +ire co,ered t(e ris%s o+ +ire and *ig(tning/ e7)*osion/ riot/ stri%es/ terroris#/ )eri* +ro# water da#age *i%e +*ood/ stor#/ natura* ca*a#ities *i%e eart(1ua%e/ *ands*ide/ etc. due to ad,ance#ents in tec(no*og2/ +ire )o*icies toda2 a*so co,ers t(e accidenta* *ea%age and conta#ination/ s)rin%*er *ea%ages/ etc. as a** t(e a.o,e )eri*s cause #ateria* da#age/ a** o+ t(e# are inc*uded in t(e insurance.

29

Underwriting in Insurance Sector

 #T ND RD FIRE : #PECI L PERIL(# POLICIE#: Ear*ier t(e +ire )o*icies used to co,er on*2 +ire )eri*s/ u) to t(e interest o+ insured to decide w(at e7tensions (e re1uires to .asic )o*ic2. A retention t(at was carried out in <KIN/ .2 w(ic( a sing*e +ire )o*ic2 was .roug(t out co,ering a set o+ )eri*s wit(in t(e standard )o*ic2. So t(e )o*ic2 (as started co,ering +ire/ e7)*osionL i#)*osion/ aircra+t i#)act da#age/ and Riot and Stri%e Ma*icious Da#age -RSMD0 at t(e .asic rate. Later RSMD was e7tended to co,er terroris# a*so. T;e -4,sses o. st,nd,rd .ire 0o4i-y ,re: C4,+se ,8 Na#e o+ t(e )arties to contract C4,+se 38 Pa2#ent o+ )re#iu# .2 t(e insured C4,+se -8 Conditions and e7c*usions to t(e .asic )o*ic2 C4,+se d8 Peri*s co,ered under t(e )o*ic2

30

Underwriting in Insurance Sector

T2)e o+ )a2#ent #ade .2 t(e co#)an2/ actua* ,a*ue/ or reinstate ,a*ue/ or its ot(er o)erations. Fire: 6ire #eans actua* ignition or .urning/ under accidenta* circu#stances. T(e )o*ic2 dose not intended to co,er in(erent ,ices o+ co##odit2 *i%e its own +er#entation or natura* (eating da#age to t(e )ro)ert2 w(en undergoing (eating or d2eing )rocess are not co,ered. T(e .urning o+ a )u.*ic )ro)ert2 is not co,ered. S)ontaneous co#.ustion can .e co,ered wit( an e7tra )re#iu#.

Li8;tnin8: An2 da#ages caused .2 *ig(tning wit( or wit(out actua* ignition are co,ered in t(e standard +ire )o*ic2.

ir-r,.t d,<,8e: Losses and destruction caused .2 aircra+t and ot(er aeria* de,ices and

artic*es dro))ed/ e7c*uding t(ose caused .2 )ressure wa,es are co,ered under aircra+t da#age.

Riot #tri=e M,4i-io+s ,nd Terroris< D,<,8e >R#MTD*:

31

Underwriting in Insurance Sector

T(e *oss or ,isi.*e )(2sica* destruction carried out .2 t(e e7terna* ,io*ent/ t(is e7c*udes certain )eri*s *i%e tota* or )artia* cessation o+ wor%/ )er#anent or te#)orar2 dis)ossession o+ an2 .ui*ding or )*ant/ .urg*ar2/ (ouse.rea%ing/ t(e t(e+t. OTerroris#A is genera**2 used as #eans o+ ,io*ence +or )o*itica* ends or to cause +ear in t(e )u.*ic.

-t o. God > OG* Peri4s: Loss/ destruction or da#age caused .2 t(e at#os)(eric )eri*s caused

.2 nature *i%e stor#/ c2c*one/ te#)est/ t2)(oon/ (urricane/ tornado/ +*ood or inundation are co,ered in t(e standard +ire )o*ic2 e7c*uding t(ose resu*ting +ro# eart(1ua%e/ or ,o*canic e7)*osion.

Forest Fire: T(e standard +ire )o*ic2 is e7tended to inc*ude t(e da#age to t(e )ro)ert2 insured caused .2 .urning/ w(et(er accidenta* or ot(erwise/ o+ +orest/ and t(e c*earing o+ *ands .2 +ire. T(e rate o+ interest is FH. E,rt;?+,=e: T(is co,er is e7tended w(en t(e eart(1ua%e is caused .2 *andside/ +*ood/ and o,er+*ow o+ sea/ *a%es/ reser,oirs or ri,ers.

32

Underwriting in Insurance Sector

 #0ont,neo+s Co<3+stion So#e #ateria* *i%e coa*/ (a2 and .iogases are susce)ti.*e to s)ontaneous co#.ustion/ +er#entation or (eating. T(e co,er is +or *oss or da#age .2 +ire on*2. 6or rating/ ,arious co##odities are c*assi+ied into +our categories de)ending on t(eir susce)ti.i*it2 t s)ontaneous co#.ustion. T(e rates a))*ied are8 C,te8ory I B ;.:FH C,te8ory II ' ;.FH C,te8ory III ' NFH C,te8ory I$B <.;;H

FIRE #PECI L POLICIE# IN THE UNDERWRITING: T(e standard +ire )o*ic2 is #odi+ied .2 attac(#ent o+ a))ro)riate c*ause in order to #eet t(e ,ar2ing re1uire#ents o+ di++erent c*ients.

33

Underwriting in Insurance Sector

 F4o,ter Po4i-y: T(is is issued to co,er stoc% situated in #ore t(an one s)eci+ied .ui*ding situated <. Wit(in t(e *i#its o+ one cit2L townL ,i**age/ :. More t(an one cit2L town .ut u) to F; *ocations/ ?. 6or #ore t(an F; *ocation in ,arious citiesL townsL ,i**age. T(ese are not issued +or i##o,a.*e )ro)ert2 and to trans)ort contractors and C*earing & 6orwarding agents. T(e #a7i#u# su# insured at an2 one *ocation s(ou*d not .e #ore t(an <;H o+ t(e tota* su# insured. At a** ti#es during t(e currenc2 o+ )o*ic2/ t(e insured s(ou*d (a,e a good interna* audit and accounting )rocedure.

De-4,r,tion Po4i-y: T(is is issued to co,er stoc%/ w(ic( are su.=ect to #ar%ed +*uctuations in 1ua*it2. T(e )re#iu# c(arges at t(e issue o+ t(e )o*ic2 are )ro,isiona* and are ca*cu*ated .ased on t(e su# insured. T(e )o*ic2/ tota* o+ ,a*ues o+ goods at agreed inter,a*s and on t(e e7)ir2 o+ t(e )o*ic2/ tota* o+ t(e ,a*ues dec*ared
34
Underwriting in Insurance Sector

is di,ided .2 t(e nu#.er o+ dec*aration are arri,e at a,erage su# insured on w(ic( )re#iu# is again ca*cu*ated and an ad=udicated and an ad=ust#ent is #ade/ su.=ect to retention o+ ?FH o+ t(e )ro,isiona* )re#iu# .2 t(e insurer.

Lo-,4 +t;orities C4,+se: T(is c*ause inc*udes an additiona* cost o+ reinstate#ent o+ t(e destro2ed or da#aged )ro)ert2 under an2 Act o+ Par*ia#ent or wit( .2*aws o+ an2 #unici)a* or *oca* aut(orit2.

Es-,4,tion C4,+se: T(e tari++ )ro,ides t(at t(e insurers s(ou*d a**ow auto#atic regu*ar increase in t(e su# insured t(roug(out t(e )eriod o+ t(e )o*ic2 in return +or an additiona* )re#iu# to .e in ad,ance.

Loss o. Rent C4,+se: T(e )o*ic2 co,ers t(e *oss o+ rent t(at an owner su++ers on account o+ t(e )re#ises .eco#ing untena.*e +o**owed .2 an insured )eri*s. !ere/ it is

35

Underwriting in Insurance Sector

essentia* t(at t(e insured and t(e insurer are c*ear a.out granting t(e co,er .2 c(ec%ing t(e contract .etween t(e owner and t(e tenant o+ )re#ises.

8reed B,n= C4,+se: A** )o*icies in w(ic( a .an% (as a )artia* interest are to .e #ade out in

t(e na#e o+ t(e .an% and owner or #ortgagor. T(e Agreed incor)orated to )rotect t(eir insura.*e interest as #ortgagors.

an% C*ause is

Re<o@,4 o. De3ris C4,+se: T(e e7)enses incurred +or c*earing o+ t(e de.ris accu#u*ated .ecause o+ a +ire )eri* are a*so co,ered. I+ t(e2 e7ceed one )ercent o+ t(e c*ai# a#ount/ a se)arated su# insured (as to .e dec*ared +or t(is co,er and t(e )re#iu# is co**ected on t(e su# insured. One )ercent o+ t(e c*ai# a#ount is auto#atica**2 co,ered under t(e .asic )o*ic2.

UNDERWRITINGA C"UIRE! E$ LU TE! CT MONITOR:

36

Underwriting in Insurance Sector

!ow eac( indi,idua* underwriter )er+or#s (isL(er i#)ortant tas% sets u) t(eir co#)an2 to o)erate )ro+ita.*2 or su++er +ro# tre#endous e7)osure & +inancia* *osses. T(e )ressures o+ a co#)etiti,e .usiness en,iron#ent/ wor%*oad/ cost cutting/ *ess t(an in+or#ati,e sources o+ ris% in+or#ation and so#eti#es e,en s*o))2 wor%#ans(i) and )oor =udg#ent a**ow too #an2 tota**2 unacce)ta.*e ris%s to s*i) .2 )ro)ert2 underwriters and gain insurance co,erage e,er2 da2. T(is +act (as serious conse1uences +or .ot( )ro)ert2 carriers and +or societ2. W(i*e eac( insurance a))*ication on t(e underwriter4s des% is/ in so#e wa2s uni1ue/ #ost a))*ications can .e grou)ed into .road categories ena.*ing t(e underwriter to a))*2 in+or#ation +ro# standardi@ed rating indices and industr2 data.ases. In #an2 cases resu*ting in *osses to )ro)ert2 carriers/ c*ear warning signs were )resent t(at were eit(er ignored or #issed .2 t(e underwriter w(o )*aced t(e .usiness. T(ese warning signs range +ro# +inancia* insta.i*it2/ a serious cri#ina* .ac%ground and 1uestiona.*e )rior *osses to w(o*esa*e disregard o+ reasona.*e securit2 and +ire )re,ention #easures.

%EY UNDERWRITING CLUE# FOR LO## PRE$ENTION:

37
Underwriting in Insurance Sector

T(e +o**owing +actors s(ou*d .e considered eac( ti#e t(at a +ire insurance a))*icant or )o*ic2 renewa* is .eing considered. Re*ations(i) o+ trust wit( t(e )roducer BP*acing insurance on ris%s co#.ines t(e science o+ rating e7)osures wit( t(e DartD o+ de,e*o)ing a ,a*id DgutD +ee*ing a.out indi,idua*s see%ing +ire insurance co,erage. T(e )ro+essiona* =udg#ent and Dstreet s#artsD o+ t(e agentL.ro%er is an i#)ortant *in% in t(is )rocess. As% 2ourse*+/ (as t(ere .een a (istor2 o+ 1uestiona.*e *osses +ro# c*ients re+erred .2 t(is agentL.ro%er t(at #a%es 2ou 1uestion t(eir s%i**/ (onest2 or co##on sense. Loss ;istory: Underwriter need to %now a.out eac( )ersona* *ines and co##ercia* +ire insurance a))*icant4s )ast (istor2 o+ c*ai#s acti,it2 t(at #a2 or #a2 not (a,e .een sett*ed. Toda2/ t(ere are underwriting data.ases t(at can )ro,ide t(is in+or#ation in seconds and at reasona.*e cost. In+or#ation on t(ese data.ases a*ong wit( contact in+or#ation is contained in t(is docu#ent.

38

Underwriting in Insurance Sector

 Fin,n-i,4 -ondition: Is t(is .usiness or indi,idua* +inancia**2 stra))ed or not. Is t(ere an i#)ending situation/ un%nown to 2ou/ t(reatening to dri,e down t(e .usiness or )ersona* +inances o+ t(e a))*icant or not. An ine7)ensi,e & onB*ine

Ye,r in 3+siness: Underca)ita*i@ed startBu) .usinesses wit( ine7)erienced

ownerL#anagers/ es)ecia**2 t(ose entering (2)erBco#)etiti,e #ar%ets *i%e s#a** .arBrestaurants or )i@@a stores/ are notorious*2 )rone to +ai*ure. Esta.*is(ed .usinesses wit( sound )roducts and a so*id custo#er .ase are o.,ious*2 *ess ris%2.

Loss Contro4 Re0ortBEn8ineerin8 Re0ort: A 1ua*i+ied *oss )re,ention ins)ector can o+ten s)ot signi+icant )ro.*e#s a++ecting t(e current and +uture ,a*ue o+ a )ro)ert2. Structura* or uti*it2 de+ects a++ecting t(e suita.i*it2 o+ a ris% +or its intended )ur)ose or e,en intangi.*es suc( as DPua*it2 o+ Manage#entD issues can (a,e a )ro+ound i#)act on o)erations/ )ro+ita.i*it2 and ris% o+ +ire.

39

Underwriting in Insurance Sector

 "+,4ity o. M,n,8e<ent: A 6ord 6oundation stud2 on Arson 2ears ago +ound t(at t(e nu#.er o+ sanitar2 code ,io*ations was t(e #ost signi+icant corre*ation to w(et(er a gi,en .ui*ding wou*d sustain an arson +ire. DPua*it2 o+ Manage#entD is

e7)ressed in c*ean & secure o)erations/ a (ig( *e,e* o+ #aintenance/ and ot(er )ositi,e +actors t(at/ .2 t(e#se*,es/ tend to su))ress t(e )ossi.i*it2 o+ +ire and cri#e.

40

Underwriting in Insurance Sector

UNDERWRITING OF MOTOR IN#UR NCE

Inside story8

Needs +or #otor insurance T2)es o+ )o*ic2 +or#s 6actor in #otor insurance C*ai#s #anage#ent onus L#au*s c*ause

UNDERWRITING O6 MOTOR INSURANCE8

41
Underwriting in Insurance Sector

Underwriting re+ers to assessing a ris% )resented +or insurance and deciding w(et(er it is acce)ta.*e or not. I+ acce)ta.*e/ t(e underwriter decides t(e ter#s and )re#iu# at w(ic( t(e insurance can .e #ade. T(e #otor Insurance re1uires t(e )ro)oser to co#)*ete a )ro)osa* +ro# t(at re,ersa*/ .2 t(e answers to t(e 1uestions t(e #ateria* +acts t(at a++ected t(e ris%. T(e +acts t(e underwriter wis(es to %now are t(ose t(at re+ers to )ro)oser and t(ose/ w(ic( re+ers to t(e ,e(ic*e and t(e ris% to .e insured. Usua**2 t(e insurers %ee) trac% o+ t(e )ro)oser na#e/ address and .usiness/ *oss (istor2/ con,ictions -re*ating to dri,ing o++ences/ owners(i)/ usages and ,io*enceL dis(onest20. P(2sica* (a@ard -an2 (a@ard arising +ro# t(e #ateria*/ structura*L or o)erationa* +eatures o+ ris% itse*+ a)art +ro# t(e )erson owing or #anaging it0 is a*so considered assu#ing t(at t(e )ro)oser as an indi,idua* or .usiness is acce)ta.*e to t(e .usiness. P(2sica* (a@ard )ri#ari*2 re*ates to <. T(e ,e(ic*es to .e insured :. T(e wa2 t(e ,e(ic*es are used/ and ?. T(e )erson w(o are going to dri,e or use t(e#. T(ere+ore +u** detai*s o+ t(e ,e(ic*e/ its use and t(e deri,es are re1uired.

42

Underwriting in Insurance Sector

 NEED FOR MOTOR IN#UR NCE:

Je(ic*e #a2 .e 2our *ong c(eris(ed 4Pa*ace on w(ee*s4 or one t(at can .are*2 .e ca**ed a +ourBw(ee*er .ut t(e ,er2 +act t(at it (as to )*2 on roug( and toug( Indian roads/ s(ou*d .e reason enoug( to insure it. Consider w(at 2our ,e(ic*e (as to endure B )ot(o*es/ o)en #an(o*es/ )udd*es/ interred roads/ our tra++ic #anage#ent s2ste#/ )oor )edestrian #anage#ent/ a.sence o+ +oot)at(s +or )edestrians/ =a2wa*%ers and an increasing nu#.er o+ accidents are +ew o+ t(e star% rea*ities. Foot0,t;s: As +oot)at(s are encroac(ed .2 (aw%ers/ )edestrians (a,e a toug( ti#e dodging .etween ,e(ic*es to reac( t(e ot(er end o+ t(e road. Large )ot(o*es and #an(o*es are a co##on sig(t and during t(e #onsoon t(e situation can get on*2 worse causing unto*d da#age to 2our ,e(ic*e.

43

Underwriting in Insurance Sector

 Dr+n=en dri@in8: Drun%en dri,ing is anot(er ,er2 co##on +eature. e it a car/ a twoB

w(ee*er/ or e,en a truc%/ drun%en dri,ing is one o+ t(e #a=or reasons +or increase in accidents. T(oug( drun%en dri,ing is a )unis(a.*e o++ence t(e )ena*t2 (as (ard*2 )ro,ed to .e a deterrent. Re-=4ess Dri@in8: esides/ ras( dri,ing .2 2oungsters is anot(er o+ t(e dangerous rea*ities t(at s(ou*d consider. Ma=orit2 o+ t(e 2oungsters dri,e rec%*ess*2 caring *itt*e +or t(e *aw/ causing serious accidents resu*ting in *oss o+ *i+e or *i#.. T;e.t: Cases o+ sto*en cars are on t(e rise. E7)erts in stea*ing cars are we** aware o+ t(e *oo)(o*es t(at can .e e7)*oited and according*2 (a,e a*so .een success+u* in #ani)u*ating wit( t(e c(assis nu#.er o+ ,e(ic*es in order t(at t(e2 are not traced. Fire: Ot(er t(an t(ese t(ere is a*so a danger o+ +ire or t(e+t o+ 2our ,e(ic*e. Je(ic*e insurance under suc( unsa+e conditions is a #ust not on*2 to co,er ris%s towards 2ourse*+ and 2our own ,e(ic*e .ut a*so to co,er t(e
44
Underwriting in Insurance Sector

+inancia* *ia.i*it2 t(at #a2 arise +ro# an accident in w(ic( t(e ot(er )art2 is in=ured. Consider t(e e7or.itant cost o+ re)airs t(at 2ou wou*d (a,e to )a2 to t(e ot(er )art2 in case o+ an accident. TYPE# OF POLICY FORM#: A** India Motor Tari++ go,erns #otor .usiness in India. According to t(e Tari++/ two t2)es o+ Po*ic2 6or#s are used .2 a** c*asses o+ ,e(ic*es. T(e2 are 6or# A and 6or# . For< / or w(at is co##on*2 %nown as -t Po4i-y/ co,ers Act

Lia.i*it2 w(ic( is a co#)u*sor2 re1uire#ent o+ t(e Motor Je(ic*es Act. No ,e(ic*e can .e used wit(out t(is #ini#u# insurance co,er. Use wit(out suc( insurance is a )ena* o++ence. T(e +o**owing *ia.i*ities can .e co,ered in t(is )o*ic2 <. Un*i#ited *ia.i*it2 towards T(ird Part2 .odi*2 in=ur2 :. Lia.i*it2 towards T(ird Part2 Pro)ert2 Da#age to t(e e7tent o+ Rs.G;;;LB on*2 ?. Un*i#ited *ia.i*it2 towards .odi*2 in=ur2 o+ )assengers o+ t(e ,e(ic*e >. Lia.i*it2 towards e#)*o2ees o+ t(e owner o+ t(e ,e(ic*e w(i*e tra,e*ing in or using it/ against .odi*2 in=ur2/ to t(e e7tent re1uired under t(e Wor%#en4s Co#)ensation Act

45

Underwriting in Insurance Sector

For< B/ or w(at is co##on*2 %nown as Co<0re;ensi@e Po4i-y/ is an o)tiona* co,er w(ic( ta%es care o+ t(e +o**owing additiona* *osses and *ia.i*ities <. Loss or da#age to t(e ,e(ic*e and its accessories and e7tra +ittings/ )rotection and re#o,a* costs/ and towing disa.*ed ,e(ic*es -on*2 +or co##ercia* ,e(ic*es0 :. Lia.i*it2 towards T(ird Part2 Pro)ert2 Da#age/ in e7cess o+ Rs.G;;;LB ?. Lia.i*it2 towards e#)*o2ees under Co##on Law and 6ata* Accidents Act/ o,er and a.o,e t(e *ia.i*it2 under Wor%#en4s Co#)ensation Act >. Persona* Accident ene+its +or t(e owner/ )assengers and e#)*o2ees. T(e a.o,e *osses or *ia.i*ities can .e se)arate*2 co,ered in con=unction wit( t(e *ia.i*ities co,ered under t(e Act Po*ic2/ .2 ta%ing a Co#)re(ensi,e Po*ic2/ )a2ing additiona* )re#iu#.

F CTOR IN MOTOR IN#UR NCE: T(e Underwriting Po*ic2 in Motor Insurance can .e Identi+2ing .2 Jarious 6actors Li%e8 <. T(e t2)e o+ ,e(ic*e :. Pur)ose +or w(ic( t(e ,e(ic*e is used ?. T(e geogra)(ica* area o+ use
46
Underwriting in Insurance Sector

>. T(e )re,ious c*ai#s e7)erience

THE TYPE OF $EHICLE:

6or t(e ,e(ic*e/ t(e insurer considers its #a%e/ #ode*/ registration #ar%/ t2)e o+ .od2/ engine ca)acit2/ )*ated weig(t/ seating ca)acit2/ #odi+ications to O#anu+actureAsA s)eci+ication and t(e ,a*ue.

47

Underwriting in Insurance Sector

In India/ t(e underwriting )rocedure di++ers de)ending on w(et(er t(e ,e(ic*es co#e under t(e categor2 o+ )ri,ate car/ #otorc2c*es or co##ercia* ,e(ic*es as a*so t(e insuredAs esti#ated ,a*ue/ t(e )urc(ase )rice and t(e 2ear o+ #anu+acture o+ t(e ,e(ic*e. T(ere is a great dea* o+ underBinsurance in #otor insurance. T(ere+ore care+u* attention #ust .e )aid to t(e insuredAs esti#ated ,a*ue in re*ation to t(e age o+ t(e ,e(ic*e/ es)ecia**2 .ecause t(ere is no )ro rata condition o+ a,erage in t(e )o*ic2 and su# insured is t(e *i#it o+ *ia.i*it2 )er accident and not +or t(e )eriod o+ t(e insurance.

PURPO#E FOR WHICH THE $EHICLE I# U#ED: T(e underwriter ta%es into consideration t(e ris% e7)osure arising )ur)ose +or w(ic( t(e ,e(ic*e is used. An underwriter wi** en1uire w(et(er t(e ,e(ic*e is used8 To carr2 t(e o)eratorAs own goods/ or 6or (ire or reward in t(e carriage o+ goods +or goods +or ot(er .usiness/ or Si#u*taneous*2 +or .ot( t(e )ur)oses. Ris% e7)osure ,aries in re*ation to t(e use t(e ,e(ic*e is )ut to. Pri,ate cars are *esser e7)osed t(an ta7ies/ as t(e *atter is used e7tensi,e*2 +or
48
Underwriting in Insurance Sector

#a7i#u# re,enue. Ta7ies t(ere+ore attract a (ig(er )re#iu# rate. Si#i*ar*2/ goods carr2ing ,e(ic*es/ w(ic( are used as )ri,ate carriers and trans)ort/ on*2 t(eir owners4 goods attract a *ower )re#iu#/ t(an t(ose used as )u.*ic carriers +or trans)orting goods +or (ire. THE GEOGR PHIC L RE OF U#E: T(e area o+ o)eration o+ a ,e(ic*e a*so (as a direct .earing on t(e )re#iu# rate. T(is is so .ecause/ certain areas o+ o)eration are #ore congested wit( (ig( densities o+ )o)u*ation and road tra++ic t(an ot(ers and )ose (ig(er e7)osure to accidents. 6or t(is )ur)ose/ t(e tari++ di++erentiates two @ones in India/ i.e./ Qone A & Qone / +or )ri,ate cars and ta7ies. Qone A re)resents t(e Madras region and and Qone Qone o#.a2 region -e7c*uding o#.a2 cit20

re)resents t(e Ca*cutta region/ De*(i region and o#.a2 cit2. In

/ t(e densities o+ )o)u*ation and road tra++ic are #ore and (ence

attract a (ig(er )re#iu# rate. Suc( di++erentia* rating does not a))*2 to co##ercia* ,e(ic*es suc( as truc%s and .uses/ as t(ese ,e(ic*es nor#a**2 tra,e* t(roug(out India +or t(eir o)eration. !owe,er/ a discount is a**owed on t(e )re#iu# +or co##ercia* ,e(ic*es used as contract carriage/ sc(oo* .uses/ )u.*ic and )ri,ate .uses used +or carr2ing )assengersLwor%ers and o)erate wit(in a radius o+ F; %i*o#eters +ro# t(e cit2 *i#its.
49
Underwriting in Insurance Sector

THE PRE$IOU# CL IM# ECPERIENCE: Un+a,ora.*e c*ai#s e7)erience is o.,ious*2 a .ad ris% t(ere o+ it is res)onsi.i*it2 o+ an underwriter to identi+2. T(e tari++ (as ado)ted a s2ste# ca**ed t(e onusLMau*s C*ause/ to gi,e discounts +or good c*ai#s e7)erience and a *oading +or .ad e7)erience. T(e c*ai# e7)erience o+ e7)iring 2ear4s )o*ic2 is t(e .asis +or a**owing discount or c(arging a *oading...

CL

IM# M N GEMENT: Un+a,ora.*e c*ai#s e7)erience is o.,ious*2 a .ad ris% +or an

underwriter. T(e tari++ (as ado)ted a s2ste# ca**ed t(e onusLMau*s C*ause/ to gi,e discounts +or good c*ai#s e7)erience and a *oading +or .ad e7)erience. T(e c*ai# e7)erience o+ e7)iring 2ear4s )o*ic2 is t(e .asis +or a**owing discount or c(arging a *oading. T(e onusL Mau*s are a))*ica.*e to Own Da#age section o+ t(e

co#)re(ensi,e )o*ic2. In ot(er words/ t(e discount or t(e *oading is a))*ied on t(e )re#iu# co#)onent o+ t(at section o+ t(e )o*ic2 on*2. It is NOT a))*ica.*e a*so +or Road Transit Po*icies/ Motor Trade Po*icies and )o*icies w(ic( co,er on*2 6ire and T(e+t ris%s. T(e discountL*oading +o**ows t(e +ortunes o+ t(e origina* insured and not t(e )o*ic2

50

Underwriting in Insurance Sector

 BONU#B M UL# CL U#E: In t(e )re#iu# rating s2ste# )resent*2 .eing used/ t(e +actor o+ )ersona* (a@ard o+ t(e dri,er is not ta%en into consideration direct*2. In #an2 ot(er countries/ it is an integra* +actor to in+*uence t(e )re#iu# rate and a )ri#e consideration +or acce)tance o+ t(e ris% .2 t(e insurance co#)an2. !owe,er/ t(e s2ste# o+ indirect*2 since onusL Mau*s recogni@es t(is +actor

onus is a reward w(ic( a**ows discounts +or c*ai#B+ree

)eriod/ w(i*e Mau*s is a *oading in t(e )re#iu# +or ad,erse c*ai#s e7)erience. T(us/ t(e discount acts as an incenti,e to t(e insured to e7ercise care and caution w(i*e dri,ing. Indirect*2/ t(e discount contri.utes to t(e o.=ecti,e o+ road sa+et2.

MOTOR CYCLEB #COOTER : COMMERCI L $EHICLE# >Ot;er t;,n T,Dies* Lo,din8B Dis-o+nt 0ositions on O7n D,<,8e Pre<i+< ,t eD0iry o. t;e 0o4i-y I. -4,i< is <,de d+rin8 eD0irin8 Po4i-y Ye,r I. no -4,i< is <,de d+rin8 eD0irin8 Po4i-y Ye,r E Lo,din8B Dis-o+nt on O7n D,<,8e Pre<i+< to 3e ,004ied on rene7,4

51

Underwriting in Insurance Sector

Wit( >;H Loading Wit( ?;H Loading Wit( :FH Loading Wit( <FH Loading No LoadingL Discount Wit( :;H Loading Wit( ?;H Loading

Continue >;H Loading C(arge >;H Loading C(arge ?;H Loading C(arge :FH Loading C(arge <FH Loading No LoadingL Discount

C(arge ?;H Loading C(arge :FH Loading C(arge <FH Loading No LoadingL Discount A**ow :;H Discount Increase Discount to ?;H

Reduce discount to :;H Increase Discount to ?FH

Wit( ?FH Loading

Reduce discount to ?;H Increase Discount to >FH

Wit( >FH Loading

Reduce discount to ?FH Increase Discount to FFH

Wit( FFH Loading

Reduce discount to >FH

Continue FFH Discount

Ca*cu*ation o+ t(e )re#iu# is an actuaria* science #ade )ossi.*e .2 t(e use o+ #ordent tec(no*og2 t(at can ana*2@e ris% and c*ai# statistics and co#e u) )re#iu#s t(at indi,idua* insures re1uire#ents +or reser,es/ co##issions/ e7)enses/ c*ai#s and )ro+it. T(e ,arious genera* +eatures needed to 1uote a )re#iu# are8
52
Underwriting in Insurance Sector

<. T2)e o+ insurance9 :. Ma%e/ #ode and engine o+ t(e car9 ?. C*ass o+ use9 >. Detai* o+ deri,erB age/ )(2sica* or #enta* inca)a.i*it2/ dri,ing e7)erience and #onitoring con,ictions9 F.A#ount o+ c*ai# discount a))*ica.*e9 Postcode o+ ownerAs w(ere t(e ,e(ic*e is %e)t. address and

53

Underwriting in Insurance Sector

UNDERWRITING IN M RINE IN#UR NCE

Inside story8 Need +or #arine insurances Areas o+ co,erage in #arine cargo co,erage Cargo insurance docu#ent Standard +or# o+ #arine insurance Underwriting guide*ines and tari++s +or #arine insurance Underwriting in (u** insurance T2)es o+ )o*icies !u** underwriting

54

Underwriting in Insurance Sector

 UNDWERWRITING IN MARINE INSURANCE

Marine cargo considera.*2 widens t(e sco)e o+ co,erage )resent*2 en=o2ed .2 t(e insured )o)u*ation wit(out necessari*2 in,o*,ing a (ig( )re#iu#. We co#)*e#ent our wide co,erage wit( ad,ices on Ris% Manage#ent and Loss Pre,ention. M RINE IN#UR NCEB C RGO IN#UR NCE CO$ER# TR N#IT# BY : Air Water Road or Rai* Registered Post Parce* Courier or an2 co#.ination o+ t(e a.o,e.

M,rine Ins+r,n-e is .or! u2ers/ Se**ers/ I#)ortLE7)ort #erc(ants/ u2ing Agents/

Contractors and an%sBin +act an2 one engaged in t(e .usiness o+ #o,e#ent o+ goods. During t(e course o+ transit/ t(e cargo #a2 not a*wa2s .e at 2our ris%. 6or instance/ a )erson can se** it to a .u2er. Our Marine Cargo Po*icies co,er 2our interest in t(e cargo insured and a*so e7tends to co,er t(e

55

Underwriting in Insurance Sector

interests o+ an2 t(ird )art2 to w(o# 2ou (a,e assigned interest u)on trans+er o+ owners(i)/ as deter#ined .2 t(e Ter#s o+ Sa*e. NEED FOR M RINE IN#UR NC#:

I+ t(ere is one c*ass o+ insurance t(at is an a.so*ute necessit2/ it is MarineR A )ersonAs cargo can .e da#aged on e7)osure to a wide ,ariet2 o+ ris%s/ inc*uding an accident o+ t(e ,e(ic*e carr2ing t(e cargo/ +ai*ure o+ t(e ste,edores in t(e )ort area/ and da#age to t(e container t(at can .e was(ed o,er.oard. I+ a )erson t(in%s Pirac2 is a t(ing o+ t(e )ast/ indi,idua* wi** .e sur)rised to +ind t(at t(is is ,er2 #uc( a*i,e and we**R To su##aries/ cargo can .e da#aged .2 stranding/ grounding/ sin%ing/ .urning/ co**isions/ +au*ts or errors in na,igation/ (ea,2 weat(er/ entr2 o+ sea or ri,er water/ =ettison/ was(ing o,er.oard/ s(i)4s sweat/ condensation/ i#)ro)er stowage .2 t(e carrier/ (oo% da#age/ t(e+t or )i*+erage/ war/ stri%es or natura* )eri*s. T(e Carrier )a2s +or *oss on*2 w(en t(e Carrier causes da#age. Again/ t(e

56

Underwriting in Insurance Sector

Carrier is on*2 re1uired to )a2 a *i#ited a#ount )er )ac%age and not +or t(e +u** ,a*ue o+ t(e cargo. T(is is anot(er reason +or insuring cargo.

RE # OF CO$ER GE IN M RINE C RGO CO$ER GE: A ,ast #a=orit2 o+ Marine Cargo )o*icies are .ased on Institute Cargo

C*auses t(at a))ears in t(ree ,ersions ,i@./ ICC -A0/ ICC - 0 and ICC-C0. ICC -A0 is .ased on 4A** Ris%s4 w(i*e - 0 and -C0 are .ased on na#edB)eri*s. A** t(ree c*auses (a,e certain e7c*usions. Instit+te C,r8o C4,+ses Co@er: Marine Cargo Po*icies are .ased/ in a #a=orit2 o+ instances/ on one or #ore o+ t(e Institute Cargo C*auses. T(e co,erage a,ai*a.*e under t(ese standard c*auses inc*udes8 Actua* Tota* Loss Constructi,e Tota* Loss Particu*ar A,erage i.e./ Partia* Loss .2 an insured )eri* Genera* A,erage Co**ision Lia.i*it2 E7)enses suc( as Sur,e2 6ees/ Reconditioning Costs/ 6orwarding E7)enses/ Sue and La.or etc. Prin-i0,4 eD-4+sions! 7;i-; ,00e,r in t;e Instit+te C,r8o C4,+ses ,re:
57
Underwriting in Insurance Sector

 Loss or da#age due to In(erent Jice Loss or da#age due to De*a2 Loss or da#age due to Insu++icienc2 o+ )ac%ing Loss or da#age due to inso*,enc2/ +inancia* de+au*t o+ s(i) owners/ etc.

Products t(at considera.*2 widen t(e sco)e o+ co,er o++ered .2 t(e Institute C*auses. Widening t(e Sco)e o+ Co,er8 It )ro,ides a wide c(oice o+ additiona* Co,ers t(ere.2 widening t(e sco)e o+ co,er .e2ond w(at is o++ered .2 Institute C*auses #entioned a.o,e. So#e o+ t(e e7c*usions a))earing in t(e Institute Cargo C*auses are eit(er de*eted or #odi+ied considera.*2. It )ro,ides uni1ue tai*orB#ade )o*icies to suit 2our re1uire#ents. We (a,e tai*orB#ade wordings +or a ,ariet2 o+ industriesLris%s inc*uding/ .ut not *i#ited to8 6ast Mo,ing Consu#er Goods Industr2 E*ectronic Industr2 In+rastructure Pro=ects8 inc*uding De*a2 in StartBu) Co,ers P(ar#aceutica* Industr2 !ea*t( Care Industr2

58

Underwriting in Insurance Sector

 6ine Arts T(roug( underwriting )(i*oso)(2 )o*ic2 ensure t(at )o*ic2 and underwriter constant*2 ac1uire/ #aintain and disse#inate tec(nica* in+or#ation to its custo#er.

C RGO IN#UR NCE DOCUMENT: e+ore a )o*ic2 is issued/ detai* o+ t(e )ro)osed insurance are o.tained +ro# t(e )ro)oser in a +or# ca**ed Dec*aration +or#. It is considered as e,idence to t(e insurer to )ro,ide necessar2 in+or#ation t(at was e7act*2 )ro)osed. M,rine De-4,r,tion For<: E7ce)t t(e S)ecia* dec*aration Po*ic2/ Annua* Po*ic2/ Dut2 and Increased are o.tained Ja*ue Insurance9 t(ere is no standard )ro)osa* +or# +or #arine cargo insurance. T(e +or# contains t(e +o**owing detai*s. <0 Na#e and address o+ t(e )ro)oser :0 Descri)tion o+ t(e goods to .e insured ?0 Ja*ue o+ insurance >0 Na#e o+ t(e carr2ing ,esse*
59
Underwriting in Insurance Sector

F0 Descri)tion o+ t(e ,o2ageL transit G0 i** o+ Lading nu#.erL airwa2 .i**

N0 T2)e o+ insurance co,ered I0 C*ai#s )a2a.*e at Signature o+ t(e )ro)oser and date o+ dec*aration.

#T D RD FROM OF M RINE IN#UR NCE: T(e standard +or# o+ t(e #arine )o*ic2 s(ows t(e +o**owing detai*s.

<. Po*ic2 nu#.er/ )*ace and date o+ issue :. Na#e o+ assured wit( address ?. Na#e o+ t(e ,esse* carr2ing t(e insured cargo >. Descri)tion o+ t(e ,o2ageL transit F. T(e su.=ect #atter insured and t(e descri)tion o+ )ac%ing G. T2)e o+ insurance co,er granted/ re+erence to re*e,ant c*ause and an2 s)ecia* conditions and warranties N. T(e su# insured I. T(e )re#iu#

60

Underwriting in Insurance Sector

K. Na#e and address o+ t(e C*ai#s Sett*ing O++ice at

destination.

UNDERWRITING GUIDELINE# NDT RIFF# FOR M RINE IN#UR NCE: Wit( t(e *i.era*i@ation o+ t(e econo#2/ t(e A** Indian Marine Cargo Tari++s/ w(ic( go,erned #arine cargo insurance/ was discounted wit( e++ect +ro# <.>.<KK>. Now/ t(e co#)anies are +ree to +or#u*ate t(eir own rates and ter#s. 6urt(er/ underwriting guide*ines/ a*ong wit( t(e rates were +or#u*ated. T(e guide*ines rate .ased on t(e )ro,isions o+ t(e erstw(i*e Tari++s. T(e erstw(i*e A** Indian Marine Cargo Tari++s contains <? sections. Present*2/ t(ese tari++s do not e7ist .ut guide*ine issued .2 t(e co#)anies is .ased in t(e )ro,ision o+ t(ese erstw(i*e tari++s. C,r8o Ins+r,n-e Under7ritin8: T(e acce)tance o+ cargo ris% +or t(e )ur)ose o+ underwriting in,o*,es a care+u* assess#ent and a))raisa* o+ underwriting considerations.

Underwriting consideration are t(ose as)ects o+ +actors/ w(ic( cargo insurance ta%e into consideration in decidingB <. I+ it is decided to acce)t a ris%/ t(e rate o+ )re#iu# to .e :. T(e ter#s and conditions under w(ic( t(e ris% wou*d .e acce)ted.
61
Underwriting in Insurance Sector

acce)ted.

?. W(et(er or not acce)t a ris%. T(ere is no standardi@ing )ro)osa* +or# and t(e )rocedure +or cargo underwriting. It is t(e dut2 o+ t(e )ro)oser to disc*ose a** +actors #ateria* to t(e ris%. T(ere+ore a considera.*e res)onsi.i*it2 de,o*,es on t(e underwriter to #a%e a** )ertinent in1uiries re*ating to a ris%. T(e underwriter to #a%e a** )ertinent in1uiries re*ating to a ris%. T(e underwriter s(ou*d ascertain t(e +o**owing detai*s. <. Na#e and address o+ t(e )ro)oser and (is .usiness or trade. :. T2)e o+ )ac%ing. I+ containeri@ed/ t(e t2)e o+ container. ?. Aut(orit2 o+ )ac%ing >. Ja*ue o+ interest to .e insured and su# to .e insured F. Na#e o+ carr2ing ,esse* or s(i))ing *ine to .e used G. Insurance condition N. Ja*ue o+ interest to .e insured t(e su# to .e insured etc. UNDERWRTING IN HULL IN#UR NCE: !u** Insurance is concerned wit( t(e insurance o+ (u** and #ac(iner2 o+ ocean going and ot(er ,esse*s *i%e arger/ traw*ers/ and sai*ing ,esse*s. It is a*so concerned wit( t(e s(i) ownerAs ot(er insura.*e interest/ %nown as su.sidiar2 interest *i%e +reig(t and dis.urse#ent

62

Underwriting in Insurance Sector

As t(e (u** insurance is a s)ecia*i@ed c*ass o+ .usiness it is )er+or#ed at (ead o++ice *e,e*/ in India acce)t +or insurance +or +is(ing Jesse*s/ Traw*ers/ Dredgers/ In*and and Sai*ing ,esse*s/ +or w(ic( Tari++s are a,ai*a.*e. In India/ .usiness co#e direct*2 to t(e (u** insurer t(ere is no .ro%er or agent in,o*,ed in ser,icing (u** insurance. T(ere+ore/ (u** insurance in India )er+or#s a )ersona*i@ed ser,ice to t(e s(i))ing industr2. T(e su.=ect #atter o+ (u** insurance is ,esse* or s(i). T(ere are +our #ain t2)es o+ seaBgoing ,esse*s na#e*2/ Genera* cargo ,esse* Dr2 .u*% carriers Li1uid .u*% carriers -Tan%ers0 Passenger ,esse* H+44 r,tin8 >rene7,4s*: T(e Joint H+44 Co<<ittee in London is res)onsi.*e +or t(e structure o+ t(e Eoint !u** 6or#u*a/ w(ic( is a .asic reco##ended +or rating renewa* insurances in res)ect o+ s(i)s insured in London #ar%et. In India/ (e rating o+ oceanBgoing ,esse*s in a +*eet on renewa* is done .2 TAC. ased on t(e

Indi,n Ins+r,n-e Under7ritin89 t(e a))*ication +or#s s(ou*d .e su.#itted to TAC wit(in G; da2s o+ t(e renewa* date o+ t(e +*eet wit( t(e +u**

63

Underwriting in Insurance Sector

c*ai#s statistic a,ai*a.*e o+ .ot( )aid and outstanding c*ai#s. T(e co##ittee deter#ines t(e renewa* rate on t(e .asis o+8 T(e categor2 o+ t(e +*eet .ased on t(e tota* su# insured under !u** and Mac(iner2 interests. 6*eet e7)erience/ e7)erience i.e./ net )re#iu# and *osses )aid and outstanding +or a stated )eriod.

TYPE# OF POLICIE#: T(e )ur)ose o+ (u** insurance is to co,er a s(i) ownerAs ,arious insura.*e interests. Jarious )o*icies o++ered are as +o**ows8 H+44 ,nd M,-;inery Ins+r,n-e: T(e )o*ic2 co,ers t(e (u**/ #ac(iner2 and e1ui)#ent and stores etc./ on .oard/ .ut does not co,er -,r8o&

Ins+r,n-e o. Frei8;t or nti-i0,tedB Ti<e C;,r,-ter HireB P,ssen8er <oney' Ti<eB $oy,8e: T(is )o*ic2/ su.=ect to institute Ti#e C*ausesB6rig(t )ro,ides inde#nit2 +or *oss o+ +reig(t .ut e7ceeding t(e gross +reig(t *ost. T(is )o*ic2 does not co,er )artia* *oss o+ +reig(t ot(er t(an genera* a,erage *oss/ +ewer

64

Underwriting in Insurance Sector

t(an ?H un*ess caused .2 +ire/ sin%ing/ stranding or co**ision wit( anot(er ,esse*. Loss o. Hire Ins+r,n-e: T(is )o*ic2 co,ers *oss o+ (ire su++ered .2 t(e s(i) owner/ i+ t(e ,esse*/ w(ic( is gi,en on c(aracter/ is *aidBu) +or re)airs +o**owing a casua*t2 co,ered under t(e ter#s o+ t(e (u** and #ac(iner2 )o*ic2. Loss o. Pro.it Ins+r,n-e: T(e )o*ic2 co,ers t(e c(aracterAs *oss o+ )ro+its o,er t(e )eriod o+ t(e c(aracter i+ t(e ,esse* is ti#e c(aracter/ or during t(e ,o2age c(aracter i+ t(e ,esse* is c(aracter +or ,o2age/ +o**owing tota* *oss o+ t(e ,esse*. #;i0 Re0,irer(s Li,3i4ities: T(is )o*ic2 co,ers *ia.i*ities o+ s(i) re)airers towards t(e owner o+ t(e ,esse*s re)aired .2 t(e#. T(e care*ess use o+ o72Bacet2*ene or we*ding torc(es in areas w(ere oi*2 waste is *2ing or near *ines (as .een a #a=or cause o+ #an2 serious +ires. T(is as)ect an underwriter (as to care+u**2 consider.

Instit+tion ti<e -4,+ses >ITC* F;+44s: !u** insurance is granted on t(e .asis o+ ti#e and ,o2age. T(e )o*icies t(ere+ore cou*d .e a Ti#e Po*ic2 or a Jo2ga Po*ic2B t(e +or#er a**ows a co,er
65
Underwriting in Insurance Sector

+or t(e res)ecti,e interests on a ti#e .asisB#a7i#u# .eing twe*,e #ont(s and t(e *atter co,ers designated ,o2ages. T(e Instite o+ London Under7riters (as introduced !u** c*auses +or Ti#e and Jo2age )o*icies. T(e Institute Ti#e C*auses -ITC0 S !u** +or# t(e .asis +or #ost )o*icies used +or insurance o+ ,esse*s and t(eir #ac(iner2. HULL UNDERWRITING: As a )re*i#inar2 to t(e acce)tance o+ (u** ris%s/ a du*2 co#)*eted )ro)osa* +or# is o.tained +ro# t(e s(i) owner. T(e detai*s re,ea*ed in t(e )ro)osa* +or#/ and t(e answer to t(e additiona* 1uarries/ ena.*e t(e underwriter to assess t(e ris%s +ro# t(e )oint o+ ,iew o+ )(2sica* (a@ard/ 1ua*it2 o+ #anage#ent and #ora* (a@ard as)ects/ w(ic( are t(e #ost i#)ortant +actors. T(e underwriter wi** ta%e into account t(e +o**owing as)ects o+ t(e ris% )ro)osed.

66

Underwriting in Insurance Sector

O$ER$IEW

Inside story8

Eo. )ros)ects Earnings Re*ated occu)ations Sources o+ additiona* in+or#ation CIT3 in underwriting

JOB PRO#PECT#:

67

Underwriting in Insurance Sector

E#)*o2#ent o+ underwriters is e7)ected to increase #ore s*ow*2 t(an t(e a,erage +or a** occu)ations t(roug( :;;I. Co#)uterBassisted so+tware t(at (e*)s underwriters ana*2@es )o*ic2 a))*ications #ore 1uic%*2 and accurate*2 (as #ade underwriters #ore )roducti,e and ca)a.*e o+ ta%ing on a greater wor%*oad. Mergers and ac1uisitions o+ insurance co#)anies are a*so e7)ected to continue to resu*t in #ore downsi@ing o+ insurance carriers. Most =o. o)enings wi** resu*t +ro# t(e need to re)*ace underwriters w(o trans+er or *ea,e t(e occu)ation/ a*t(oug( se,era* new =o. o)enings are .eing created +or underwriters in t(e area o+ )roduct de,e*o)#ent. T(ese underwriters (e*) set t(e )re#iu#s +or new insurance )roducts/ suc( as in t(e growing +ie*d o+ *ongBter# care insurance. T(e .est =o. )ros)ects wi** .e +or underwriters wit( t(e rig(t s%i**s and credentia*s/ suc( as e7ce**ent co#)uter and co##unication s%i**s/ cou)*ed wit( a .ac%ground in +inance. Eo. )ros)ects #a2 .e .etter in (ea*t( insurance t(an in )ro)ert2 and casua*t2 and *i+e insurance. As 6edera* and State *aws re1uire (ea*t( insurers to acce)t #ore a))*icants +or insurance/ t(e nu#.er o+ )o*icies so*d wi** increase. A*so/ as t(e )o)u*ation ages/ t(ere wi** .e a greater need +or (ea*t( and *ongBter# care insurance. ecause insurance is considered a necessit2 +or )eo)*e and .usinesses/ t(ere wi** a*wa2s .e a need +or underwriters. It is a )ro+ession t(at is *ess su.=ect to recession and *a2o++s t(an ot(er +ie*ds. Underwriters/
68
Underwriting in Insurance Sector

w(o s)ecia*i@e/ t(oug(/ #a2 (a,e di++icu*t2 trans+erring to anot(er underwriting s)ecia*t2 i+ downsi@ing were to occur. E RNING#: Median annua* earnings o+ insurance underwriters were T?I/N<; in <KKI. T(e #idd*e F; )ercent earned .etween T:K/NK; and TF</>G; a 2ear. T(e *owest <; )ercent earned *ess t(an T:?/NF;9 w(i*e t(e to) <; )ercent earned o,er TNN/>?;. Median annua* earnings in t(e industries e#)*o2ing t(e *argest nu#.er o+ insurance underwriters in <KKN were8

Medica* ser,ice and (ea*t( insurance Li+e insurance 6ire/ #arine/ and casua*t2 insurance Insurance agents/ .ro%ers/ and ser,ice

T>;/;;; ?K/I;; ?K/<;; ?:/:;;

Insurance co#)anies usua**2 )ro,ide .etter t(an a,erage .ene+its/ inc*uding e#)*o2erB+inanced grou) *i+e/ (ea*t(/ and retire#ent )*ans.

69

Underwriting in Insurance Sector

 REL TED OCCUP TION#: Underwriters #a%e decisions on t(e .asis o+ +inancia* data. Ot(er wor%ers wit( t(e sa#e t2)e o+ res)onsi.i*it2 inc*ude auditors/ .udget ana*2sts/ +inancia* ad,isers/ *oan o++icers/ credit #anagers/ rea* estate a))raisers/ and ris% #anagers. #OURCE# OF DDITION L INFORM TION: Disc*ai#er8 Lin%s to nonB LS Internet sites are )ro,ided +or 2our con,enience and do not constitute an endorse#ent. In+or#ation a.out a career as an insurance underwriter is a,ai*a.*e +ro# t(e (o#e o++ices o+ #an2 *i+e insurance and )ro)ert2B*ia.i*it2 insurance co#)anies. In+or#ation a.out careers in t(e )ro)ert2Bcasua*t2 insurance +ie*d can .e o.tained .2 contacting8 T(e Insurance In+or#ation Institute/ <<; Wi**ia# St./ New "or%/ N" <;;?I. Internet8 In+or#ation on t(e underwriting +unction/ in )articu*ar/ and t(e CPCU and AU designation can .e o.tained +ro#8

T(e A#erican Institute +or C(artered Pro)ert2 and Casua*t2 Underwriters/ and t(e Insurance Institute o+ A#erica/ N:; Pro,idence Rd./ P.O. o7 ?;<G/ Ma*,ern/ PA <K?FFB;N<G.

70

Underwriting in Insurance Sector

An industr2 e#)*o2ing insurance underwriters t(at a))ears in t(e :;;;B;< Career Guide to Industries: Insurance.

IT9 IN UNDERWRITING: Auto #ating t(e underwriting )rocess/ .etter ana*2sis o+ ris% and i#)ro,ed decision #a%ing are so#e o+ t(e issues t(e insurance industr2 is gra))*ing wit(. T(ese issues *ead to reduced )ro+its and *ess e++icient .usiness )er+or#ance. At data#atics/ t(e e7)ertises are (e*)ing *eading g*o.a* insurance co#)anies wit( t(eir underwriting needs. T(e2 (a,e de,e*o)ed wor*d c*ass so*utions t(at enco#)ass data ca)ture/ ris% ana*2sis and #anage#ent and decision su))orts a.i*it2. T(e2 o++er a co#)re(ensi,e set o+ ser,ices in t(e underwriting area8

Maintenance and su))orts o+ *egac2 s2ste# and a))*ications. Migration +ro# )ro)rietar2 s2ste# to o)en )*at+or# New a))*ication de,e*o)#ent. Custo#i@ation o+ standard so+tware )ac%ages. Moderni@ation o+ *egac2 a))*ication t(roug( de,e*o)#ent o+ EBco##erce and we. .ased a))*ication.

71

Underwriting in Insurance Sector

 T(e2 (a,e a tea# o+ do#ain and tec(nica* e7)erts +ocused on )ro,iding t(e .est )ossi.*e so*utions to t(e custo#er. T(e tea# o+ e7)erts (as de*i,ered se,era* i#)ortant .ene+its to t(e custo#ers/ inc*uding8 Increased re,enues .2 ??H o,er se,en 2ears I#)ro,ed decision su))ort

Increased )ro+ita.i*it2 .2 <FH Increased e++iciencies .2 :;H at *owered costs

D,t, -,0t+re

Mi8r,tion

Ris= n,4ysis

De-ision s+00ort

ModerniG,tion Ne7 ,004i-,tion de@e4o0<ent

Under7ritin8 R+4es

72

Underwriting in Insurance Sector

73

Underwriting in Insurance Sector

CONCLU#ION

<. Underwriting .eing t(e +oundation o+ t(e insurance .usiness. It (as an i#)ortant ro*e in a))raising t(e 1uantitati,e and 1ua*itati,e as)ect o+ ris%. T(e underwriter (as to see to it t(at t(e ris% is )ro)er*2 assessed.

:. It is a*so seen t(at underwriting ru*es +or di++erent )o*icies and categories are di++erent. T(e #edica* e7a#ination is o+ great i#)ortance in underwriting. It (e*)s to assess t(e a#ount o+ ris% t(at a )erson carries.

?. T(e underwriter (as to .e ,er2 care+u* w(i*e underwriting t(e a))*ication o+ su.standard *i,es. An2 .ad decision o+ underwriter can (o*d (i# *ia.*e +or t(e sa#e.

74

Underwriting in Insurance Sector

>. A*so t(e introduction o+ In+or#ation Tec(no*og2 -IT0 (as e7tended t(e sco)e o+ underwriting .usiness. It (as s(own i##ense (e*) in t(e decision #a%ing )rocess. Man2 insurance .ased co#)anies are *oo%ing +orward IT in underwriting.

F. Last*2 to conc*ude wit( underwriting .usiness is .oo#ing in India. It is .eco#ing one o+ t(e #ost )restigious and c(a**enges area.

75

Underwriting in Insurance Sector

#UGGE#TION#

<. Artic*es on insurance +ie*d and #edica* ter#s. T(eir s(ou*d .e *ot o+ re+erences towards news )a)er t(at issue.

:. A *i#ited data can .e o.tained +ro# direct inter,iews t(us secondar2 data #ust .e re*ied on.

?. As underwriting itse*+ .eing ,er2 ,ast conce)t/ one can se*ect a )articu*ar +ie*d o+ stud2 in )ro=ect )re)aration. 6or e7a#)*e #et(od o+ underwriting.

>. Underwriting can a*so re+er to t(e )urc(ase o+ cor)orate .onds/ co##ercia* )a)er/ Go,ern#ent securities/ and #unici)a* genera*

76

Underwriting in Insurance Sector

o.*igation .onds .2 a co##ercia* .an% or dea*er .an% +or its own account/ or +or resa*e to in,estors.

F. Underwriting #a2 a*so re+er to insurance9 insurance underwriters ca*cu*ate (ow ris%2 it is to insure )eo)*e and .usinesses.

77

Underwriting in Insurance Sector

BIBLOGR PHY

C ig goa*s re1uires t(e acco#)*is(#ent o+ #an2 *itt*e goa*s3 T(us to acco#)*is( #2 )ro=ect I (a,e re+erred #an2 ot(er secondar2 data sources. T(e2 are as +o**ows8

REFERENCE REL TED TO BOO%#: )& N,<e: Under7ritin8 M,n,8e<ent: Pu.*is(ers8 IC6AI Uni,ersit2 )ress. /& N,<e: Indi,n Ins+r,n-e' ABPro+i*e gi,en .2 Aut(or !.Nara2ana Pu.*is(ers8 Eaico Pu.*is(ing !ouse
78
Underwriting in Insurance Sector

1& N,<e: Ins+r,n-e M,n,8e<ent'Prin-i04es ,nd 0r,-ti-es gi,en .2 Aut(orsB%ara# )a*/ .S. od*e Pu.*is(ers8 Dee) and Dee) )u.*ication PJT. LTD.

REFERENCE REL TED TO M G HINE#: <. Insurance C(ronic*e/ Eune :;;N. :. Treasur2 Manage#ent/ Eu*2:;;N.

REFERENCE REL TED TO WEB#ITE:

<. www.goog*e.co#. :. www.#otorinsurance.co#.

79
Underwriting in Insurance Sector

?. www.2a(oo.co#. >. www.#sn.co# F. www.wa%i)edia.co# G. www.ans.co#

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Underwriting in Insurance Sector