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PROJECT ON:
UNDERWRITING IN INSURANCE SECTOR
BY:
Ms. MONALI P. BHOIR
T.Y.B.Com [Banking & Insurance]
Underwriting in Insurance Sector1
Inside story: Employment in the field of underwriting Training, other qualifications, and
advancement given to the underwriter Nature of the work of the underwriters Underwriting in general Underwriting in insurance
INTRODUCTION OF UNDERWRITING
Underwriting in Insurance Sector
INTRODUCTION
2
“TThe process that a large financial service provider (bank, insurer,
investment house) uses to assess the process of providing access to their
product like providing equity capital, insurance or credit to a customer”
The name derives from the Lloyd's of London insurance market in
London, United Kingdom. Financial backers, who would accept some of the
risk on a given venture (historically a sea voyage with associated risks of
shipwreck) in exchange for a premium, would literally write their names
under the risk information which was written on a Lloyd's slip created for
this purpose.
In banking, underwriting is the detailed credit analysis preceding the
granting of a loan, based on credit information furnished by the borrower,
such as employment history, salary, and financial statements; publicly
available information, such as the borrower's credit history, which is detailed
in a credit report; and the lender's evaluation of the borrower's credit needs
and ability to pay. Underwriting can also refer to the purchase of corporate
bonds, commercial paper, Government securities, and municipal general
obligation bonds by a commercial bank or dealer bank for its own account, or
for resale to investors. Bank underwriting of corporate securities is carried
out through separate holding company affiliates, called securities affiliates, or
Section 20 affiliates.
Underwriting in Insurance Sector3
EMPLOYMENT IN THE FIELD OF UNDERWRITING:
IInsurance underwriters held about 101,000 jobs in 2004.
Approximately 2 out of 3 underwriters work for insurance carriers. Most of
the remaining underwriters work in insurance agencies or for organizations
that offer insurance services to insurance companies and policyholders. A
small number of underwriters work in agencies owned and operated by
banks, mortgage companies, and real estate firms.
Most underwriters are based in the insurance company’s home office,
but some, mainly in the property and casualty area, work out of regional
branch offices of the insurance company. These underwriters usually have
the authority to underwrite most risks and determine an appropriate rating
without consulting the home office.
Underwriting in Insurance Sector4
TRAINING, OTHER QUALIFICATIONS, AND ADVANCEMENT
GIVEN TO THE UNDERWRITER:
FFor entry-level underwriting jobs, most large insurance companies
prefer college graduates who have a degree in business administration or
finance with courses or experience in accounting. Underwriting can be a
satisfying career for people who enjoy analyzing information and paying
attention to detail. In addition, underwriters must possess good judgment in
order to make sound decisions. Excellent communication and interpersonal
skills also are essential, as much of the underwriter’s work involves dealing
with agents and other insurance professionals.
Continuing education is necessary for advancement. Insurance
companies usually pay tuition for underwriting courses that their trainees
complete; some also offer salary incentives. Independent-study programs for
experienced property and casualty underwriters are available as well. The
Insurance Institute of America offers both a program called “Introduction to
Underwriting” for beginning underwriters, and the specialty designation of
Associate in Commercial Underwriting (ACU), a formal step in developing
a career in underwriting business insurance policies. Those interested in
developing a career underwriting personal insurance policies may earn the
Associate in Personal Insurance (API) designation. To earn either the ACU
or API designation, underwriters complete a series of courses and
examinations that generally last 1 to 2 years.
Underwriting in Insurance Sector5
NATURE OF THE WORK OF THEUNDERWRITERS:
IInsurance companies protect individuals and organizations from
financial loss by assuming billions of dollars in risk each year. Underwriters
are needed to identify and calculate the risk of loss from policyholders,
establish appropriate premium rates, and write policies that cover this risk.
An insurance company may lose business to competitors if the
underwriter appraises risks too conservatively, or it may have to pay
excessive claims if the underwriting actions are too liberal. Technology
plays an important role in an underwriter’s job. Underwriters use computer
applications called “smart systems” to manage risks more efficiently and
accurately. These systems automatically analyze and rate insurance
applications, recommend acceptance or denial of the risk, and adjust the
premium rate in accordance with the risk and dose better equipped to make
sound decisions and avoid. Most underwriters specialize in one of three
major categories of insurance: life, health, and property and casualty.
Property and casualty underwriters usually specialize in either commercial
or personal insurance and then by type of risk insured, as in fire,
homeowners’, automobile, marine, or liability insurance, or workers’
compensation. In cases where casualty companies provide insurance
through a single “package” policy covering various types of risks, the
underwriter must be familiar with different lines of insurance.
Underwriting in Insurance Sector6
UNDERWRITING IN GENERAL:
AAs financial markets develop, the lines between capital markets and
insurance products are blurring. The conceptual similarities between financial
options and insurance contracts are self-evident - a payout occurs given a
certain event for an underlying physical or financial object. Financial options
over the past few years have modeled increasingly complex structures, with
ever more underlying variables, and these variables themselves are subject to
increasing vagaries. For centuries, the insurance industry has priced
premiums based on a combination of quantitative models, financing needs
and a commercial assessment of supply and demand.
Risk Care have undertaken projects for a variety of insurance sectors,
replicating premium pricing functionality that has been prototyped in a
spreadsheet into robust database solutions, capable of handling a large
volume of users and providing internet access. These have been tightly
integrated with workflow systems, supporting the full range of processes for
applications, renewals and claims. Over the coming years, we expect to be
satisfying a substantial range of customer requirements as we apply an ever-
increasing amount of our capital markets knowledge and experience. Our
pricing expertise will be useful for insurance premiums, and our risk
management expertise will be useful for capital provisioning.
Underwriting in Insurance Sector7
Underwriting is---
1. The process of issuing insurance policies
2. The process by which investment bankers raise investment capital from
investors on behalf of corporations and governments that are issuing
securities (both equity and debt).
Investopedia Says: The word "underwriter" is said to have come from
the practice of having each risk-taker write his or her name under the total
amount of risk that he or she was willing to accept at a specified premium. In
a way, this is still true today, as new issues are usually brought to market by
an underwriting syndicate in which each firm takes the responsibility (and
risk) of selling its specific allotment.
UNDERWRITING IN INSURANCE:
UUnderwriting may also refer to insurance; insurance underwriters
calculate how risky it is to insure people and businesses. They also decide
how much coverage they should receive and how much they should pay for
it. Underwriting involves measuring risk exposure and determining the
premium that needs to be charged to insure that risk. The function of the
Underwriting in Insurance Sector8
underwriter is to write business that will make the insurance company money,
and to protect the company's book of business from risks that they feel will
make a loss. In simple terms, it is the process of issuing insurance policies.
Each insurance company uses its own set of underwriting guidelines in order
to determine whether or not the company should accept a proposal. In life
insurance this decision process sometimes requires that applicants provide
further medical evidence. The underwriters can decide to make a counteroffer
in which the premiums have been loaded, or in which various exclusions
have been stipulated, which restrict the circumstances under which a claim
would be paid. Some companies use automated underwriting systems to
encode these rules.
Underwriting in Insurance Sector9
Inside story: Underwriting management book
www.google.com
www.motor insurance.com
Insurance management principle and practices
Indian insurance-a profile
Underwriting in Insurance Sector
REVIEW OF LITERATURE
10
UNDERWRITING MANAGEMENT :
Insurance is created when people like you and your neighbors pool
their resources to protect themselves from the effects of a loss.
WWW.GOOGLE.COM:
“Fire underwriting” describes the technical aspects of conducting the
business of insurance of fire risk as opposed to the administrative, financial
and organizational aspects of the business.
WWW. MOTOR INSURANCE.COM :
The motor Insurance requires the proposer to complete a proposal
from that reversal, by the answers to the questions the material facts that
affected the risk.
INSURANCE MANAGEMENT PRINCIPLE AND PRACTICIES :
In this book the author have given a descriptive explanation
about various aspects of insurance sector. They have very strongly
highlighted the importance of underwriting
INDIAN INSURANCE-A PROFILE:
It has focused on underwriting rules and regulation. He gives a
descriptive explanation on underwriting rules and regulation and legal
framework.
Underwriting in Insurance Sector11
ABOUT INSURANCE AND IT’S WORKING
Inside story:
Concept of risk pooling and sharing
Classification of insurance
Underwriter decision making
Underwriting in Insurance Sector12
CONCEPT OF RISK POOLING AND SHARING:CONCEPT OF RISK POOLING AND SHARING:
MMany people look at insurance companies as big, impersonal
institutions that can absorb loss regardless of cause or consequence. Nothing
could be further from the truth. The concept of insurance can be quickly
reduced to very personal terms if you think about it as risk sharing or pooling.
Insurance is created when people like you and your neighbors pool their
resources to protect themselves from the effects of a loss. Whether the loss
they are attempting to protect themselves from is loss of life, disability, fire,
or whatever, the basic concept remains the same: if the risk of loss can be
spread over a large enough group, the effects of the loss to any one individual
can be minimized. Rather than one person bearing the full brunt of economic
loss, each person in the group shares a part of the risk by making a payment
into a fund from which claims are paid.
While this description may seem too simple, the truth is that many of
today's modern insurance companies had their beginnings in just these types
of grass roots settings. Early life insurance associations were often groups of
workers banding together to protect against the economic loss that a
member's family might experience, should a worker die prematurely. Fire
Underwriting in Insurance Sector13
associations started back in colonial times were not much more than a group
of property owners pooling their resources in case one of them lost property
to fire. While this equation has become somewhat more intricate and
complex over the years, it still has at its core the same basic concept of risk
pooling or sharing.
CLASSIFICATION OF INSURANCE:
LLife is full of uncertainty. Trials and tribulations abound in each and
every aspect of life. No one can truly predict or even estimate what the
future has in store for him. Life offers no guarantees by itself, except the
incidences of death and taxation.
This lack of security present throughout life can be overcome
partially through insurance. Insurance can never replace or repair a loss. But
the monetary value offered by insurance helps in adjusting to the new
circumstances.
Despite offering innumerable options and immense scope, insurance
can be classified into four main categories.
Insurance of Person
Insurance of Property
Insurance of Interest
Insurance of Liability
Underwriting in Insurance Sector14
1)1) Insurance Of PersonInsurance Of Person::
Under the purview of this class of insurance, the risks associated with
human life in general can be covered up to the limit specified. A person can
insure his or her life and his health against any unplanned contingencies.
In event of his death, his dependants will be reimbursed to the full
amount that he was insured for. Or if the insured person meets with an
accident or suffers from an illness that cripples him forever, he will be
compensated with the complete sum assured anyway since he may not be
able to lead a normal life again.
In case, the accident is not that severe, he should be able to recover
after medical treatment and rehabilitation. If he has opted for medical cover,
then his medical expenses, treatment and medication will be paid for by his
insurance policy.
2)2) Insurance Of PropertyInsurance Of Property::
Everyone possesses material value in the form of tangible assets.
Assets can be in the form of a landed estate or a vehicle, share holdings or
plain old paper money. Since tangible property has a physical shape and
consistency, it is subject to many risks ranging from fire, allied perils to
Underwriting in Insurance Sector15
theft and robbery. An individual's lifetime of hard work can be wiped out in
a blink of an eye. But if a person judiciously invests in insurance for his
property prior to any unexpected contingency then he will be suitably
compensated for his loss as soon as the extent of damage is ascertained.
3)3) Insurance Of InterestInsurance Of Interest::
Every individual has to discharge certain specific duties. Everyone is
expected to maintain a standard of conduct. But then, it is an intrinsic part of
human nature to err. No one is infallible and no one will ever be. Owing to
an occasional error or omission committed by us, our clients or customers
might suffer a loss. In turn we might have to pay those damages or
compensation out of our own personal resources. However, if our chosen
profession qualifies for insurance of interest, then our insurance policy will
more than suffice in arranging for the funds and court formalities that might
ensue in the aftermath of legal libel.
4)4) Insurance Of LiabilityInsurance Of Liability: :
Every person has to regulate his actions and behavior so as not to
cause injury or damage to other people and their property. Everyone is
personally responsible and liable for his actions. If due to lack of control
over his actions or prejudiced behavior, a person incurs any liability then he
has to provide compensation out of his personal resources. Liabilities: legal,
Underwriting in Insurance Sector16
civil or criminal can have severe repercussions on social standing and
prestige besides the financial status.
By investing in liability insurance, an individual can ward off any
liabilities he might incur due to his actions and behavior. Besides, the
premiums payable on liability insurance are fairly minimal when compared
to the damages that have to be compensated in the long run.
UNDERWRITER DECISION MAKING:
Based on the information provided the application, agent and
development officer, the underwriter analyses the application. The
underwriter after analyzing the information takes the appropriate decision.
They are as follows:
1. Accept the proposal at the company’s published rates for the plan.
2. Accept on Modified terms subject to additional finance of any other
medical examination.
3. Postpone the consideration of the insurance proposal.
4. Decline the case.
Underwriting in Insurance Sector17
UNDERWRITING IN LIFE INSURANCE UNDERWRITING IN LIFE INSURANCE
Inside story:
Methods of underwritingMethods of underwriting
Numerical rating methodNumerical rating method
Advantage of numerical ratingAdvantage of numerical rating method method
Components of life insurance pricing
Factors are considered in individual life insurance
underwriting
outsourcing of underwriting activities in insurance
advantage and disadvantages
Underwriting in Insurance Sector18
UNDERWRITING IN LIFE INSURANCE:UNDERWRITING IN LIFE INSURANCE:
The underwriting of a life insurance policy is the process of the life
insurance company underwriter deciding whether to insure people and at
what rate based on people medical history and the activities that you may
engage in such as certain sports or flying an airplane. Life insurance has
“rating classes” such as preferred rates, standard rates and also “rated
policies” which means that you are charged extra because of health or what
may be considered dangerous activities. In the last few years very healthy
individuals may qualify for newer discounted rate levels such as “preferred
plus” or “super preferred”. These are strict levels where you have to qualify
by excellent medical test results, certain height and weight ratios, no history
of medical difficulties and with a family history of longevity. Cigarette
smokers get charged for a smoker life insurance policy which is more
expensive.
METHOD OF UNDERWRITING:METHOD OF UNDERWRITING:
Special Treatment to Ladies and Minor Lives
Role of Insurance Intermediaries in Underwriting
Judgmental Method
Underwriting in Insurance Sector19
Numerical Rating Method
Relative Merits & Demerits
Methods of rating non-standard lives in Underwriting
There is various method of underwriting. Underwriter uses theThere is various method of underwriting. Underwriter uses the
following method to underwrite the applications. They are as follow asfollowing method to underwrite the applications. They are as follow as::
NUMERICAL RATING METHOD: NUMERICAL RATING METHOD:
Numerical rating method means the identification of impairment,Numerical rating method means the identification of impairment,
assessment of the value of each impairment and then translates the valueassessment of the value of each impairment and then translates the value
into numeral to facilitate the uniformity of underwriting decisions. A subinto numeral to facilitate the uniformity of underwriting decisions. A sub
standard life is regarded as on which represents special hazard in respect ofstandard life is regarded as on which represents special hazard in respect of
one or more factors of insurability. They are as follow.one or more factors of insurability. They are as follow.
1.1. Family HistoryFamily History
2.2. Personal History.Personal History.
3.3. Build.Build.
4.4. Present state of health and habits.Present state of health and habits.
5.5. Occupation and residence.Occupation and residence.
6.6. Race.Race.
Underwriting in Insurance Sector20
In addition to the above the plan and amount of assurance have anIn addition to the above the plan and amount of assurance have an
important bearing on the value of the risk. The question of moral hazard hasimportant bearing on the value of the risk. The question of moral hazard has
also to be given due weight.also to be given due weight.
The process of numerical rating assessment is as followsThe process of numerical rating assessment is as follows::
1)1) Under this process, the value of any special hazard in respect of eachUnder this process, the value of any special hazard in respect of each
of the above factors is measured in terms of appropriate extra morality rating.of the above factors is measured in terms of appropriate extra morality rating.
For this purpose, point should be obtained from the schedules which show theFor this purpose, point should be obtained from the schedules which show the
number of points which must be added for each adverse feature and thenumber of points which must be added for each adverse feature and the
number of points which must be subtracted for each favorable feature. number of points which must be subtracted for each favorable feature.
2)2) The next stage in the numerical rating is to translate the extra mortalityThe next stage in the numerical rating is to translate the extra mortality
into extra premium necessary to compensate thereof. For this purposeinto extra premium necessary to compensate thereof. For this purpose
regularly scaled extra mortality. For example, Class I rating covers extraregularly scaled extra mortality. For example, Class I rating covers extra
mortality of 20-30%, Class II 40-60%, Class III 65-85%, Class IV 90-120%mortality of 20-30%, Class II 40-60%, Class III 65-85%, Class IV 90-120%
and so on.and so on.
Underwriting in Insurance Sector21
3)3) Tables; of extra premium required for each extra mortality class underTables; of extra premium required for each extra mortality class under
each plan of assurance is then prepared. When the total extra mortality for aeach plan of assurance is then prepared. When the total extra mortality for a
risk is arrived at, company determine within which standard class it fall andrisk is arrived at, company determine within which standard class it fall and
then the extra premium is obtained by reference to the tables. The extrathen the extra premium is obtained by reference to the tables. The extra
mortality falling below Class I am ignored.mortality falling below Class I am ignored.
ADVANTAGE OF NUMERICAL RATING METHOD: ADVANTAGE OF NUMERICAL RATING METHOD:
1)1) The main advantage of numerical rating method is that The main advantage of numerical rating method is that the value of any the value of any
special hazard as illustrate above is measured in terms of extra mortality special hazard as illustrate above is measured in terms of extra mortality
rating.rating.
2)2) The extra mortality ratings for various factors are then The extra mortality ratings for various factors are then aggregated to aggregated to
arrive at the value of the risk of mortality. arrive at the value of the risk of mortality.
3)3) The next stage is to translate the extra mortality into an extra premium The next stage is to translate the extra mortality into an extra premium
necessary to compensate the extra risk of mortality.necessary to compensate the extra risk of mortality.
COMPONENTS OF LIFE INSURANCE PRICING:
Underwriting in Insurance Sector22
As we have seen, the purpose of underwriting in Life Insurance is to
see that only those lives, which have almost similar exposure to the risk of
death, enter the pool of Life Insurance and to charge everyone with a
premium commensurate with the risk that he she brings in to the pool.
While there are elaborate ways to check the physical condition of
health of a person, it is extremely difficult to verify the intention of a person
who proposes a life for insurance protection. One step in this direction is to
ensure that the amount of insurance cover that is provided to the person is in
line with his income/premium paying capacity/ financial loss that the
beneficiaries of insurance would suffer in case of the death of the life insured.
This process of checking whether the insurance cover sought for is within a
limit in relation to the income of the life to be assured is called financial
underwriting.
FACTORS ARE CONSIDERED ININDIVIDUAL LIFE
INSURANCE UNDERWRITING:
Life insurance companies each has their own extensive policy
and procedure manuals they are supposed to follow in determining whether
or not to issue an Individual Life insurance policy, and in pricing that policy.
The insurer's underwriters typically use a combination of factors that
experience shows equates with the risk of death (and premature death).
Underwriting in Insurance Sector23
They include the applicant's answers to a series of questions such as:
1. Age,
2. Sex (except in several states that require "uni-sex" rates, even
though actuarial data shows women live longer than men)
3. Height and weight.
4. Health history (and often family health history -- parents and siblings),
5. The purpose of the insurance (such as for estate planning, or business or
for family protection).
6. The amount of insurance the applicant already has, and any additional
insurance s/he proposes to buy {as people with far more life insurance than
they need tend to be poor insurance risks)
7. Marital status and number of children,
8. Occupation (some are hazardous, and increase the risk of death),
9. Income (to help determine suitability),
10. Smoking or tobacco use (this is an important factor, as smokers
have shorter lives) ,
11. Alcohol (excessive drinking seriously hurts life expectancy),
12. Certain hobbies (such as race car driving, hang-gliding, piloting non-
commercial aircraft),
Underwriting in Insurance Sector24
13. Foreign travel (certain foreign travel is risky).
OUTSOURCING OF UNDERWRITING ACTIVITIES IN
INSURANCE ADVATAGEAND DISADVANTAGES:
Delhi-based Bounty Life Insurance Company (Bounty) has branches
all over India and it follows an aggressive marketing strategy in order to
obtain more customers. Soon after the liberalization of the insurance sector,
Bounty started selling its products aggressively.
Initially, it made profits. In fact, the number of its customers exceeded
the management's expectations. The popularity of the company also
increased. In addition, there was a steady increase in the number of
customers. The reason was that Bounty offered innovative products that
suited the varied requirements of people. The company adopted the
marketing strategy of offering customized products. Thus, it became one of
the leading insurance companies, offering maximum number of product
variants in the industry.
Over a period of time, there was a gradual increase in the number of
players in the industry. Consequently, competition in the industry intensified.
All insurance companies in the market were struggling to maintain and
increase their market share. Despite the intense competition that prevailed in
Underwriting in Insurance Sector25
the industry, Bounty Life Insurance Company managed to increase its market
share. Its performance in the competitive scenario was fairly good.
However, during the last few months, its profits have decreased
sharply. The company has been facing difficulties related to administration
and interdepartmental coordination.
Underwriting in Insurance Sector
UNDERWRITING IN FIRE INSURANCE
26
Inside story:
Definition of fire insuranceDefinition of fire insurance
Need for fire insuranceNeed for fire insurance
Standard fire & special peril’s policies
Fire special policies in the underwriting
Underwriting; acquire, evaluate, act, monitor
Key underwriting clues for loss and prevention
DEFINITION OF FIRE INSURANCE:
section 2 of Indian Insurance Act, 1938 defines ‘Fire insurance Business’
as the business of effecting otherwise than incidental to some other class of
business, contract of insurance against loss by or incidental to fire or other
occurrence customarily included among the risks insured against in fire
insurance policy.
NEED FOR FIRE INSURANCE:NEED FOR FIRE INSURANCE:
Underwriting in Insurance Sector27
“Fire Underwriting” describe the technical aspects of conducting the
business of insurance of fire risk as opposed to the administrative, financial
and organizational aspects of the business. In most cases, fire risks lead
themselves to the pretension of intentional losses and fraudulent claims. In
the fire insurance policies, total loses involving payment of the full sum
insured is infrequent and partial losses are to be met frequently. The pure risk
premium in fire insurance must provide for both total losses and partial
losses.
A fire underwriter is judged by his ability to avoid wide fluctuation in
the loss ratio and the profit ratio. The grater the stability he can impart to
these two figures the more he is acclaimed. A fire underwriter must used
weapon of differential limits to the utmost.
TThe need for fire insurance arises as the material property is
susceptible to damage or destruction by fire or other perils and the material
property has some measurable monetary value. Also, the occurrence of a fire
ends to other consequential losses such as loss of production causing loss of
profits.
Fire Insurance is the oldest form of insurance and it covers erected fixed
assets and movable assets whilst lying in a particular location and declared
accordingly floor insurance. The policy of fire covers building, electrical
Underwriting in Insurance Sector28
installation in buildings, contents of buildings such as plant and equipments,
machinery, furniture, fixtures and fittings, pipeline located inside or outside
the premises.
The policy of fire covered the risks of fire and lightning, explosion,
riot, strikes, terrorism, peril from water damage like flood, storm, natural
calamities like earthquake, landslide, etc. due to advancements in technology,
fire policies today also covers the accidental leakage and contamination,
sprinkler leakages, etc. as all the above perils cause material damage, all of
them are included in the insurance.
STANDARD FIRE & SPECIAL PERIL’S POLICIES:
EEarlier the fire policies used to cover only fire perils, up to the interest
of insured to decide what extensions he requires to basic policy. A retention
that was carried out in 1987, by which a single fire policy was brought out
Underwriting in Insurance Sector29
covering a set of perils within the standard policy. So the policy has started
covering fire, explosion/ implosion, aircraft impact damage, and Riot and
Strike Malicious Damage (RSMD) at the basic rate. Later RSMD was
extended to cover terrorism also.
The classes of standard fire policy are:The classes of standard fire policy are:
Clause a: Name of the parties to contract
Clause b: Payment of premium by the insured
Clause c: Conditions and exclusions to the basic policy
Clause d: Perils covered under the policy
Type of payment made by the company, actual value, or reinstate value, or its
other operations.
Fire:Fire:
Fire means actual ignition or burning, under accidental circumstances.
The policy dose not intended to cover inherent vices of commodity like its
own fermentation or natural heating damage to the property when undergoing
heating or dyeing process are not covered. The burning of a public property is
not covered. Spontaneous combustion can be covered with an extra premium.
Lightning:Lightning:
Underwriting in Insurance Sector30
Any damages caused by lightning with or without actual ignition are
covered in the standard fire policy.
Aircraft damage:Aircraft damage:
Losses and destruction caused by aircraft and other aerial devices and
articles dropped, excluding those caused by pressure waves are covered under
aircraft damage.
Riot Strike Malicious and Terrorism Damage (RSMTD):Riot Strike Malicious and Terrorism Damage (RSMTD):
The loss or visible physical destruction carried out by the external
violent, this excludes certain perils like total or partial cessation of work,
permanent or temporary dispossession of any building or plant, burglary,
housebreaking, the theft. ‘Terrorism’ is generally used as means of violence
for political ends or to cause fear in the public.
Act of God (AOG) Perils:Act of God (AOG) Perils:
Loss, destruction or damage caused by the atmospheric perils caused
by nature like storm, cyclone, tempest, typhoon, hurricane, tornado, flood or
inundation are covered in the standard fire policy excluding those resulting
from earthquake, or volcanic explosion.
Underwriting in Insurance Sector31
Forest Fire:Forest Fire:
The standard fire policy is extended to include the damage to the
property insured caused by burning, whether accidental or otherwise, of
forest, and the clearing of lands by fire. The rate of interest is 5%.
Earthquake:Earthquake:
This cover is extended when the earthquake is caused by landside,
flood, and overflow of sea, lakes, reservoirs or rivers.
Spontaneous Combustion Spontaneous Combustion
Some material like coal, hay and biogases are susceptible to
spontaneous combustion, fermentation or heating. The cover is for loss or
damage by fire only. For rating, various commodities are classified into four
categories depending on their susceptibility t spontaneous combustion. The
rates applied are:
Category I - 0.25%
Category II - 0.5%
Category III - 75%
Category IV- 1.00%
Underwriting in Insurance Sector32
FIRE SPECIAL POLICIES IN THE UNDERWRITING:
TThe standard fire policy is modified by attachment of appropriate
clause in order to meet the varying requirements of different clients.
Floater Policy:Floater Policy:
This is issued to cover stock situated in more than one specified
building situated
1. Within the limits of one city/ town/ village,
2. More than one city/ town but up to 50 locations,
3. For more than 50 location in various cities/ towns/ village.
These are not issued for immovable property and to transport
contractors and Clearing & Forwarding agents. The maximum sum insured at
any one location should not be more than 10% of the total sum insured. At all
Underwriting in Insurance Sector33
times during the currency of policy, the insured should have a good internal
audit and accounting procedure.
Declaration Policy:Declaration Policy:
This is issued to cover stock, which are subject to marked fluctuations
in quality. The premium charges at the issue of the policy are provisional and
are calculated based on the sum insured. The policy, total of values of goods
at agreed intervals and on the expiry of the policy, total of the values declared
is divided by the number of declaration are arrive at average sum insured on
which premium is again calculated and an adjudicated and an adjustment is
made, subject to retention of 35% of the provisional premium by the insurer.
Local Authorities Clause:Local Authorities Clause:
This clause includes an additional cost of reinstatement of the
destroyed or damaged property under any Act of Parliament or with bylaws
of any municipal or local authority.
Escalation Clause:Escalation Clause:
Underwriting in Insurance Sector34
The tariff provides that the insurers should allow automatic regular
increase in the sum insured throughout the period of the policy in return for
an additional premium to be in advance.
Loss of Rent Clause:Loss of Rent Clause:
The policy covers the loss of rent that an owner suffers on account of
the premises becoming untenable followed by an insured perils. Here, it is
essential that the insured and the insurer are clear about granting the cover by
checking the contract between the owner and the tenant of premises.
Agreed Bank Clause:Agreed Bank Clause:
All policies in which a bank has a partial interest are to be made out in
the name of the bank and owner or mortgagor. The Agreed Bank Clause is
incorporated to protect their insurable interest as mortgagors.
Removal of Debris Clause:Removal of Debris Clause:
Underwriting in Insurance Sector35
The expenses incurred for clearing of the debris accumulated because
of a fire peril are also covered. If they exceed one percent of the claim
amount, a separated sum insured has to be declared for this cover and the
premium is collected on the sum insured. One percent of the claim amount is
automatically covered under the basic policy.
UNDERWRITING; ACQUIRE, EVALUATE, ACT MONITOR:
HHow each individual underwriter performs his/her important task sets
up their company to operate profitably or suffer from tremendous exposure
& financial losses.
The pressures of a competitive business environment, workload, cost
cutting, less than informative sources of risk information and sometimes
even sloppy workmanship and poor judgment allow too many totally
unacceptable risks to slip by property underwriters and gain insurance
coverage every day. This fact has serious consequences for both property
carriers and for society.
Underwriting in Insurance Sector36
While each insurance application on the underwriter's desk is, in
some ways unique, most applications can be grouped into broad categories
enabling the underwriter to apply information from standardized rating
indices and industry databases.
In many cases resulting in losses to property carriers, clear warning
signs were present that were either ignored or missed by the underwriter
who placed the business. These warning signs range from financial
instability, a serious criminal background and questionable prior losses to
wholesale disregard of reasonable security and fire prevention measures.
KEY UNDERWRITING CLUES FOR LOSS PREVENTION:
TThe following factors should be considered each time that a fire
insurance applicant or policy renewal is being considered. Relationship of
trust with the producer -Placing insurance on risks combines the science of
rating exposures with the "art" of developing a valid "gut" feeling about
Underwriting in Insurance Sector37
individuals seeking fire insurance coverage. The professional judgment and
"street smarts" of the agent/broker is an important link in this process. Ask
yourself, has there been a history of questionable losses from clients
referred by this agent/broker that makes you question their skill, honesty or
common sense.
Loss historyLoss history::
Underwriter need to know about each personal lines and commercial
fire insurance applicant's past history of claims activity that may or may not
have been settled. Today, there are underwriting databases that can provide
this information in seconds and at reasonable cost. Information on these
databases along with contact information is contained in this document.
Financial conditionFinancial condition::
Is this business or individual financially strapped or not. Is there an
impending situation, unknown to you, threatening to drive down the business
or personal finances of the applicant or not. An inexpensive & on-line
Year in businessYear in business::
Undercapitalized start-up businesses with inexperienced
owner/managers, especially those entering hyper-competitive markets like
Underwriting in Insurance Sector38
small bar-restaurants or pizza stores, are notoriously prone to failure.
Established businesses with sound products and a solid customer base are
obviously less risky.
Loss Control Report/Engineering ReportLoss Control Report/Engineering Report::
A qualified loss prevention inspector can often spot significant
problems affecting the current and future value of a property. Structural or
utility defects affecting the suitability of a risk for its intended purpose or
even intangibles such as "Quality of Management" issues can have a
profound impact on operations, profitability and risk of fire.
Quality of ManagementQuality of Management: :
A Ford Foundation study on Arson years ago found that the number of
sanitary code violations was the most significant correlation to whether a
given building would sustain an arson fire. "Quality of Management" is
expressed in clean & secure operations, a high level of maintenance, and
other positive factors that, by themselves, tend to suppress the possibility of
fire and crime.
Underwriting in Insurance Sector39
UNDERWRITING OF MOTOR INSURANCE
Underwriting in Insurance Sector40
Inside story: Needs for motor insurance
Types of policy forms
Factor in motor insurance
Claims management
Bonus /mauls clause
UNDERWRITING OF MOTOR INSURANCE:
UUnderwriting refers to assessing a risk presented for insurance and
deciding whether it is acceptable or not. If acceptable, the underwriter decides
the terms and premium at which the insurance can be made. The motor
Insurance requires the proposer to complete a proposal from that reversal, by
the answers to the questions the material facts that affected the risk. The facts
the underwriter wishes to know are those that refers to proposer and those,
which refers to the vehicle and the risk to be insured.
Usually the insurers keep track of the proposer name, address and
business, loss history, convictions (relating to driving offences, ownership,
Underwriting in Insurance Sector41
usages and violence/ dishonesty). Physical hazard (any hazard arising from
the material, structural/ or operational features of risk itself apart from the
person owing or managing it) is also considered assuming that the proposer
as an individual or business is acceptable to the business. Physical hazard
primarily relates to
1. The vehicles to be insured
2. The way the vehicles are used, and
3. The person who are going to drive or use them.
Therefore full details of the vehicle, its use and the derives are required.
NEED FOR MOTOR INSURANCE:
VVehicle may be your long cherished 'Palace on wheels' or one that can
barely be called a four-wheeler but the very fact that it has to ply on rough
and tough Indian roads, should be reason enough to insure it.
Underwriting in Insurance Sector42
Consider what your vehicle has to endure - potholes, open manholes,
puddles, interred roads, our traffic management system, poor pedestrian
management, absence of footpaths for pedestrians, jaywalkers and an
increasing number of accidents are few of the stark realities.
Footpaths:Footpaths:
As footpaths are encroached by hawkers, pedestrians have a tough time
dodging between vehicles to reach the other end of the road. Large potholes
and manholes are a common sight and during the monsoon the situation can
get only worse causing untold damage to your vehicle.
Drunken driving:Drunken driving:
Drunken driving is another very common feature. Be it a car, a two-
wheeler, or even a truck, drunken driving is one of the major reasons for
increase in accidents. Though drunken driving is a punishable offence the
penalty has hardly proved to be a deterrent.
Reckless Driving:Reckless Driving:
Besides, rash driving by youngsters is another of the dangerous
realities that should consider. Majority of the youngsters drive recklessly
Underwriting in Insurance Sector43
caring little for the law, causing serious accidents resulting in loss of life or
limb.
Theft:Theft:
Cases of stolen cars are on the rise. Experts in stealing cars are well
aware of the loopholes that can be exploited and accordingly have also been
successful in manipulating with the chassis number of vehicles in order that
they are not traced.
Fire:Fire:
Other than these there is also a danger of fire or theft of your vehicle.
Vehicle insurance under such unsafe conditions is a must not only to
cover risks towards yourself and your own vehicle but also to cover the
financial liability that may arise from an accident in which the other party is
injured. Consider the exorbitant cost of repairs that you would have to pay to
the other party in case of an accident.
TYPES OF POLICY FORMS:
AAll India Motor Tariff governs motor business in India. According to
the Tariff, two types of Policy Forms are used by all classes of vehicles. TheyThey
are Form A and Form B.are Form A and Form B.
Form A, or what is commonly known as Act Policy, covers Act
Liability which is a compulsory requirement of the Motor Vehicles Act. No
Underwriting in Insurance Sector44
vehicle can be used without this minimum insurance cover. Use without such
insurance is a penal offence. The following liabilities can be covered in this
policy
1. Unlimited liability towards Third Party bodily injury
2. Liability towards Third Party Property Damage to the extent of Rs.6000/-
only
3. Unlimited liability towards bodily injury of passengers of the vehicle
4. Liability towards employees of the owner of the vehicle while traveling in
or using it, against bodily injury, to the extent required under the
Workmen's Compensation Act
Form B, or what is commonly known as Comprehensive Policy, is an
optional cover which takes care of the following additional losses and
liabilities
1. Loss or damage to the vehicle and its accessories and extra fittings,
protection and removal costs, and towing disabled vehicles (only for
commercial vehicles)
2. Liability towards Third Party Property Damage, in excess of Rs.6000/-
3. Liability towards employees under Common Law and Fatal Accidents Act,
over and above the liability under Workmen's Compensation Act
4. Personal Accident Benefits for the owner, passengers and employees.
Underwriting in Insurance Sector45
The above losses or liabilities can be separately covered in conjunction
with the liabilities covered under the Act Policy, by taking a Comprehensive
Policy, paying additional premium.
FACTOR IN MOTOR INSURANCE:
TThe Underwriting Policy in Motor Insurance can be Identifying by
Various Factors Like:
1. The type of vehicle
2. Purpose for which the vehicle is used
3. The geographical area of use
4. The previous claims experience
THE TYPE OF VEHICLE: THE TYPE OF VEHICLE:
Underwriting in Insurance Sector46
For the vehicle, the insurer considers its make, model, registration
mark, type of body, engine capacity, plated weight, seating capacity,
modifications to ‘manufacture’s’ specification and the value.
In India, the underwriting procedure differs depending on whether the
vehicles come under the category of private car, motorcycles or commercial
vehicles as also the insured’s estimated value, the purchase price and the year
of manufacture of the vehicle. There is a great deal of under-insurance in
motor insurance. Therefore careful attention must be paid to the insured’s
estimated value in relation to the age of the vehicle, especially because there
is no pro rata condition of average in the policy and sum insured is the limit
of liability per accident and not for the period of the insurance.
Underwriting in Insurance Sector47
PURPOSE FOR WHICH THE VEHICLE IS USED:PURPOSE FOR WHICH THE VEHICLE IS USED:
The underwriter takes into consideration the risk exposure arising
purpose for which the vehicle is used. An underwriter will enquire whether
the vehicle is used:
To carry the operator’s own goods, or
For hire or reward in the carriage of goods for goods for other
business, or
Simultaneously for both the purposes.
Risk exposure varies in relation to the use the vehicle is put to. Private
cars are lesser exposed than taxies, as the latter is used extensively for
maximum revenue. Taxies therefore attract a higher premium rate. Similarly,
goods carrying vehicles, which are used as private carriers and transport, only
their owners' goods attract a lower premium, than those used as public
carriers for transporting goods for hire.
THE GEOGRAPHICAL AREA OF USE:THE GEOGRAPHICAL AREA OF USE:
The area of operation of a vehicle also has a direct bearing on the
premium rate. This is so because, certain areas of operation are more
congested with high densities of population and road traffic than others and
Underwriting in Insurance Sector48
pose higher exposure to accidents. For this purpose, the tariff differentiates
two zones in India, i.e., Zone A & Zone B, for private cars and taxies. Zone A
represents the Madras region and Bombay region (excluding Bombay city)
and Zone B represents the Calcutta region, Delhi region and Bombay city. In
Zone B, the densities of population and road traffic are more and hence
attract a higher premium rate.
Such differential rating does not apply to commercial vehicles such as
trucks and buses, as these vehicles normally travel throughout India for their
operation. However, a discount is allowed on the premium for commercial
vehicles used as contract carriage, school buses, public and private buses used
for carrying passengers/workers and operate within a radius of 50 kilometers
from the city limits.
THE PREVIOUS CLAIMS EXPERIENCE:THE PREVIOUS CLAIMS EXPERIENCE:
Unfavorable claims experience is obviously a bad risk there of it
is responsibility of an underwriter to identify. The tariff has adopted a system
called the Bonus/Mauls Clause, to give discounts for good claims experience
and a loading for bad experience. The claim experience of expiring year's
policy is the basis for allowing discount or charging a loading...
CLAIMS MANAGEMENT:
Underwriting in Insurance Sector49
UUnfavorable claims experience is obviously a bad risk for an
underwriter. The tariff has adopted a system called the Bonus/Mauls Clause,
to give discounts for good claims experience and a loading for bad
experience. The claim experience of expiring year's policy is the basis for
allowing discount or charging a loading.
The Bonus/ Mauls are applicable to Own Damage section of the
comprehensive policy. In other words, the discount or the loading is applied
on the premium component of that section of the policy only. It is NOT
applicable also for Road Transit Policies, Motor Trade Policies and policies
which cover only Fire and Theft risks. The discount/loading follows the
fortunes of the original insured and not the policy
BONUS/ MAULS CLAUSE:BONUS/ MAULS CLAUSE:
In the premium rating system presently being used, the factor of
personal hazard of the driver is not taken into consideration directly. In
many other countries, it is an integral factor to influence the premium rate
and a prime consideration for acceptance of the risk by the insurance
company. However, the system of Bonus/ Mauls recognizes this factor
indirectly since Bonus is a reward which allows discounts for claim-free
period, while Mauls is a loading in the premium for adverse claims
experience. Thus, the discount acts as an incentive to the insured to exercise
Underwriting in Insurance Sector50
care and caution while driving. Indirectly, the discount contributes to the
objective of road safety.
MOTOR CYCLE/ SCOOTER & COMMERCIAL VEHICLES (Other
than Taxies)
Loading/ Discount
positions on Own
Damage Premium at
expiry of the policy
% Loading/ Discount on Own Damage Premium
to be applied on renewal
If claim is made
during expiring
Policy Year
If no claim is made
during expiring
Policy Year
With 40% Loading Continue 40% Loading Charge 30% Loading
With 30% Loading Charge 40% Loading Charge 25% Loading
With 25% Loading Charge 30% Loading Charge 15% Loading
With 15% Loading Charge 25% Loading No Loading/ Discount
No Loading/ Discount Charge 15% Loading Allow 20% Discount
With 20% Loading No Loading/ Discount Increase Discount to 30%
With 30% Loading Reduce discount to 20% Increase Discount to 35%
With 35% Loading Reduce discount to 30% Increase Discount to 45%
Underwriting in Insurance Sector51
With 45% Loading Reduce discount to 35% Increase Discount to 55%
With 55% Loading Reduce discount to 45% Continue 55% Discount
Calculation of the premium is an actuarial science made possible by
the use of mordent technology that can analyze risk and claim statistics and
come up premiums that individual insures requirements for reserves,
commissions, expenses, claims and profit. The various general features
needed to quote a premium are:
1. Type of insurance;
2. Make, mode and engine of the car;
3. Class of use;
4. Detail of deriver- age, physical or mental incapability, driving experience
and monitoring convictions;
5.Amount of claim discount applicable; Postcode of owner’s address and
where the vehicle is kept.
Underwriting in Insurance Sector52
UNDERWRITING IN MARINE INSURANCE
Inside story: Need for marine insurances
Areas of coverage in marine cargo coverage
Cargo insurance document
Standard form of marine insurance
Underwriting guidelines and tariffs for marine
insurance
Underwriting in hull insurance
Types of policies
Underwriting in Insurance Sector53
Hull underwriting
UNDWERWRITING IN MARINE INSURANCE
MMarine cargo considerably widens the scope of coverage presently
enjoyed by the insured population without necessarily involving a high
premium. We complement our wide coverage with advices on Risk
Management and Loss Prevention.
MARINE INSURANCE/ INSURANCE/ CARGO INSURANCE COVERS CARGO INSURANCE COVERS
TRANSITS BY :TRANSITS BY :
Air
Water
Road or Rail
Registered Post Parcel
Courier or any combination of the above.
Marine Insurance is for, Marine Insurance is for,
Underwriting in Insurance Sector54
Buyers, Sellers, Import/Export merchants, Buying Agents,
Contractors and Banks-in fact any one engaged in the business of movement
of goods. During the course of transit, the cargo may not always be at your
risk. For instance, a person can sell it to a buyer. Our Marine Cargo Policies
cover your interest in the cargo insured and also extends to cover the
interests of any third party to whom you have assigned interest upon transfer
of ownership, as determined by the Terms of Sale.
NEED FOR MARINE INSURANCS:
IIf there is one class of insurance that is an absolute necessity, it is
Marine! A person’s cargo can be damaged on exposure to a wide variety of
risks, including an accident of the vehicle carrying the cargo, failure of the
stevedores in the port area, and damage to the container that can be washed
overboard. If a person thinks Piracy is a thing of the past, individual will be
surprised to find that this is very much alive and well! To summaries, cargo
can be damaged by stranding, grounding, sinking, burning, collisions, faults
Underwriting in Insurance Sector55
or errors in navigation, heavy weather, entry of sea or river water, jettison,
washing overboard, ship's sweat, condensation, improper stowage by the
carrier, hook damage, theft or pilferage, war, strikes or natural perils. The
Carrier pays for loss only when the Carrier causes damage. Again, the
Carrier is only required to pay a limited amount per package and not for the
full value of the cargo. This is another reason for insuring cargo.
AREAS OF COVERAGE IN MARINE CARGO COVERAGE:
AA vast majority of Marine Cargo policies are based on Institute Cargo
Clauses that appears in three versions viz., ICC (A), ICC (B) and ICC(C).
ICC (A) is based on 'All Risks' while (B) and (C) are based on named-perils.
All three clauses have certain exclusions.
Institute Cargo Clauses Cover:Institute Cargo Clauses Cover:
Marine Cargo Policies are based, in a majority of instances, on one or
more of the Institute Cargo Clauses. The coverage available under these
standard clauses includes:
Actual Total Loss
Constructive Total Loss
Particular Average i.e., Partial Loss by an insured peril
General Average
Collision Liability
Underwriting in Insurance Sector56
Expenses such as Survey Fees, Reconditioning Costs, Forwarding
Expenses, Sue and Labor etc.
Principal exclusions, which appear in the Institute Cargo Clauses are:Principal exclusions, which appear in the Institute Cargo Clauses are:
Loss or damage due to Inherent Vice
Loss or damage due to Delay
Loss or damage due to Insufficiency of packing
Loss or damage due to insolvency, financial default of ship owners, etc.
Products that considerably widen the scope of cover offered by the
Institute Clauses. Widening the Scope of Cover: It provides a wide choice of
additional Covers thereby widening the scope of cover beyond what is
offered by Institute Clauses mentioned above. Some of the exclusions
appearing in the Institute Cargo Clauses are either deleted or modified
considerably.
It provides unique tailor-made policies to suit your requirements. We
have tailor-made wordings for a variety of industries/risks including, but not
limited to:
Fast Moving Consumer Goods Industry
Electronic Industry
Infrastructure Projects: including Delay in Start-up
Covers
Underwriting in Insurance Sector57
Pharmaceutical Industry
Health Care Industry
Fine Arts
Through underwriting philosophy policy ensure that policy and
underwriter constantly acquire, maintain and disseminate technical
information to its customer.
CARGO INSURANCE DOCUMENT:
BBefore a policy is issued, detail of the proposed insurance are obtained
from the proposer in a form called Declaration form. It is considered as
evidence to the insurer to provide necessary information that was exactly
proposed.
Marine Declaration FormMarine Declaration Form::
Except the Special declaration Policy, Annual Policy, Duty and
Increased are obtained Value Insurance; there is no standard proposal form
for marine cargo insurance. The form contains the following details.
1) Name and address of the proposer
2) Description of the goods to be insured
Underwriting in Insurance Sector58
3) Value of insurance
4) Name of the carrying vessel
5) Description of the voyage/ transit
6) Bill of Lading number/ airway bill
7) Type of insurance covered
8) Claims payable at Signature of the proposer and date of declaration.
STADARD FROM OF MARINE INSURANCE:
The standard form of the marine policy shows the following details.The standard form of the marine policy shows the following details.
1. Policy number, place and date of issue
2. Name of assured with address
3. Name of the vessel carrying the insured cargo
4. Description of the voyage/ transit
5. The subject matter insured and the description of packing
6. Type of insurance cover granted, reference to relevant clause and any
special conditions and warranties
Underwriting in Insurance Sector59
7. The sum insured
8. The premium
9. Name and address of the Claims Settling Office at destination.
UNDERWRITING GUIDELINES ANDTARIFFS FOR MARINE
INSURANCE:
WWith the liberalization of the economy, the All Indian Marine Cargo
Tariffs, which governed marine cargo insurance, was discounted with effect
from 1.4.1994. Now, the companies are free to formulate their own rates and
terms. Further, underwriting guidelines, along with the rates were formulated.
The guidelines rate based on the provisions of the erstwhile Tariffs.
The erstwhile All Indian Marine Cargo Tariffs contains 13 sections.
Presently, these tariffs do not exist but guideline issued by the companies is
based in the provision of these erstwhile tariffs.
Cargo Insurance UnderwritingCargo Insurance Underwriting::
The acceptance of cargo risk for the purpose of underwriting involves a
careful assessment and appraisal of underwriting considerations.
Underwriting consideration are those aspects of factors, which cargo
insurance take into consideration in deciding-
1. If it is decided to accept a risk, the rate of premium to be accepted.
Underwriting in Insurance Sector60
2. The terms and conditions under which the risk would be
accepted.
3. Whether or not accept a risk.
There is no standardizing proposal form and the procedure for cargo
underwriting. It is the duty of the proposer to disclose all factors material to
the risk. Therefore a considerable responsibility devolves on the underwriter
to make all pertinent inquiries relating to a risk. The underwriter to make all
pertinent inquiries relating to a risk. The underwriter should ascertain the
following details.
1. Name and address of the proposer and his business or trade.
2. Type of packing. If containerized, the type of container.
3. Authority of packing
4. Value of interest to be insured and sum to be insured
5. Name of carrying vessel or shipping line to be used
6. Insurance condition
7. Value of interest to be insured the sum to be insured etc.
UNDERWRTING IN HULL INSURANCE:
HHull Insurance is concerned with the insurance of hull and machinery
of ocean going and other vessels like Barger, trawlers, and sailing vessels. It
Underwriting in Insurance Sector61
is also concerned with the ship owner’s other insurable interest, known as
subsidiary interest like freight and disbursement
As the hull insurance is a specialized class of business it is performed
at head office level, in India accept for insurance for fishing Vessels,
Trawlers, Dredgers, Inland and Sailing vessels, for which Tariffs are
available. In India, business come directly to the hull insurer there is no
broker or agent involved in servicing hull insurance. Therefore, hull
insurance in India performs a personalized service to the shipping industry.
The subject matter of hull insurance is vessel or ship. There are four
main types of sea-going vessels namely,
General cargo vessel
Dry bulk carriers
Liquid bulk carriers (Tankers)
Passenger vessel
Hull rating (renewals):Hull rating (renewals):
The Joint Hull Committee in London is responsible for the structure
of the Joint Hull Formula, which is a basic recommended for rating renewal
insurances in respect of ships insured in London market. In India, he rating of
ocean-going vessels in a fleet on renewal is done by TAC. Based on the
“Indian Insurance Underwriting” the application forms should be
Underwriting in Insurance Sector62
submitted to TAC within 60 days of the renewal date of the fleet with the full
claims statistic available of both paid and outstanding claims. The committee
determines the renewal rate on the basis of:
The category of the fleet based on the total sum insured under Hull and
Machinery interests.
Fleet experienceFleet experience, i.e., net premium and losses paid and outstanding for a
stated period.
TYPES OF POLICIES:
TThe purpose of hull insurance is to cover a ship owner’s various
insurable interests. Various policies offered are as follows:
Hull and Machinery Insurance:Hull and Machinery Insurance:
The policy covers the hull, machinery and equipment and stores etc.,
on board, but does not cover cargo.
Insurance of Freight or Anticipated/ Time Character Hire/ PassengerInsurance of Freight or Anticipated/ Time Character Hire/ Passenger
money- Time/ Voyage:money- Time/ Voyage:
This policy, subject to institute Time Clauses-Fright provides
indemnity for loss of freight but exceeding the gross freight lost. This policy
does not cover partial loss of freight other than general average loss, fewer
Underwriting in Insurance Sector63
than 3% unless caused by fire, sinking, stranding or collision with another
vessel.
Loss of Hire Insurance:Loss of Hire Insurance:
This policy covers loss of hire suffered by the ship owner, if the vessel,
which is given on character, is laid-up for repairs following a casualty
covered under the terms of the hull and machinery policy.
Loss of Profit Insurance:Loss of Profit Insurance:
The policy covers the character’s loss of profits over the period of the
character if the vessel is time character, or during the voyage character if the
vessel is character for voyage, following total loss of the vessel.
Ship Repairer’s Liabilities:Ship Repairer’s Liabilities:
This policy covers liabilities of ship repairers towards the owner of the
vessels repaired by them. The careless use of oxy-acetylene or welding
torches in areas where oily waste is lying or near lines has been a major cause
of many serious fires. This aspect an underwriter has to carefully consider.
Institution time clauses (ITC) –hulls:Institution time clauses (ITC) –hulls:
Hull insurance is granted on the basis of time and voyage. The policies
therefore could be a Time Policy or a Voyga Policy- the former allows a cover
Underwriting in Insurance Sector64
for the respective interests on a time basis-maximum being twelve months
and the latter covers designated voyages. The Instite of London
Underwriters has introduced Hull clauses for Time and Voyage policies. The
Institute Time Clauses (ITC) – Hull form the basis for most policies used for
insurance of vessels and their machinery.
HULL UNDERWRITING:HULL UNDERWRITING:
As a preliminary to the acceptance of hull risks, a duly completed
proposal form is obtained from the ship owner. The details revealed in the
proposal form, and the answer to the additional quarries, enable the
underwriter to assess the risks from the point of view of physical hazard,
quality of management and moral hazard aspects, which are the most
important factors. The underwriter will take into account the following
aspects of the risk proposed.
Underwriting in Insurance Sector65
Inside story: Job prospects
Earnings
Related occupations
Sources of additional information
“IT” in underwriting
JOB PROSPECTS:
Employment of underwriters is expected to increase more slowly than
the average for all occupations through 2008. Computer-assisted software
that helps underwriters analyzes policy applications more quickly and
Underwriting in Insurance Sector
OVERVIEWOVERVIEW
66
accurately has made underwriters more productive and capable of taking on
a greater workload. Mergers and acquisitions of insurance companies are
also expected to continue to result in more downsizing of insurance carriers.
Most job openings will result from the need to replace underwriters who
transfer or leave the occupation, although several new job openings are
being created for underwriters in the area of product development. These
underwriters help set the premiums for new insurance products, such as in
the growing field of long-term care insurance.
The best job prospects will be for underwriters with the right skills
and credentials, such as excellent computer and communication skills,
coupled with a background in finance. Job prospects may be better in health
insurance than in property and casualty and life insurance. As Federal and
State laws require health insurers to accept more applicants for insurance,
the number of policies sold will increase. Also, as the population ages, there
will be a greater need for health and long-term care insurance.
Because insurance is considered a necessity for people and
businesses, there will always be a need for underwriters. It is a profession
that is less subject to recession and layoffs than other fields. Underwriters,
who specialize, though, may have difficulty transferring to another
underwriting specialty if downsizing were to occur.
Underwriting in Insurance Sector67
EARNINGS:
Medical service and health insurance $40,000
Life insurance 39,800
Fire, marine, and casualty insurance 39,100
Insurance agents, brokers, and service 32,200
Median annual earnings of insurance underwriters were $38,710 in
1998. The middle 50 percent earned between $29,790 and $51,460 a year.
The lowest 10 percent earned less than $23,750; while the top 10 percent
earned over $77,430. Median annual earnings in the industries employing the
largest number of insurance underwriters in 1997 were:
Insurance companies usually provide better than average benefits, including
employer-financed group life, health, and retirement plans.
RELATED OCCUPATIONS:
Underwriting in Insurance Sector68
Underwriters make decisions on the basis of financial data. Other
workers with the same type of responsibility include auditors, budget
analysts, financial advisers, loan officers, credit managers, real estate
appraisers, and risk managers.
SOURCES OF ADDITIONAL INFORMATION:
Disclaimer: Links to non-BLS Internet sites are provided for your
convenience and do not constitute an endorsement. Information about a
career as an insurance underwriter is available from the home offices of
many life insurance and property-liability insurance companies.
Information about careers in the property-casualty insurance field can be
obtained by contacting:
The Insurance Information Institute, 110 William St., New York,
NY 10038. Internet: Information on the underwriting function, in
particular, and the CPCU and AU designation can be obtained from:
The American Institute for Chartered Property and Casualty
Underwriters, and the Insurance Institute of America, 720 Providence
Rd., P.O. Box 3016, Malvern, PA 19355-0716.
An industry employing insurance underwriters that appears in the
2000-01 Career Guide to Industries: Insurance.
“IT” IN UNDERWRITING:
Underwriting in Insurance Sector69
Auto mating the underwriting process, better analysis of risk and
improved decision making are some of the issues the insurance industry is
grappling with. These issues lead to reduced profits and less efficient business
performance.
At datamatics, the expertises are helping leading global insurance
companies with their underwriting needs. They have developed world class
solutions that encompass data capture, risk analysis and management and
decision supports ability.
They offer a comprehensive set of services in the underwriting area:
Maintenance and supports of legacy system and applications.
Migration from proprietary system to open platform
New application development.
Customization of standard software packages.
Modernization of legacy application through development of
E-commerce and web based application.
They have a team of domain and technical experts focused on
providing the best possible solutions to the customer.
The team of experts has delivered several important benefits to the
customers, including:
Underwriting in Insurance Sector70
Risk AnalysisData capture
Decision support Underwriting Rules
Maintenance
Migration
Modernization
New application development
Increased revenues by 33% over seven years
Improved decision support
Increased profitability by 15%
Increased efficiencies by 20% at lowered costs
Underwriting in Insurance Sector71
Underwriting in Insurance Sector
CONCLUSION
72
1. Underwriting being the foundation of the insurance business. It has an
important role in appraising the quantitative and qualitative aspect of risk.
The underwriter has to see to it that the risk is properly assessed.
2. It is also seen that underwriting rules for different policies and categories
are different. The medical examination is of great importance in
underwriting. It helps to assess the amount of risk that a person carries.
3. The underwriter has to be very careful while underwriting the application
of substandard lives. Any bad decision of underwriter can hold him liable
for the same.
4. Also the introduction of Information Technology (IT) has extended the
scope of underwriting business. It has shown immense help in the decision
making process. Many insurance based companies are looking forward IT
in underwriting.
5. Lastly to conclude with underwriting business is booming in India. It is
becoming one of the most prestigious and challenges area.
Underwriting in Insurance Sector73
SUGGESTIONS
Underwriting in Insurance Sector74
1. Articles on insurance field and medical terms. Their should be lot of
references towards news paper that issue.
2. A limited data can be obtained from direct interviews thus secondary data
must be relied on.
3. As underwriting itself being very vast concept, one can select a particular
field of study in project preparation. For example method of underwriting.
4. Underwriting can also refer to the purchase of corporate bonds,
commercial paper, Government securities, and municipal general
obligation bonds by a commercial bank or dealer bank for its own
account, or for resale to investors.
5. UUnderwriting may also refer to insurance; insurance underwriters
calculate how risky it is to insure people and businesses.
Underwriting in Insurance Sector75
Underwriting in Insurance Sector
BIBLOGRAPHY
76
“Big goals requires the accomplishment of many little goals”
Thus to accomplish my project I have referred many other secondary
data sources. They are as follows:
REFERENCE RELATED TO BOOKS:
1. Name: Underwriting Management:
Publishers: ICFAI University press.
2. Name: Indian Insurance- A-Profile given by
Author H.Narayana
Publishers: Jaico Publishing House
3. Name: Insurance Management-Principles and practices given by
Authors-karam pal, B.S. Bodle
Publishers: Deep and Deep publication PVT. LTD.
REFERENCE RELATED TO MAGAZINES:
1. Insurance Chronicle, June 2007.
2. Treasury Management, July2007.
Underwriting in Insurance Sector77
REFERENCE RELATED TO WEBSITE:
1. www.google.com.
2. www.motorinsurance.com.
3. www.yahoo.com.
4. www.msn.com
5. www.wakipedia.com
6. www.ans.com
Underwriting in Insurance Sector78