Fire Insurance Underwriting

• The term underwriting is broadly used to denote – the principles and practices concerning the fixing of rates, – the acceptance or rejection of the risks, – the total amount of acceptance, – the amount of retention for insurer’s own account and – treatment of the balance through reinsurance.

• Factors enter into underwriting– The production of well spread and large volume of

business– Selection of the risk– Limits to be retained– Reinsurance of surplus

• Features of risk, influencing the underwriting decisions

– The physical nature of the risk• Construction • Size of risk • Processes and occupancy• Goods-class

– The probable effects of fire on stocks• Stock procurement • Stock susceptibility

– Fire Protection arrangements• Fire extinguishing appliances• Fire brigade facilities• Sprinkler installations

– The situation of the risk• Degree of hazard from adjacent properties• Geographic locations

– Retention is arrived with• Probable maximum loss (PML) for a class of risk &• Maximum amount of loss (MAL) the insurer is prepared to incur

Total loss

– Reinsurance arrangements• Facultative reinsurance• Treaty reinsurance