GARWARE INSTITUTE

PROJECT ON: INSURANCE UNDERWRITING  SUBMITED TO: PROF. PRATIBHA JADHAV  GROUP NO.: 04

Sr.No Group Members Roll No

1 RAKESH JOSHI 52

2 JINAL SHAH 15

3 KARAN DESAI 19

4 SWATI PAYIL 23

INTRODUCTION OF INTRODUCTION OF UNDERWRITINGUNDERWRITINGMeaning Underwriting means to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit).

Various kinds of underwriting

1) Securities underwriting2) Bank underwriting3) Insurance underwriting4) Real estate underwriting5) Forensic underwriting6) Sponsorship underwriting

Insurance underwritingInsurance underwriting

Acceptance or rejection of proposals Definition:

◦ Insurance underwriting is the process of choosing who and what the insurance company decides to insure. This is based on a risk assessment. It is pretty much the "behind the scenes" work in an insurance company where they determine who is insured and how much in insurance premiums they will charge the insured person. Insurance underwriting also involves choosing who the insurance company will not insure.

ExampleExampleMr. Adnan Sami who is 50 yrs

old, his weight is 128 kg. and he also suffering from high blood pressure and also gone through by-pass surgery once. So he will be determined as a big risk by insurance company.

Aims & Objectives of insurance Aims & Objectives of insurance UnderwritingUnderwriting

Difference of objective in Marketing and Underwriting.

Marketing objectives in insurance. (in short)Aim of marketing is to advertise, promote

the insurance company and its products.Marketing works to attract the customers.Basically marketing department works for to

make money, to increase the customers.

UnderwritingUnderwriting objectives in objectives in insuranceinsuranceLike marketing, underwriting department does not

work to sell product, or to increase profit margins.But it works to prevent the insurance company from

getting hit by financial losses. ( works for risk minimization )

Underwriter saves the insurer from high risk exposures.

Underwriting aims at companies claim ratio is on lower side.

underwriting doesn’t work directly to increase profits but it works indirectly to increase profitability by using several risk minimization techniques. ( no bad risk acceptance, loadings, reinsurance etc.)

Sources of InformationSources of Informationfor underwritersfor underwritersThere are various documents from which

the underwriter can pull out information.Application form or proposalAgent’s Report ( who is a first underwriter.)Medical examiner’s report (build, illness, any

hospitalization)Attending Physician’s Report ( doctor report)Special Medical Reports (for high risk

converges- report like ECG, reports of surgery) Inspection Reports (proposals like fire

insurance)

Importance of Importance of UnderwritingUnderwriting Insurance underwriting important because it

takes the basic decision whether to accept or reject. ( its like a firewall or antivirus)

Insurance underwriting keeps insurance companies afloat by assessing risk accurately.

after Assessing the underwriters decides whether to accept or not .

If yes then, they will determine what should be correct premium payable.

Underwriter takes decision about reinsurance as well.

Underwriting works for loss minimization.

Insurance Underwriting Insurance Underwriting Process Process 1) Collecting the Necessary Information2) Analyzation3) Identifying optionsExample :Mr Salman. went to his insurance

agent to get a car insurance policy. He had driven car without a license and insurance for 5 years and was in jail for reckless driving three times.

1) Collecting the Necessary Information

Underwriter collects information from various sources.( like agents report, medical reports etc.)

In this motor policy underwriters received information from agent.

Necessary information underwriter will look for driving license, previous insurance, driving record.

2) Analyzation after collecting information, underwriter can begin

to analyze information. The main purpose of analysis is to determine how

much risk a particular customer will bring to the company.

Client with clean driving records preferable which MR Salman doesn’t have.

3)Identifying options

Once the analysis of the provided information is complete, the underwriter basically has three options:

1) Accept the application and approve a policy2) Reject the application and deny

coverage/refuse to write a policy3) Approve an application with conditions

attached (lower coverage limits, modification of loss control practices, higher premiums.)

Insurance – Underwriting Insurance – Underwriting GuidelinesGuidelinesMEANINGUnderwriting guidelines are the benchmark

or standards which underwriter follows.u/w guidelines helps to classify the risk while

accepting.Standards which helps to determined (max.

risk limit, premium rates, etc.)Every company has its own u/w guidelines.

(current e.g. .- H1N1 insurance)

Risk ClassificationsRisk ClassificationsThere are 4 categories which company classifies

the risk.

Preferred: better than avg. risk ( good health, no dangerous hobbies or history of health problems)

Standard: If you are considered an average or typical risk, you will be charged the standard rate.

Rated If you pose an above-average risk.(high blood , smoke cigarettes, or hobbies like skydiving .) If you are 50 and have a heart attack, actuarial statistics may show your life expectancy to be reduced by 10 years. Therefore, you will pay the premium of a 60-year-old.

Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

Your Height Maximum Weight

Height Preferred Plus Preferred Standard

4'10" 137 144 169

4'11" 141 149 175

5'0" 145 154 189

5'1" 149 159 193

5'2" 153 164 197

5'3" 158 169 204

Height and Weight Guidelines

Medical Guidelines

Category Super Preferred Preferred Standard

BloodPressure

No current or history

of blood pressure treatment (*)

No current or history

of blood pressure treatment (*)

Currently controlled

Cholesterol 210-240 (depending onrest of health history)

250-270 (depending onrest of health history)

Under 300

Cholesterol/HDL Ratio

Cannot exceed 5.0 Cannot exceed 6.0 Cannot exceed 8.0

Alcohol/Substance Abuse

No alcohol orsubstance abuse

history

No alcohol orsubstance abuse in past

10 years

No alcohol orsubstance abusein past 7 years

Underwriting of Hazards-Underwriting of Hazards-Physical& MoralPhysical& MoralHazards which increase the chance of

loss arising out of given peril. 1) Physical Hazard- refers to the risk

arising from material feature of the subject matter, tangible in nature.

2) Moral Hazard- arises from human weakness or from general economic and social conditions.

Underwriting of Physical HazardUnderwriting of Physical HazardUnderwriter look for proposal involving

bad physical hazard.Which can be ascertained by

information given proposal form, survey etc.

Underwriter recommend measures to improve the risk . ( reduce the possibility of loss arising from hazards.)

E.g.- fire insurance – installation of sprinklers, spray, fire alarm.

Underwriting of Moral HazardUnderwriting of Moral HazardMoral hazard arises from dishonesty,

carelessness, difficult insured and economic conditions of human.

It is very difficult to ascertained.Underwriter usually find moral hazard

by past experience, enquiries, and general knowledge.

usually nothing can be done to improve the risk like in case of physical hazard.

Methods to Deal with Hazards.Methods to Deal with Hazards.1) Impositions of warranties-

e.g. in burglary insurance it is warranted that the property is guarded by a watchman for 24 hours.

2)Incorporation of clauses- Replacement clause- in marine insurance.

3)survey before acceptance 4)loading of premium.5)Restriction on cover.6) Impositions of excess / Franchise limits.

(useful in moral hazard.)

Case Study

Question:-Question:-Q:- One 40 years old lady applied for life

insurance, but refused of an elevated (raise) liver factor on her blood test and a record of a hemangioma (blood mass) on her liver that was noticed during an unrelated (ulcer) test in her past.

Her doctor said the hemangioma is harmless and quite common

The insurance company still refused her

What will happen if she apply to another company?

Will she have to tell them that she was refused for life insurance once?

Can she will be refused again for the same reason even if a new blood test comes out normal?

Answer:-Answer:-Insurers differ in their application of

objective underwriting standardsYou can apply to another insurance

company and the result may be different. But you must answer truthfully

underwriter wouldn't rely on information gathered by another insurer, and would want to look at your records and see current blood test results for himself or herself.

You may have past diagnoses and past test results that are no longer relevant. Your current medical status is more important.

if you are in good health and your physician agrees with this, you will find a carrier to issue life insurance to you.

Case Study No.2

Denied Health Care Coverage:

"Your Baby Is Too Fat"

4 MONTH’S OLD BOY DENIED HEALTH4 MONTH’S OLD BOY DENIED HEALTHCARECARE..

• Four-month-old Alex Lange is described as a "happy, adorable, big baby." Yet he can't get health insurance.

• Rocky Mountain Health Plans the Insurance company refuses to cover little Alex because he's too large.

• His father says that, could understand if we could control what he's eating. But he's 4 months old. We can't put him on the Atkins (heavy) diet or on a treadmill. joked his frustrated father

Company explainsCompany explains,,

Because we are a small company dedicated to the people of Colorado, we are pleased to be in a position to act quickly. We have changed our policy, corrected our underwriting guidelines and are working to notify the parents of the infant who we earlier denied."

CONCLUSIONCONCLUSION

Why need of quality insurance underwriting?

1. Acceptance and Rejection of risk2. Premium Rates3. Decision of Reinsurance4. Claim Ratio

1)Acceptance and rejection of risk1)Acceptance and rejection of riskAcceptance and rejection of risk is a basic

function of insurance underwriters. So it should be done properly otherwise insurance company can face lot of problem because of it.

Underwriter should accept offer carefully. He should not accept any bad or high risk proposal which can increase the risk probability

2) Premium rates2) Premium rates

Underwriters decides what is premium should be charge to particular policyholder.

A premium rate varies according to risk carried by each proposal.

If risk is high – then premium rate would be high.

So in the current scenario companies prefer to decrease their premium rates in order to stay in a competition.

3) Decision of reinsurance3) Decision of reinsurance

In insurance companies there are many times companies underwrites a proposal which carries high risk.

This high risk proposals can turnout be very expensive at the time of occurrences of claims.

In this reinsurance decision underwriter has a crucial role to play.

Neglecting of reinsurance decisions which can affect insurance company badly.

4) Claim Ratio4) Claim Ratio

• Claims arise on occurrence of contingency insured.

• Chance of occurrence depend upon the kind of risk is been accepted by company that underwriters.

• Underwriter should accept such risk which will not give rise to claims.

• Underwriter should charge premium according to past claims experiences by using past statistics/ mortality tables etc.

That s why in insurance company quality or intelligent underwriting has a vital role to play. Negligence of an underwriter could cost company very badly. Poor underwriting decision can lead the company towards facing heavy losses and its profitability.

THANK YOU!