IC 45 – General Insurance Underwriting

What is General Insurance?

General insurance refers a contract that offer compensation on any loss except than death to it’s purchaser.  Under general insurance anything may be insured excluding life of the policy holder. For example, house, car, scooter, bike, travel etc. are parts of general insurance and these are insured. Insurance company has to compensate the loss in the form of money.  There are various kinds of general insurance such as Energy insurance, Marine insurance, Liability insurance, Engineering insurance, Property insurance and International insurance solutions and financial lines insurance. General insurance policy provides a kind of assurance to its buyer.

Objective of Underwriting

The primary objective of underwriting is to transfer the risk. When a policy is purchased by the policy holder he/she transfer his/her risk to the insurer. For this the person has to a pay a certain amount that is called premium.  It is the work of underwriting to make win-win situation for the both the insured and insurance company. Underwriter reviews the specific information to determine what the actual risk is. Underwriter determines what type of policy coverage that company agrees to insure and under what condition it is ready to do so. He may negotiate for both the sides. Although the basic rules for coverage are usually written in an underwriting manual that is provided to agents. It covers standard situations and rules and regulations. 

Functions

Function of Underwriting are of four types like risk selection, classification, rating and policy selection. The underwriter decides that a certain risk is acceptable and for that he classifies and rates the risk and issue the suitable policy.  Rates are the prices of a given units of insurance.  It can vary according to quantum of loss. The risks may be grouped into categories like property risk, business interruption risks, personnel risks and liability risks etc. Underwriter is expert professional who understands risks and measures to prevent them. He has the knowledge of risk assessment and applies it to determine whether they will insure something.  Underwriter verifies and reviews all the information.

Underwriter has the skill of the understanding the data and he/she works on the guidelines provided by actuaries enabling him/her to predict the likelihood of most risk and charge premiums accordingly. He can predict the quantum of risks well.  If he finds that the stakes are too high, the insurance company may not take on risks.

Although the basic rules for coverage are usually written in an underwriting manual that is provided to agents. It covers standard situations and rules and regulations.  If the stakes are too high, the company won't take on the risk. Arriving at the conclusion of what risks to take is a highly sophisticated process. It is the skill of understanding the data and statistics and guidelines provided by actuaries that enable underwriters to predict the likelihood of most risks and charge premiums accordingly.  

Generally an underwriter gets involved when intervention or additional assessment is needed.

An underwriter might get involved when there are multiple claims, cases of first insurance, or payment issues etc. arise.