Mccloskey topic 7 cards
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The process of determining what you are willing to insure, at what price and under what conditions.
When underwriting it is important to_________ the good risks and leave the bad risks for your competitors
What are the two types of underwriting authorities?
type of underwriting authority where decisions are made centrally by the insurer
a type of underwriting authority that is made out in the field by a MGA or E&S suppliers
When is a non-centralized authority typically used?
in lines that have good data and are more commodity priced
types of policies typically underwritten using a decentralized authority?
simple policies like auto or home
what are the steps in the Underwriting process(6)
- Evaluate loss exposures
- determine underwriting alternatives
- select an alternative
- determine appropriate premium
- Implement underwriting decision
- Monitor exposure
1st step in the underwriting process
Evaluate loss exposures
2nd step in the underwriting process
determine underwriting alternatives
6th step in the underwriting process
3rd step in the underwriting process
select an alternative
4th step in the underwriting process
determine appropriate premium
5th step in the underwriting process
Implement underwriting decision
Trade off(when performing an evaluation)
cost and time to get data vs. time to do an evaluation
People, location and operations that increase the chance of loss
Ways to gather info when performing an evaluation
- inspection reports
- government records
- financial rating services
- loss data
3 options when underwriting
- accept with modification(counteroffer)
Ways to modify a policy(3)
- change rates
- change ratings
- change policy limits
Using past loss experience for future rates
How many years are usually experience rated?
When using experience rating a ______ is applied.
What type of firms is experience rating more applicable for?
types of rating changes(2)
- schedule rating
- retrospective rating
schedule rating(how does it work?)
- base rate used as a starting point
- it is then adjusted for debits and credits
How is a schedule rating adjusted?
for debits and credits
How much can a schedule rating change a rate?
20 to 30%
A underwriting rate modification technique where premium is deposited during the beginning of the term and is based on final loss experience during the coverage period
In retrospective rating, what are rates based on?
final loss experience during the coverage period
After final loss experience is calculated during the coverage period, what happens to rates in retrospective rating?
they are adjusted up or down
________ is subject to a minimum and maximum set at policy inception
What types of firms typically use retrospective rating?
large firms with large exposures
How might an underwriter change policy terms and conditions?(4)
- By adding exclusions
- covering a high risk applicant with with another insurer
- add a larger deductible
- require more loss control
Under what circumstances might an underwriter may be able to cover a high risk applicant with another insurer?
The insurer may have multiple companies that are set up for standard risks, preferred risks, and sub-standard risks
What things must be considered by an underwriter when making a decision whether or not to accept an applicant?(5)
- (if not)How high up a risk is needed for approval?
- time delays
- how important is the relationship with the producer?
- supporting business(ex. write bad wc to write profitable property policy)
- What is the current mix of business?
What is an example of an underwriter supporting business?
writing a bad wc of a client to write a profitable property policy
What is the ideal mix of business?(territory and class)
- territory- not too much in one area
- class- not too much of a particular group
What is the ideal mix of business?(Class)
not too much of a particular group
What is the ideal mix of business?(territory)
Not too much in one area
What is needed for a premium to be appropriate?
The premium must be high enough to pay for losses, but low enough to remain competitive.
Having a(n)____________ ensures that the risk is properly classified.
What must be done to implement an underwriting decision?(3)
communicate the decision, put it into effect, document process that led to decision for future policies, claims issues or underwriting audit
What will an er look at if a bad loss occurs?
- little measurement error
- low data collection cost
Separation of age as a rating variable in auto?good or bad? why?
it is good, especially for risky early driving years
Homogeneity of age as a rating variable in auto?(good or bad and why)
- Because insurers sub classify age categories by gender and marital status
Why is homogeneity of age as a rating variable lousy in auto?
Because insurers sub classify age categories by gender and marital status
Why is of age as a rating variable in auto good for separation?
- the driving risk changes as you get older
- especially risky in early years
- diminishes in mid twenties
- returns in mid to late 50's
Is age as a rating variable admissible?
it is okay, except in clear cut cases of age discrimination
Is there incentive value for age as a rating variable?
Is age as a rating variable reliable?
it is low cost and very easy to collect data and verify
_____ are used to determine whether underwriting guidelines are being met.
two types of underwriters
staff and line
What do underwriting audits usually involve?
they usually involve home office visiting field offices
Describes how much of the business is retained
What does the retention ratio require?
yearly review of relevant rates and relevant trends
______ requires a yearly review of renewal rates and relevant trends.
What is another term for the success ratio?
What does the success ratio measure?
business written to business quoted
What would you like to do?
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