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7/29/2019 Theunderwritingcycle 090323130045 Phpapp02 Copy

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THE UNDERWRITING CYCLE

Amit Kumar-21Gunakar Mani-22Prem Prakash-23

Saurav Chakraborty-24Preity Sangeeta Ekka-25


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UNDERWRITING

It is a process where experts decide whichpolicy to accept and which policy to reject.

Underwriters accepts those policy which canbe profitable for the business and rejectsthose policy which can be harmful. Althoughthey accepts these policies but keep the

premium very high. the fundamentalobjective of underwriting is to produce aprofitable business.


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BASIC UNSERWRITING PRINCIPLES

The basic goal of underwriting is produce aprofitable volume of business. It may be a largevolume of business with low unit profit or a

smaller volume with a larger unit of profit. Toachieve this, three basic principles are followed.

1. Selection of insureds according to thecompanys underwriting standards.

It means that only those insureds are selectedwhose actual loss experience will not exceed theexpected loss experience. The basic purpose isto reduce adversely selection against.


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Contd..

2. The second principle is to have a properbalance within each rate classification.

This means that a below-average insured inan under writing class should be offset by anabove-average insured, so that on balance,the class or manual rate for the group as a

whole will be adequate for paying all claimsand expenses.


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Contd

3. A final underwriting principle is equity amongthe policy owners.

It means that equitable rates must becharged. For example. A group of 20Yr oldpersons and a group of 80Yr old personsshould not pay the same premium rates.


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Source of Underwriting

InformationThe type of information varies by type ofinsurance.

In property insurance, both physical featuresof the property and personal characteristicsof the applicants is considered.

Physical features include type of

construction, quality of fire protection, watersupply etc. and personal characteristicsinclude living habit, moral character, pastrecords etc.


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Contd

Underwriting information can be obtainedfrom variety of sources.

Application Agents report

Inspection report

Physical inspection

Physical examination and attending physicians

report

Medical Information Bureau(MIB)


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The Hard Market

In a hard insurance market rates are up, new exclusionsmay be imposed, and limits may be reduced. Inaddition, certain coverage readily available before thechange may no longer be available, and certain types ofbusinesses may find it difficult, or impossible, to findacceptable insurance arrangements. The current hardinsurance market is all of this and more.

Causes of hard market:War

TerrorismNatural calamities

Economic meltdown

(any catastrophic events)


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Soft Market

Soft markets typically are marked by newentrants into the business, dropping prices,generous underwriting provisions, andaggressive discounting.

Causes of soft market:

Competition

High growth rate of the economy

Optimistic situation
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Enjoy the soft market if you are a buyer, hope itends soon if you are a seller, and whoever youare, remember that medical expense will drivethe next hard market.


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The Underwriting Cycle

Cyclical fluctuations.

Toggles between hard market and soft market.

The underwriters decide on their policies accordingto the market conditions.


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Combined Ratio

It is a measure of profitability for an insurancecompany measuring how well it isperforming.


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Property/Casualty insurance

cycle A dominant factor in the P/C insurance cycle is intensecompetition within the industry. Premium rates drop asinsurance companies compete vigorously to increasemarket share. As the market softens to the point thatprofits diminish or vanish completely, the capital needed tounderwrite new business is depleted. In the up phase of thecycle, competition is less intense, underwriting standardsbecome more stringent, the supply of insurance is limiteddue to the depletion of capital and, as a result, premiumsrise. The prospect of higher profits draws more capital into

the marketplace leading to more competition and theinevitable down phase of the cycle.


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CONCLUION

We see that the insurance industry undergoesa phase of transition between hard marketand soft market and follows a cyclicalpattern.

The underwriters has to do a great deal ofwork in assessing the risk factors and

estimating the appropriate premium to coverthat risk so that the company does not faceloss in business.

Documents

Theunderwritingcycle 090323130045 Phpapp02 Copy