PROJECT ON:

UNDERWRITING IN INSURANCE SECTOR

BY:

Ms. MONALI P. BHOIR

T.Y.B.Com [Banking & Insurance]

Underwriting in Insurance Sector1

Inside story: Employment in the field of underwriting Training, other qualifications, and

advancement given to the underwriter Nature of the work of the underwriters Underwriting in general Underwriting in insurance

INTRODUCTION OF UNDERWRITING

Underwriting in Insurance Sector

INTRODUCTION

2

“TThe process that a large financial service provider (bank, insurer,

investment house) uses to assess the process of providing access to their

product like providing equity capital, insurance or credit to a customer”

The name derives from the Lloyd's of London insurance market in

London, United Kingdom. Financial backers, who would accept some of the

risk on a given venture (historically a sea voyage with associated risks of

shipwreck) in exchange for a premium, would literally write their names

under the risk information which was written on a Lloyd's slip created for

this purpose.

In banking, underwriting is the detailed credit analysis preceding the

granting of a loan, based on credit information furnished by the borrower,

such as employment history, salary, and financial statements; publicly

available information, such as the borrower's credit history, which is detailed

in a credit report; and the lender's evaluation of the borrower's credit needs

and ability to pay. Underwriting can also refer to the purchase of corporate

bonds, commercial paper, Government securities, and municipal general

obligation bonds by a commercial bank or dealer bank for its own account, or

for resale to investors. Bank underwriting of corporate securities is carried

out through separate holding company affiliates, called securities affiliates, or

Section 20 affiliates.

Underwriting in Insurance Sector3

EMPLOYMENT IN THE FIELD OF UNDERWRITING:

IInsurance underwriters held about 101,000 jobs in 2004.

Approximately 2 out of 3 underwriters work for insurance carriers. Most of

the remaining underwriters work in insurance agencies or for organizations

that offer insurance services to insurance companies and policyholders. A

small number of underwriters work in agencies owned and operated by

banks, mortgage companies, and real estate firms.

Most underwriters are based in the insurance company’s home office,

but some, mainly in the property and casualty area, work out of regional

branch offices of the insurance company. These underwriters usually have

the authority to underwrite most risks and determine an appropriate rating

without consulting the home office.

Underwriting in Insurance Sector4

TRAINING, OTHER QUALIFICATIONS, AND ADVANCEMENT

GIVEN TO THE UNDERWRITER:

FFor entry-level underwriting jobs, most large insurance companies

prefer college graduates who have a degree in business administration or

finance with courses or experience in accounting. Underwriting can be a

satisfying career for people who enjoy analyzing information and paying

attention to detail. In addition, underwriters must possess good judgment in

order to make sound decisions. Excellent communication and interpersonal

skills also are essential, as much of the underwriter’s work involves dealing

with agents and other insurance professionals.

Continuing education is necessary for advancement. Insurance

companies usually pay tuition for underwriting courses that their trainees

complete; some also offer salary incentives. Independent-study programs for

experienced property and casualty underwriters are available as well. The

Insurance Institute of America offers both a program called “Introduction to

Underwriting” for beginning underwriters, and the specialty designation of

Associate in Commercial Underwriting (ACU), a formal step in developing

a career in underwriting business insurance policies. Those interested in

developing a career underwriting personal insurance policies may earn the

Associate in Personal Insurance (API) designation. To earn either the ACU

or API designation, underwriters complete a series of courses and

examinations that generally last 1 to 2 years.

Underwriting in Insurance Sector5

NATURE OF THE WORK OF THEUNDERWRITERS:

IInsurance companies protect individuals and organizations from

financial loss by assuming billions of dollars in risk each year. Underwriters

are needed to identify and calculate the risk of loss from policyholders,

establish appropriate premium rates, and write policies that cover this risk.

An insurance company may lose business to competitors if the

underwriter appraises risks too conservatively, or it may have to pay

excessive claims if the underwriting actions are too liberal. Technology

plays an important role in an underwriter’s job. Underwriters use computer

applications called “smart systems” to manage risks more efficiently and

accurately. These systems automatically analyze and rate insurance

applications, recommend acceptance or denial of the risk, and adjust the

premium rate in accordance with the risk and dose better equipped to make

sound decisions and avoid. Most underwriters specialize in one of three

major categories of insurance: life, health, and property and casualty.

Property and casualty underwriters usually specialize in either commercial

or personal insurance and then by type of risk insured, as in fire,

homeowners’, automobile, marine, or liability insurance, or workers’

compensation. In cases where casualty companies provide insurance

through a single “package” policy covering various types of risks, the

underwriter must be familiar with different lines of insurance.

Underwriting in Insurance Sector6

UNDERWRITING IN GENERAL:

AAs financial markets develop, the lines between capital markets and

insurance products are blurring. The conceptual similarities between financial

options and insurance contracts are self-evident - a payout occurs given a

certain event for an underlying physical or financial object. Financial options

over the past few years have modeled increasingly complex structures, with

ever more underlying variables, and these variables themselves are subject to

increasing vagaries. For centuries, the insurance industry has priced

premiums based on a combination of quantitative models, financing needs

and a commercial assessment of supply and demand.

Risk Care have undertaken projects for a variety of insurance sectors,

replicating premium pricing functionality that has been prototyped in a

spreadsheet into robust database solutions, capable of handling a large

volume of users and providing internet access. These have been tightly

integrated with workflow systems, supporting the full range of processes for

applications, renewals and claims. Over the coming years, we expect to be

satisfying a substantial range of customer requirements as we apply an ever-

increasing amount of our capital markets knowledge and experience. Our

pricing expertise will be useful for insurance premiums, and our risk

management expertise will be useful for capital provisioning.

Underwriting in Insurance Sector7

Underwriting is---

1. The process of issuing insurance policies

2. The process by which investment bankers raise investment capital from

investors on behalf of corporations and governments that are issuing

securities (both equity and debt).

Investopedia Says: The word "underwriter" is said to have come from

the practice of having each risk-taker write his or her name under the total

amount of risk that he or she was willing to accept at a specified premium. In

a way, this is still true today, as new issues are usually brought to market by

an underwriting syndicate in which each firm takes the responsibility (and

risk) of selling its specific allotment.

UNDERWRITING IN INSURANCE:

UUnderwriting may also refer to insurance; insurance underwriters

calculate how risky it is to insure people and businesses. They also decide

how much coverage they should receive and how much they should pay for

it. Underwriting involves measuring risk exposure and determining the

premium that needs to be charged to insure that risk. The function of the

Underwriting in Insurance Sector8

underwriter is to write business that will make the insurance company money,

and to protect the company's book of business from risks that they feel will

make a loss. In simple terms, it is the process of issuing insurance policies.

Each insurance company uses its own set of underwriting guidelines in order

to determine whether or not the company should accept a proposal. In life

insurance this decision process sometimes requires that applicants provide

further medical evidence. The underwriters can decide to make a counteroffer

in which the premiums have been loaded, or in which various exclusions

have been stipulated, which restrict the circumstances under which a claim

would be paid. Some companies use automated underwriting systems to

encode these rules.

Underwriting in Insurance Sector9

Inside story: Underwriting management book

www.google.com

www.motor insurance.com

Insurance management principle and practices

Indian insurance-a profile

Underwriting in Insurance Sector

REVIEW OF LITERATURE

10

UNDERWRITING MANAGEMENT :

Insurance is created when people like you and your neighbors pool

their resources to protect themselves from the effects of a loss.

WWW.GOOGLE.COM:

“Fire underwriting” describes the technical aspects of conducting the

business of insurance of fire risk as opposed to the administrative, financial

and organizational aspects of the business.

WWW. MOTOR INSURANCE.COM :

The motor Insurance requires the proposer to complete a proposal

from that reversal, by the answers to the questions the material facts that

affected the risk.

INSURANCE MANAGEMENT PRINCIPLE AND PRACTICIES :

In this book the author have given a descriptive explanation

about various aspects of insurance sector. They have very strongly

highlighted the importance of underwriting

INDIAN INSURANCE-A PROFILE:

It has focused on underwriting rules and regulation. He gives a

descriptive explanation on underwriting rules and regulation and legal

framework.

Underwriting in Insurance Sector11

ABOUT INSURANCE AND IT’S WORKING

Inside story:

Concept of risk pooling and sharing

Classification of insurance

Underwriter decision making

Underwriting in Insurance Sector12

CONCEPT OF RISK POOLING AND SHARING:CONCEPT OF RISK POOLING AND SHARING:

MMany people look at insurance companies as big, impersonal

institutions that can absorb loss regardless of cause or consequence. Nothing

could be further from the truth. The concept of insurance can be quickly

reduced to very personal terms if you think about it as risk sharing or pooling.

Insurance is created when people like you and your neighbors pool their

resources to protect themselves from the effects of a loss. Whether the loss

they are attempting to protect themselves from is loss of life, disability, fire,

or whatever, the basic concept remains the same: if the risk of loss can be

spread over a large enough group, the effects of the loss to any one individual

can be minimized. Rather than one person bearing the full brunt of economic

loss, each person in the group shares a part of the risk by making a payment

into a fund from which claims are paid.

While this description may seem too simple, the truth is that many of

today's modern insurance companies had their beginnings in just these types

of grass roots settings. Early life insurance associations were often groups of

workers banding together to protect against the economic loss that a

member's family might experience, should a worker die prematurely. Fire

Underwriting in Insurance Sector13

associations started back in colonial times were not much more than a group

of property owners pooling their resources in case one of them lost property

to fire. While this equation has become somewhat more intricate and

complex over the years, it still has at its core the same basic concept of risk

pooling or sharing.

CLASSIFICATION OF INSURANCE:

LLife is full of uncertainty. Trials and tribulations abound in each and

every aspect of life. No one can truly predict or even estimate what the

future has in store for him. Life offers no guarantees by itself, except the

incidences of death and taxation.

This lack of security present throughout life can be overcome

partially through insurance. Insurance can never replace or repair a loss. But

the monetary value offered by insurance helps in adjusting to the new

circumstances.

Despite offering innumerable options and immense scope, insurance

can be classified into four main categories.

Insurance of Person

Insurance of Property

Insurance of Interest

Insurance of Liability

Underwriting in Insurance Sector14

1)1) Insurance Of PersonInsurance Of Person::

Under the purview of this class of insurance, the risks associated with

human life in general can be covered up to the limit specified. A person can

insure his or her life and his health against any unplanned contingencies.

In event of his death, his dependants will be reimbursed to the full

amount that he was insured for. Or if the insured person meets with an

accident or suffers from an illness that cripples him forever, he will be

compensated with the complete sum assured anyway since he may not be

able to lead a normal life again.

In case, the accident is not that severe, he should be able to recover

after medical treatment and rehabilitation. If he has opted for medical cover,

then his medical expenses, treatment and medication will be paid for by his

insurance policy.

2)2) Insurance Of PropertyInsurance Of Property::

Everyone possesses material value in the form of tangible assets.

Assets can be in the form of a landed estate or a vehicle, share holdings or

plain old paper money. Since tangible property has a physical shape and

consistency, it is subject to many risks ranging from fire, allied perils to

Underwriting in Insurance Sector15

theft and robbery. An individual's lifetime of hard work can be wiped out in

a blink of an eye. But if a person judiciously invests in insurance for his

property prior to any unexpected contingency then he will be suitably

compensated for his loss as soon as the extent of damage is ascertained.

3)3) Insurance Of InterestInsurance Of Interest::

Every individual has to discharge certain specific duties. Everyone is

expected to maintain a standard of conduct. But then, it is an intrinsic part of

human nature to err. No one is infallible and no one will ever be. Owing to

an occasional error or omission committed by us, our clients or customers

might suffer a loss. In turn we might have to pay those damages or

compensation out of our own personal resources. However, if our chosen

profession qualifies for insurance of interest, then our insurance policy will

more than suffice in arranging for the funds and court formalities that might

ensue in the aftermath of legal libel.

4)4) Insurance Of LiabilityInsurance Of Liability: :

Every person has to regulate his actions and behavior so as not to

cause injury or damage to other people and their property. Everyone is

personally responsible and liable for his actions. If due to lack of control

over his actions or prejudiced behavior, a person incurs any liability then he

has to provide compensation out of his personal resources. Liabilities: legal,

Underwriting in Insurance Sector16

civil or criminal can have severe repercussions on social standing and

prestige besides the financial status.

By investing in liability insurance, an individual can ward off any

liabilities he might incur due to his actions and behavior. Besides, the

premiums payable on liability insurance are fairly minimal when compared

to the damages that have to be compensated in the long run.

UNDERWRITER DECISION MAKING:

Based on the information provided the application, agent and

development officer, the underwriter analyses the application. The

underwriter after analyzing the information takes the appropriate decision.

They are as follows:

1. Accept the proposal at the company’s published rates for the plan.

2. Accept on Modified terms subject to additional finance of any other

medical examination.

3. Postpone the consideration of the insurance proposal.

4. Decline the case.

Underwriting in Insurance Sector17

UNDERWRITING IN LIFE INSURANCE UNDERWRITING IN LIFE INSURANCE

Inside story:

Methods of underwritingMethods of underwriting

Numerical rating methodNumerical rating method

Advantage of numerical ratingAdvantage of numerical rating method method

Components of life insurance pricing

Factors are considered in individual life insurance

underwriting

outsourcing of underwriting activities in insurance

advantage and disadvantages

Underwriting in Insurance Sector18

UNDERWRITING IN LIFE INSURANCE:UNDERWRITING IN LIFE INSURANCE:

The underwriting of a life insurance policy is the process of the life

insurance company underwriter deciding whether to insure people and at

what rate based on people medical history and the activities that you may

engage in such as certain sports or flying an airplane. Life insurance has

“rating classes” such as preferred rates, standard rates and also “rated

policies” which means that you are charged extra because of health or what

may be considered dangerous activities. In the last few years very healthy

individuals may qualify for newer discounted rate levels such as “preferred

plus” or “super preferred”. These are strict levels where you have to qualify

by excellent medical test results, certain height and weight ratios, no history

of medical difficulties and with a family history of longevity. Cigarette

smokers get charged for a smoker life insurance policy which is more

expensive.

METHOD OF UNDERWRITING:METHOD OF UNDERWRITING:

Special Treatment to Ladies and Minor Lives

Role of Insurance Intermediaries in Underwriting

Judgmental Method

Underwriting in Insurance Sector19

Numerical Rating Method

Relative Merits & Demerits

Methods of rating non-standard lives in Underwriting

There is various method of underwriting. Underwriter uses theThere is various method of underwriting. Underwriter uses the

following method to underwrite the applications. They are as follow asfollowing method to underwrite the applications. They are as follow as::

NUMERICAL RATING METHOD: NUMERICAL RATING METHOD:

Numerical rating method means the identification of impairment,Numerical rating method means the identification of impairment,

assessment of the value of each impairment and then translates the valueassessment of the value of each impairment and then translates the value

into numeral to facilitate the uniformity of underwriting decisions. A subinto numeral to facilitate the uniformity of underwriting decisions. A sub

standard life is regarded as on which represents special hazard in respect ofstandard life is regarded as on which represents special hazard in respect of

one or more factors of insurability. They are as follow.one or more factors of insurability. They are as follow.

1.1. Family HistoryFamily History

2.2. Personal History.Personal History.

3.3. Build.Build.

4.4. Present state of health and habits.Present state of health and habits.

5.5. Occupation and residence.Occupation and residence.

6.6. Race.Race.

Underwriting in Insurance Sector20

In addition to the above the plan and amount of assurance have anIn addition to the above the plan and amount of assurance have an

important bearing on the value of the risk. The question of moral hazard hasimportant bearing on the value of the risk. The question of moral hazard has

also to be given due weight.also to be given due weight.

The process of numerical rating assessment is as followsThe process of numerical rating assessment is as follows::

1)1) Under this process, the value of any special hazard in respect of eachUnder this process, the value of any special hazard in respect of each

of the above factors is measured in terms of appropriate extra morality rating.of the above factors is measured in terms of appropriate extra morality rating.

For this purpose, point should be obtained from the schedules which show theFor this purpose, point should be obtained from the schedules which show the

number of points which must be added for each adverse feature and thenumber of points which must be added for each adverse feature and the

number of points which must be subtracted for each favorable feature. number of points which must be subtracted for each favorable feature.

2)2) The next stage in the numerical rating is to translate the extra mortalityThe next stage in the numerical rating is to translate the extra mortality

into extra premium necessary to compensate thereof. For this purposeinto extra premium necessary to compensate thereof. For this purpose

regularly scaled extra mortality. For example, Class I rating covers extraregularly scaled extra mortality. For example, Class I rating covers extra

mortality of 20-30%, Class II 40-60%, Class III 65-85%, Class IV 90-120%mortality of 20-30%, Class II 40-60%, Class III 65-85%, Class IV 90-120%

and so on.and so on.

Underwriting in Insurance Sector21

3)3) Tables; of extra premium required for each extra mortality class underTables; of extra premium required for each extra mortality class under

each plan of assurance is then prepared. When the total extra mortality for aeach plan of assurance is then prepared. When the total extra mortality for a

risk is arrived at, company determine within which standard class it fall andrisk is arrived at, company determine within which standard class it fall and

then the extra premium is obtained by reference to the tables. The extrathen the extra premium is obtained by reference to the tables. The extra

mortality falling below Class I am ignored.mortality falling below Class I am ignored.

ADVANTAGE OF NUMERICAL RATING METHOD: ADVANTAGE OF NUMERICAL RATING METHOD:

1)1) The main advantage of numerical rating method is that The main advantage of numerical rating method is that the value of any the value of any

special hazard as illustrate above is measured in terms of extra mortality special hazard as illustrate above is measured in terms of extra mortality

rating.rating.

2)2) The extra mortality ratings for various factors are then The extra mortality ratings for various factors are then aggregated to aggregated to

arrive at the value of the risk of mortality. arrive at the value of the risk of mortality.

3)3) The next stage is to translate the extra mortality into an extra premium The next stage is to translate the extra mortality into an extra premium

necessary to compensate the extra risk of mortality.necessary to compensate the extra risk of mortality.

COMPONENTS OF LIFE INSURANCE PRICING:

Underwriting in Insurance Sector22

As we have seen, the purpose of underwriting in Life Insurance is to

see that only those lives, which have almost similar exposure to the risk of

death, enter the pool of Life Insurance and to charge everyone with a

premium commensurate with the risk that he she brings in to the pool.

While there are elaborate ways to check the physical condition of

health of a person, it is extremely difficult to verify the intention of a person

who proposes a life for insurance protection. One step in this direction is to

ensure that the amount of insurance cover that is provided to the person is in

line with his income/premium paying capacity/ financial loss that the

beneficiaries of insurance would suffer in case of the death of the life insured.

This process of checking whether the insurance cover sought for is within a

limit in relation to the income of the life to be assured is called financial

underwriting.

FACTORS ARE CONSIDERED ININDIVIDUAL LIFE

INSURANCE UNDERWRITING:

Life insurance companies each has their own extensive policy

and procedure manuals they are supposed to follow in determining whether

or not to issue an Individual Life insurance policy, and in pricing that policy.

The insurer's underwriters typically use a combination of factors that

experience shows equates with the risk of death (and premature death).

Underwriting in Insurance Sector23

They include the applicant's answers to a series of questions such as:

1. Age,

2. Sex (except in several states that require "uni-sex" rates, even

though actuarial data shows women live longer than men)

3. Height and weight.

4. Health history (and often family health history -- parents and siblings),

5. The purpose of the insurance (such as for estate planning, or business or

for family protection).

6. The amount of insurance the applicant already has, and any additional

insurance s/he proposes to buy {as people with far more life insurance than

they need tend to be poor insurance risks)

7. Marital status and number of children,

8. Occupation (some are hazardous, and increase the risk of death),

9. Income (to help determine suitability),

10. Smoking or tobacco use (this is an important factor, as smokers

have shorter lives) ,

11. Alcohol (excessive drinking seriously hurts life expectancy),

12. Certain hobbies (such as race car driving, hang-gliding, piloting non-

commercial aircraft),

Underwriting in Insurance Sector24

13. Foreign travel (certain foreign travel is risky).

OUTSOURCING OF UNDERWRITING ACTIVITIES IN

INSURANCE ADVATAGEAND DISADVANTAGES:

Delhi-based Bounty Life Insurance Company (Bounty) has branches

all over India and it follows an aggressive marketing strategy in order to

obtain more customers. Soon after the liberalization of the insurance sector,

Bounty started selling its products aggressively.

Initially, it made profits. In fact, the number of its customers exceeded

the management's expectations. The popularity of the company also

increased. In addition, there was a steady increase in the number of

customers. The reason was that Bounty offered innovative products that

suited the varied requirements of people. The company adopted the

marketing strategy of offering customized products. Thus, it became one of

the leading insurance companies, offering maximum number of product

variants in the industry.

Over a period of time, there was a gradual increase in the number of

players in the industry. Consequently, competition in the industry intensified.

All insurance companies in the market were struggling to maintain and

increase their market share. Despite the intense competition that prevailed in

Underwriting in Insurance Sector25

the industry, Bounty Life Insurance Company managed to increase its market

share. Its performance in the competitive scenario was fairly good.

However, during the last few months, its profits have decreased

sharply. The company has been facing difficulties related to administration

and interdepartmental coordination.

Underwriting in Insurance Sector

UNDERWRITING IN FIRE INSURANCE

26

Inside story:

Definition of fire insuranceDefinition of fire insurance

Need for fire insuranceNeed for fire insurance

Standard fire & special peril’s policies

Fire special policies in the underwriting

Underwriting; acquire, evaluate, act, monitor

Key underwriting clues for loss and prevention

DEFINITION OF FIRE INSURANCE:

section 2 of Indian Insurance Act, 1938 defines ‘Fire insurance Business’

as the business of effecting otherwise than incidental to some other class of

business, contract of insurance against loss by or incidental to fire or other

occurrence customarily included among the risks insured against in fire

insurance policy.

NEED FOR FIRE INSURANCE:NEED FOR FIRE INSURANCE:

Underwriting in Insurance Sector27

“Fire Underwriting” describe the technical aspects of conducting the

business of insurance of fire risk as opposed to the administrative, financial

and organizational aspects of the business. In most cases, fire risks lead

themselves to the pretension of intentional losses and fraudulent claims. In

the fire insurance policies, total loses involving payment of the full sum

insured is infrequent and partial losses are to be met frequently. The pure risk

premium in fire insurance must provide for both total losses and partial

losses.

A fire underwriter is judged by his ability to avoid wide fluctuation in

the loss ratio and the profit ratio. The grater the stability he can impart to

these two figures the more he is acclaimed. A fire underwriter must used

weapon of differential limits to the utmost.

TThe need for fire insurance arises as the material property is

susceptible to damage or destruction by fire or other perils and the material

property has some measurable monetary value. Also, the occurrence of a fire

ends to other consequential losses such as loss of production causing loss of

profits.

Fire Insurance is the oldest form of insurance and it covers erected fixed

assets and movable assets whilst lying in a particular location and declared

accordingly floor insurance. The policy of fire covers building, electrical

Underwriting in Insurance Sector28

installation in buildings, contents of buildings such as plant and equipments,

machinery, furniture, fixtures and fittings, pipeline located inside or outside

the premises.

The policy of fire covered the risks of fire and lightning, explosion,

riot, strikes, terrorism, peril from water damage like flood, storm, natural

calamities like earthquake, landslide, etc. due to advancements in technology,

fire policies today also covers the accidental leakage and contamination,

sprinkler leakages, etc. as all the above perils cause material damage, all of

them are included in the insurance.

STANDARD FIRE & SPECIAL PERIL’S POLICIES:

EEarlier the fire policies used to cover only fire perils, up to the interest

of insured to decide what extensions he requires to basic policy. A retention

that was carried out in 1987, by which a single fire policy was brought out

Underwriting in Insurance Sector29

covering a set of perils within the standard policy. So the policy has started

covering fire, explosion/ implosion, aircraft impact damage, and Riot and

Strike Malicious Damage (RSMD) at the basic rate. Later RSMD was

extended to cover terrorism also.

The classes of standard fire policy are:The classes of standard fire policy are:

Clause a: Name of the parties to contract

Clause b: Payment of premium by the insured

Clause c: Conditions and exclusions to the basic policy

Clause d: Perils covered under the policy

Type of payment made by the company, actual value, or reinstate value, or its

other operations.

Fire:Fire:

Fire means actual ignition or burning, under accidental circumstances.

The policy dose not intended to cover inherent vices of commodity like its

own fermentation or natural heating damage to the property when undergoing

heating or dyeing process are not covered. The burning of a public property is

not covered. Spontaneous combustion can be covered with an extra premium.

Lightning:Lightning:

Underwriting in Insurance Sector30

Any damages caused by lightning with or without actual ignition are

covered in the standard fire policy.

Aircraft damage:Aircraft damage:

Losses and destruction caused by aircraft and other aerial devices and

articles dropped, excluding those caused by pressure waves are covered under

aircraft damage.

Riot Strike Malicious and Terrorism Damage (RSMTD):Riot Strike Malicious and Terrorism Damage (RSMTD):

The loss or visible physical destruction carried out by the external

violent, this excludes certain perils like total or partial cessation of work,

permanent or temporary dispossession of any building or plant, burglary,

housebreaking, the theft. ‘Terrorism’ is generally used as means of violence

for political ends or to cause fear in the public.

Act of God (AOG) Perils:Act of God (AOG) Perils:

Loss, destruction or damage caused by the atmospheric perils caused

by nature like storm, cyclone, tempest, typhoon, hurricane, tornado, flood or

inundation are covered in the standard fire policy excluding those resulting

from earthquake, or volcanic explosion.

Underwriting in Insurance Sector31

Forest Fire:Forest Fire:

The standard fire policy is extended to include the damage to the

property insured caused by burning, whether accidental or otherwise, of

forest, and the clearing of lands by fire. The rate of interest is 5%.

Earthquake:Earthquake:

This cover is extended when the earthquake is caused by landside,

flood, and overflow of sea, lakes, reservoirs or rivers.

Spontaneous Combustion Spontaneous Combustion

Some material like coal, hay and biogases are susceptible to

spontaneous combustion, fermentation or heating. The cover is for loss or

damage by fire only. For rating, various commodities are classified into four

categories depending on their susceptibility t spontaneous combustion. The

rates applied are:

Category I - 0.25%

Category II - 0.5%

Category III - 75%

Category IV- 1.00%

Underwriting in Insurance Sector32

FIRE SPECIAL POLICIES IN THE UNDERWRITING:

TThe standard fire policy is modified by attachment of appropriate

clause in order to meet the varying requirements of different clients.

Floater Policy:Floater Policy:

This is issued to cover stock situated in more than one specified

building situated

1. Within the limits of one city/ town/ village,

2. More than one city/ town but up to 50 locations,

3. For more than 50 location in various cities/ towns/ village.

These are not issued for immovable property and to transport

contractors and Clearing & Forwarding agents. The maximum sum insured at

any one location should not be more than 10% of the total sum insured. At all

Underwriting in Insurance Sector33

times during the currency of policy, the insured should have a good internal

audit and accounting procedure.

Declaration Policy:Declaration Policy:

This is issued to cover stock, which are subject to marked fluctuations

in quality. The premium charges at the issue of the policy are provisional and

are calculated based on the sum insured. The policy, total of values of goods

at agreed intervals and on the expiry of the policy, total of the values declared

is divided by the number of declaration are arrive at average sum insured on

which premium is again calculated and an adjudicated and an adjustment is

made, subject to retention of 35% of the provisional premium by the insurer.

Local Authorities Clause:Local Authorities Clause:

This clause includes an additional cost of reinstatement of the

destroyed or damaged property under any Act of Parliament or with bylaws

of any municipal or local authority.

Escalation Clause:Escalation Clause:

Underwriting in Insurance Sector34

The tariff provides that the insurers should allow automatic regular

increase in the sum insured throughout the period of the policy in return for

an additional premium to be in advance.

Loss of Rent Clause:Loss of Rent Clause:

The policy covers the loss of rent that an owner suffers on account of

the premises becoming untenable followed by an insured perils. Here, it is

essential that the insured and the insurer are clear about granting the cover by

checking the contract between the owner and the tenant of premises.

Agreed Bank Clause:Agreed Bank Clause:

All policies in which a bank has a partial interest are to be made out in

the name of the bank and owner or mortgagor. The Agreed Bank Clause is

incorporated to protect their insurable interest as mortgagors.

Removal of Debris Clause:Removal of Debris Clause:

Underwriting in Insurance Sector35

The expenses incurred for clearing of the debris accumulated because

of a fire peril are also covered. If they exceed one percent of the claim

amount, a separated sum insured has to be declared for this cover and the

premium is collected on the sum insured. One percent of the claim amount is

automatically covered under the basic policy.

UNDERWRITING; ACQUIRE, EVALUATE, ACT MONITOR:

HHow each individual underwriter performs his/her important task sets

up their company to operate profitably or suffer from tremendous exposure

& financial losses.

The pressures of a competitive business environment, workload, cost

cutting, less than informative sources of risk information and sometimes

even sloppy workmanship and poor judgment allow too many totally

unacceptable risks to slip by property underwriters and gain insurance

coverage every day. This fact has serious consequences for both property

carriers and for society.

Underwriting in Insurance Sector36

While each insurance application on the underwriter's desk is, in

some ways unique, most applications can be grouped into broad categories

enabling the underwriter to apply information from standardized rating

indices and industry databases.

In many cases resulting in losses to property carriers, clear warning

signs were present that were either ignored or missed by the underwriter

who placed the business. These warning signs range from financial

instability, a serious criminal background and questionable prior losses to

wholesale disregard of reasonable security and fire prevention measures.

KEY UNDERWRITING CLUES FOR LOSS PREVENTION:

TThe following factors should be considered each time that a fire

insurance applicant or policy renewal is being considered. Relationship of

trust with the producer -Placing insurance on risks combines the science of

rating exposures with the "art" of developing a valid "gut" feeling about

Underwriting in Insurance Sector37

individuals seeking fire insurance coverage. The professional judgment and

"street smarts" of the agent/broker is an important link in this process. Ask

yourself, has there been a history of questionable losses from clients

referred by this agent/broker that makes you question their skill, honesty or

common sense.

Loss historyLoss history::

Underwriter need to know about each personal lines and commercial

fire insurance applicant's past history of claims activity that may or may not

have been settled. Today, there are underwriting databases that can provide

this information in seconds and at reasonable cost. Information on these

databases along with contact information is contained in this document.

Financial conditionFinancial condition::

Is this business or individual financially strapped or not. Is there an

impending situation, unknown to you, threatening to drive down the business

or personal finances of the applicant or not. An inexpensive & on-line

Year in businessYear in business::

Undercapitalized start-up businesses with inexperienced

owner/managers, especially those entering hyper-competitive markets like

Underwriting in Insurance Sector38

small bar-restaurants or pizza stores, are notoriously prone to failure.

Established businesses with sound products and a solid customer base are

obviously less risky.

Loss Control Report/Engineering ReportLoss Control Report/Engineering Report::

A qualified loss prevention inspector can often spot significant

problems affecting the current and future value of a property. Structural or

utility defects affecting the suitability of a risk for its intended purpose or

even intangibles such as "Quality of Management" issues can have a

profound impact on operations, profitability and risk of fire.

Quality of ManagementQuality of Management: :

A Ford Foundation study on Arson years ago found that the number of

sanitary code violations was the most significant correlation to whether a

given building would sustain an arson fire. "Quality of Management" is

expressed in clean & secure operations, a high level of maintenance, and

other positive factors that, by themselves, tend to suppress the possibility of

fire and crime.

Underwriting in Insurance Sector39

UNDERWRITING OF MOTOR INSURANCE

Underwriting in Insurance Sector40

Inside story: Needs for motor insurance

Types of policy forms

Factor in motor insurance

Claims management

Bonus /mauls clause

UNDERWRITING OF MOTOR INSURANCE:

UUnderwriting refers to assessing a risk presented for insurance and

deciding whether it is acceptable or not. If acceptable, the underwriter decides

the terms and premium at which the insurance can be made. The motor

Insurance requires the proposer to complete a proposal from that reversal, by

the answers to the questions the material facts that affected the risk. The facts

the underwriter wishes to know are those that refers to proposer and those,

which refers to the vehicle and the risk to be insured.

Usually the insurers keep track of the proposer name, address and

business, loss history, convictions (relating to driving offences, ownership,

Underwriting in Insurance Sector41

usages and violence/ dishonesty). Physical hazard (any hazard arising from

the material, structural/ or operational features of risk itself apart from the

person owing or managing it) is also considered assuming that the proposer

as an individual or business is acceptable to the business. Physical hazard

primarily relates to

1. The vehicles to be insured

2. The way the vehicles are used, and

3. The person who are going to drive or use them.

Therefore full details of the vehicle, its use and the derives are required.

NEED FOR MOTOR INSURANCE:

VVehicle may be your long cherished 'Palace on wheels' or one that can

barely be called a four-wheeler but the very fact that it has to ply on rough

and tough Indian roads, should be reason enough to insure it.

Underwriting in Insurance Sector42

Consider what your vehicle has to endure - potholes, open manholes,

puddles, interred roads, our traffic management system, poor pedestrian

management, absence of footpaths for pedestrians, jaywalkers and an

increasing number of accidents are few of the stark realities.

Footpaths:Footpaths:

As footpaths are encroached by hawkers, pedestrians have a tough time

dodging between vehicles to reach the other end of the road. Large potholes

and manholes are a common sight and during the monsoon the situation can

get only worse causing untold damage to your vehicle.

Drunken driving:Drunken driving:

Drunken driving is another very common feature. Be it a car, a two-

wheeler, or even a truck, drunken driving is one of the major reasons for

increase in accidents. Though drunken driving is a punishable offence the

penalty has hardly proved to be a deterrent.

Reckless Driving:Reckless Driving:

Besides, rash driving by youngsters is another of the dangerous

realities that should consider. Majority of the youngsters drive recklessly

Underwriting in Insurance Sector43

caring little for the law, causing serious accidents resulting in loss of life or

limb.

Theft:Theft:

Cases of stolen cars are on the rise. Experts in stealing cars are well

aware of the loopholes that can be exploited and accordingly have also been

successful in manipulating with the chassis number of vehicles in order that

they are not traced.

Fire:Fire:

Other than these there is also a danger of fire or theft of your vehicle.

Vehicle insurance under such unsafe conditions is a must not only to

cover risks towards yourself and your own vehicle but also to cover the

financial liability that may arise from an accident in which the other party is

injured. Consider the exorbitant cost of repairs that you would have to pay to

the other party in case of an accident.

TYPES OF POLICY FORMS:

AAll India Motor Tariff governs motor business in India. According to

the Tariff, two types of Policy Forms are used by all classes of vehicles. TheyThey

are Form A and Form B.are Form A and Form B.  

Form A, or what is commonly known as Act Policy, covers Act

Liability which is a compulsory requirement of the Motor Vehicles Act. No

Underwriting in Insurance Sector44

vehicle can be used without this minimum insurance cover. Use without such

insurance is a penal offence. The following liabilities can be covered in this

policy 

1. Unlimited liability towards Third Party bodily injury

2. Liability towards Third Party Property Damage to the extent of Rs.6000/-

only

3. Unlimited liability towards bodily injury of passengers of the vehicle 

4. Liability towards employees of the owner of the vehicle while traveling in

or using it, against bodily injury, to the extent required under the

Workmen's Compensation Act

Form B, or what is commonly known as Comprehensive Policy, is an

optional cover which takes care of the following additional losses and

liabilities 

1. Loss or damage to the vehicle and its accessories and extra fittings,

protection and removal costs, and towing disabled vehicles (only for

commercial vehicles)

2. Liability towards Third Party Property Damage, in excess of Rs.6000/-

3. Liability towards employees under Common Law and Fatal Accidents Act,

over and above the liability under Workmen's Compensation Act 

4. Personal Accident Benefits for the owner, passengers and employees.

Underwriting in Insurance Sector45

The above losses or liabilities can be separately covered in conjunction

with the liabilities covered under the Act Policy, by taking a Comprehensive

Policy, paying additional premium.

FACTOR IN MOTOR INSURANCE:

TThe Underwriting Policy in Motor Insurance can be Identifying by

Various Factors Like:

1. The type of vehicle

2. Purpose for which the vehicle is used

3. The geographical area of use

4. The previous claims experience

THE TYPE OF VEHICLE: THE TYPE OF VEHICLE:

Underwriting in Insurance Sector46

For the vehicle, the insurer considers its make, model, registration

mark, type of body, engine capacity, plated weight, seating capacity,

modifications to ‘manufacture’s’ specification and the value.

In India, the underwriting procedure differs depending on whether the

vehicles come under the category of private car, motorcycles or commercial

vehicles as also the insured’s estimated value, the purchase price and the year

of manufacture of the vehicle. There is a great deal of under-insurance in

motor insurance. Therefore careful attention must be paid to the insured’s

estimated value in relation to the age of the vehicle, especially because there

is no pro rata condition of average in the policy and sum insured is the limit

of liability per accident and not for the period of the insurance.

Underwriting in Insurance Sector47

PURPOSE FOR WHICH THE VEHICLE IS USED:PURPOSE FOR WHICH THE VEHICLE IS USED:

The underwriter takes into consideration the risk exposure arising

purpose for which the vehicle is used. An underwriter will enquire whether

the vehicle is used:

To carry the operator’s own goods, or

For hire or reward in the carriage of goods for goods for other

business, or

Simultaneously for both the purposes.

Risk exposure varies in relation to the use the vehicle is put to. Private

cars are lesser exposed than taxies, as the latter is used extensively for

maximum revenue. Taxies therefore attract a higher premium rate. Similarly,

goods carrying vehicles, which are used as private carriers and transport, only

their owners' goods attract a lower premium, than those used as public

carriers for transporting goods for hire.

THE GEOGRAPHICAL AREA OF USE:THE GEOGRAPHICAL AREA OF USE:

The area of operation of a vehicle also has a direct bearing on the

premium rate. This is so because, certain areas of operation are more

congested with high densities of population and road traffic than others and

Underwriting in Insurance Sector48

pose higher exposure to accidents. For this purpose, the tariff differentiates

two zones in India, i.e., Zone A & Zone B, for private cars and taxies. Zone A

represents the Madras region and Bombay region (excluding Bombay city)

and Zone B represents the Calcutta region, Delhi region and Bombay city. In

Zone B, the densities of population and road traffic are more and hence

attract a higher premium rate.

Such differential rating does not apply to commercial vehicles such as

trucks and buses, as these vehicles normally travel throughout India for their

operation. However, a discount is allowed on the premium for commercial

vehicles used as contract carriage, school buses, public and private buses used

for carrying passengers/workers and operate within a radius of 50 kilometers

from the city limits.

THE PREVIOUS CLAIMS EXPERIENCE:THE PREVIOUS CLAIMS EXPERIENCE:

Unfavorable claims experience is obviously a bad risk there of it

is responsibility of an underwriter to identify. The tariff has adopted a system

called the Bonus/Mauls Clause, to give discounts for good claims experience

and a loading for bad experience. The claim experience of expiring year's

policy is the basis for allowing discount or charging a loading...

CLAIMS MANAGEMENT:

Underwriting in Insurance Sector49

UUnfavorable claims experience is obviously a bad risk for an

underwriter. The tariff has adopted a system called the Bonus/Mauls Clause,

to give discounts for good claims experience and a loading for bad

experience. The claim experience of expiring year's policy is the basis for

allowing discount or charging a loading.

The Bonus/ Mauls are applicable to Own Damage section of the

comprehensive policy. In other words, the discount or the loading is applied

on the premium component of that section of the policy only. It is NOT

applicable also for Road Transit Policies, Motor Trade Policies and policies

which cover only Fire and Theft risks. The discount/loading follows the

fortunes of the original insured and not the policy

BONUS/ MAULS CLAUSE:BONUS/ MAULS CLAUSE:

In the premium rating system presently being used, the factor of

personal hazard of the driver is not taken into consideration directly. In

many other countries, it is an integral factor to influence the premium rate

and a prime consideration for acceptance of the risk by the insurance

company. However, the system of Bonus/ Mauls recognizes this factor

indirectly since Bonus is a reward which allows discounts for claim-free

period, while Mauls is a loading in the premium for adverse claims

experience. Thus, the discount acts as an incentive to the insured to exercise

Underwriting in Insurance Sector50

care and caution while driving. Indirectly, the discount contributes to the

objective of road safety.

MOTOR CYCLE/ SCOOTER & COMMERCIAL VEHICLES (Other

than Taxies)

Loading/ Discount

positions on Own

Damage Premium at

expiry of the policy

% Loading/ Discount on Own Damage Premium

to be applied on renewal

If claim is made

during expiring

Policy Year

If no claim is made

during expiring

Policy Year

With 40% Loading Continue 40% Loading Charge 30% Loading

With 30% Loading Charge 40% Loading Charge 25% Loading

With 25% Loading Charge 30% Loading Charge 15% Loading

With 15% Loading Charge 25% Loading No Loading/ Discount

No Loading/ Discount Charge 15% Loading Allow 20% Discount

With 20% Loading No Loading/ Discount Increase Discount to 30%

With 30% Loading Reduce discount to 20% Increase Discount to 35%

With 35% Loading Reduce discount to 30% Increase Discount to 45%

Underwriting in Insurance Sector51

With 45% Loading Reduce discount to 35% Increase Discount to 55%

With 55% Loading Reduce discount to 45% Continue 55% Discount

Calculation of the premium is an actuarial science made possible by

the use of mordent technology that can analyze risk and claim statistics and

come up premiums that individual insures requirements for reserves,

commissions, expenses, claims and profit. The various general features

needed to quote a premium are:

1. Type of insurance;

2. Make, mode and engine of the car;

3. Class of use;

4. Detail of deriver- age, physical or mental incapability, driving experience

and monitoring convictions;

5.Amount of claim discount applicable; Postcode of owner’s address and

where the vehicle is kept.

Underwriting in Insurance Sector52

UNDERWRITING IN MARINE INSURANCE

Inside story: Need for marine insurances

Areas of coverage in marine cargo coverage

Cargo insurance document

Standard form of marine insurance

Underwriting guidelines and tariffs for marine

insurance

Underwriting in hull insurance

Types of policies

Underwriting in Insurance Sector53

Hull underwriting

UNDWERWRITING IN MARINE INSURANCE

MMarine cargo considerably widens the scope of coverage presently

enjoyed by the insured population without necessarily involving a high

premium. We complement our wide coverage with advices on Risk

Management and Loss Prevention.

MARINE INSURANCE/ INSURANCE/ CARGO INSURANCE COVERS CARGO INSURANCE COVERS

TRANSITS BY :TRANSITS BY :

Air

Water

Road or Rail

Registered Post Parcel

Courier or any combination of the above.

Marine Insurance is for, Marine Insurance is for,

Underwriting in Insurance Sector54

Buyers, Sellers, Import/Export merchants, Buying Agents,

Contractors and Banks-in fact any one engaged in the business of movement

of goods. During the course of transit, the cargo may not always be at your

risk. For instance, a person can sell it to a buyer. Our Marine Cargo Policies

cover your interest in the cargo insured and also extends to cover the

interests of any third party to whom you have assigned interest upon transfer

of ownership, as determined by the Terms of Sale.

NEED FOR MARINE INSURANCS:

IIf there is one class of insurance that is an absolute necessity, it is

Marine! A person’s cargo can be damaged on exposure to a wide variety of

risks, including an accident of the vehicle carrying the cargo, failure of the

stevedores in the port area, and damage to the container that can be washed

overboard. If a person thinks Piracy is a thing of the past, individual will be

surprised to find that this is very much alive and well! To summaries, cargo

can be damaged by stranding, grounding, sinking, burning, collisions, faults

Underwriting in Insurance Sector55

or errors in navigation, heavy weather, entry of sea or river water, jettison,

washing overboard, ship's sweat, condensation, improper stowage by the

carrier, hook damage, theft or pilferage, war, strikes or natural perils. The

Carrier pays for loss only when the Carrier causes damage. Again, the

Carrier is only required to pay a limited amount per package and not for the

full value of the cargo. This is another reason for insuring cargo.

AREAS OF COVERAGE IN MARINE CARGO COVERAGE:

AA vast majority of Marine Cargo policies are based on Institute Cargo

Clauses that appears in three versions viz., ICC (A), ICC (B) and ICC(C).

ICC (A) is based on 'All Risks' while (B) and (C) are based on named-perils.

All three clauses have certain exclusions.

Institute Cargo Clauses Cover:Institute Cargo Clauses Cover:

Marine Cargo Policies are based, in a majority of instances, on one or

more of the Institute Cargo Clauses. The coverage available under these

standard clauses includes:

Actual Total Loss

Constructive Total Loss

Particular Average i.e., Partial Loss by an insured peril

General Average

Collision Liability

Underwriting in Insurance Sector56

Expenses such as Survey Fees, Reconditioning Costs, Forwarding

Expenses, Sue and Labor etc.

Principal exclusions, which appear in the Institute Cargo Clauses are:Principal exclusions, which appear in the Institute Cargo Clauses are:

Loss or damage due to Inherent Vice

Loss or damage due to Delay

Loss or damage due to Insufficiency of packing

Loss or damage due to insolvency, financial default of ship owners, etc.

Products that considerably widen the scope of cover offered by the

Institute Clauses. Widening the Scope of Cover: It provides a wide choice of

additional Covers thereby widening the scope of cover beyond what is

offered by Institute Clauses mentioned above. Some of the exclusions

appearing in the Institute Cargo Clauses are either deleted or modified

considerably.

It provides unique tailor-made policies to suit your requirements. We

have tailor-made wordings for a variety of industries/risks including, but not

limited to:

Fast Moving Consumer Goods Industry

Electronic Industry

Infrastructure Projects: including Delay in Start-up

Covers

Underwriting in Insurance Sector57

Pharmaceutical Industry

Health Care Industry

Fine Arts

Through underwriting philosophy policy ensure that policy and

underwriter constantly acquire, maintain and disseminate technical

information to its customer.

CARGO INSURANCE DOCUMENT:

BBefore a policy is issued, detail of the proposed insurance are obtained

from the proposer in a form called Declaration form. It is considered as

evidence to the insurer to provide necessary information that was exactly

proposed.

Marine Declaration FormMarine Declaration Form::

Except the Special declaration Policy, Annual Policy, Duty and

Increased are obtained Value Insurance; there is no standard proposal form

for marine cargo insurance. The form contains the following details.

1) Name and address of the proposer

2) Description of the goods to be insured

Underwriting in Insurance Sector58

3) Value of insurance

4) Name of the carrying vessel

5) Description of the voyage/ transit

6) Bill of Lading number/ airway bill

7) Type of insurance covered

8) Claims payable at Signature of the proposer and date of declaration.

STADARD FROM OF MARINE INSURANCE:

The standard form of the marine policy shows the following details.The standard form of the marine policy shows the following details.

1. Policy number, place and date of issue

2. Name of assured with address

3. Name of the vessel carrying the insured cargo

4. Description of the voyage/ transit

5. The subject matter insured and the description of packing

6. Type of insurance cover granted, reference to relevant clause and any

special conditions and warranties

Underwriting in Insurance Sector59

7. The sum insured

8. The premium

9. Name and address of the Claims Settling Office at destination.

UNDERWRITING GUIDELINES ANDTARIFFS FOR MARINE

INSURANCE:

WWith the liberalization of the economy, the All Indian Marine Cargo

Tariffs, which governed marine cargo insurance, was discounted with effect

from 1.4.1994. Now, the companies are free to formulate their own rates and

terms. Further, underwriting guidelines, along with the rates were formulated.

The guidelines rate based on the provisions of the erstwhile Tariffs.

The erstwhile All Indian Marine Cargo Tariffs contains 13 sections.

Presently, these tariffs do not exist but guideline issued by the companies is

based in the provision of these erstwhile tariffs.

Cargo Insurance UnderwritingCargo Insurance Underwriting::

The acceptance of cargo risk for the purpose of underwriting involves a

careful assessment and appraisal of underwriting considerations.

Underwriting consideration are those aspects of factors, which cargo

insurance take into consideration in deciding-

1. If it is decided to accept a risk, the rate of premium to be accepted.

Underwriting in Insurance Sector60

2. The terms and conditions under which the risk would be

accepted.

3. Whether or not accept a risk.

There is no standardizing proposal form and the procedure for cargo

underwriting. It is the duty of the proposer to disclose all factors material to

the risk. Therefore a considerable responsibility devolves on the underwriter

to make all pertinent inquiries relating to a risk. The underwriter to make all

pertinent inquiries relating to a risk. The underwriter should ascertain the

following details.

1. Name and address of the proposer and his business or trade.

2. Type of packing. If containerized, the type of container.

3. Authority of packing

4. Value of interest to be insured and sum to be insured

5. Name of carrying vessel or shipping line to be used

6. Insurance condition

7. Value of interest to be insured the sum to be insured etc.

UNDERWRTING IN HULL INSURANCE:

HHull Insurance is concerned with the insurance of hull and machinery

of ocean going and other vessels like Barger, trawlers, and sailing vessels. It

Underwriting in Insurance Sector61

is also concerned with the ship owner’s other insurable interest, known as

subsidiary interest like freight and disbursement

As the hull insurance is a specialized class of business it is performed

at head office level, in India accept for insurance for fishing Vessels,

Trawlers, Dredgers, Inland and Sailing vessels, for which Tariffs are

available. In India, business come directly to the hull insurer there is no

broker or agent involved in servicing hull insurance. Therefore, hull

insurance in India performs a personalized service to the shipping industry.

The subject matter of hull insurance is vessel or ship. There are four

main types of sea-going vessels namely,

General cargo vessel

Dry bulk carriers

Liquid bulk carriers (Tankers)

Passenger vessel

Hull rating (renewals):Hull rating (renewals):

The Joint Hull Committee in London is responsible for the structure

of the Joint Hull Formula, which is a basic recommended for rating renewal

insurances in respect of ships insured in London market. In India, he rating of

ocean-going vessels in a fleet on renewal is done by TAC. Based on the

“Indian Insurance Underwriting” the application forms should be

Underwriting in Insurance Sector62

submitted to TAC within 60 days of the renewal date of the fleet with the full

claims statistic available of both paid and outstanding claims. The committee

determines the renewal rate on the basis of:

The category of the fleet based on the total sum insured under Hull and

Machinery interests.

Fleet experienceFleet experience, i.e., net premium and losses paid and outstanding for a

stated period.

TYPES OF POLICIES:

TThe purpose of hull insurance is to cover a ship owner’s various

insurable interests. Various policies offered are as follows:

Hull and Machinery Insurance:Hull and Machinery Insurance:

The policy covers the hull, machinery and equipment and stores etc.,

on board, but does not cover cargo.

Insurance of Freight or Anticipated/ Time Character Hire/ PassengerInsurance of Freight or Anticipated/ Time Character Hire/ Passenger

money- Time/ Voyage:money- Time/ Voyage:

This policy, subject to institute Time Clauses-Fright provides

indemnity for loss of freight but exceeding the gross freight lost. This policy

does not cover partial loss of freight other than general average loss, fewer

Underwriting in Insurance Sector63

than 3% unless caused by fire, sinking, stranding or collision with another

vessel.

Loss of Hire Insurance:Loss of Hire Insurance:

This policy covers loss of hire suffered by the ship owner, if the vessel,

which is given on character, is laid-up for repairs following a casualty

covered under the terms of the hull and machinery policy.

Loss of Profit Insurance:Loss of Profit Insurance:

The policy covers the character’s loss of profits over the period of the

character if the vessel is time character, or during the voyage character if the

vessel is character for voyage, following total loss of the vessel.

Ship Repairer’s Liabilities:Ship Repairer’s Liabilities:

This policy covers liabilities of ship repairers towards the owner of the

vessels repaired by them. The careless use of oxy-acetylene or welding

torches in areas where oily waste is lying or near lines has been a major cause

of many serious fires. This aspect an underwriter has to carefully consider.

Institution time clauses (ITC) –hulls:Institution time clauses (ITC) –hulls:

Hull insurance is granted on the basis of time and voyage. The policies

therefore could be a Time Policy or a Voyga Policy- the former allows a cover

Underwriting in Insurance Sector64

for the respective interests on a time basis-maximum being twelve months

and the latter covers designated voyages. The Instite of London

Underwriters has introduced Hull clauses for Time and Voyage policies. The

Institute Time Clauses (ITC) – Hull form the basis for most policies used for

insurance of vessels and their machinery.

HULL UNDERWRITING:HULL UNDERWRITING:

As a preliminary to the acceptance of hull risks, a duly completed

proposal form is obtained from the ship owner. The details revealed in the

proposal form, and the answer to the additional quarries, enable the

underwriter to assess the risks from the point of view of physical hazard,

quality of management and moral hazard aspects, which are the most

important factors. The underwriter will take into account the following

aspects of the risk proposed.

Underwriting in Insurance Sector65

Inside story: Job prospects

Earnings

Related occupations

Sources of additional information

“IT” in underwriting

JOB PROSPECTS:

Employment of underwriters is expected to increase more slowly than

the average for all occupations through 2008. Computer-assisted software

that helps underwriters analyzes policy applications more quickly and

Underwriting in Insurance Sector

OVERVIEWOVERVIEW

66

accurately has made underwriters more productive and capable of taking on

a greater workload. Mergers and acquisitions of insurance companies are

also expected to continue to result in more downsizing of insurance carriers.

Most job openings will result from the need to replace underwriters who

transfer or leave the occupation, although several new job openings are

being created for underwriters in the area of product development. These

underwriters help set the premiums for new insurance products, such as in

the growing field of long-term care insurance.

The best job prospects will be for underwriters with the right skills

and credentials, such as excellent computer and communication skills,

coupled with a background in finance. Job prospects may be better in health

insurance than in property and casualty and life insurance. As Federal and

State laws require health insurers to accept more applicants for insurance,

the number of policies sold will increase. Also, as the population ages, there

will be a greater need for health and long-term care insurance.

Because insurance is considered a necessity for people and

businesses, there will always be a need for underwriters. It is a profession

that is less subject to recession and layoffs than other fields. Underwriters,

who specialize, though, may have difficulty transferring to another

underwriting specialty if downsizing were to occur.

Underwriting in Insurance Sector67

EARNINGS:

Medical service and health insurance  $40,000

Life insurance  39,800

Fire, marine, and casualty insurance  39,100

Insurance agents, brokers, and service  32,200

Median annual earnings of insurance underwriters were $38,710 in

1998. The middle 50 percent earned between $29,790 and $51,460 a year.

The lowest 10 percent earned less than $23,750; while the top 10 percent

earned over $77,430. Median annual earnings in the industries employing the

largest number of insurance underwriters in 1997 were:

Insurance companies usually provide better than average benefits, including

employer-financed group life, health, and retirement plans.

RELATED OCCUPATIONS:

Underwriting in Insurance Sector68

Underwriters make decisions on the basis of financial data. Other

workers with the same type of responsibility include auditors, budget

analysts, financial advisers, loan officers, credit managers, real estate

appraisers, and risk managers.

SOURCES OF ADDITIONAL INFORMATION:

Disclaimer: Links to non-BLS Internet sites are provided for your

convenience and do not constitute an endorsement. Information about a

career as an insurance underwriter is available from the home offices of

many life insurance and property-liability insurance companies.

Information about careers in the property-casualty insurance field can be

obtained by contacting:

The Insurance Information Institute, 110 William St., New York,

NY 10038. Internet: Information on the underwriting function, in

particular, and the CPCU and AU designation can be obtained from:

The American Institute for Chartered Property and Casualty

Underwriters, and the Insurance Institute of America, 720 Providence

Rd., P.O. Box 3016, Malvern, PA 19355-0716.

An industry employing insurance underwriters that appears in the

2000-01 Career Guide to Industries: Insurance.

“IT” IN UNDERWRITING:

Underwriting in Insurance Sector69

Auto mating the underwriting process, better analysis of risk and

improved decision making are some of the issues the insurance industry is

grappling with. These issues lead to reduced profits and less efficient business

performance.

At datamatics, the expertises are helping leading global insurance

companies with their underwriting needs. They have developed world class

solutions that encompass data capture, risk analysis and management and

decision supports ability.

They offer a comprehensive set of services in the underwriting area:

Maintenance and supports of legacy system and applications.

Migration from proprietary system to open platform

New application development.

Customization of standard software packages.

Modernization of legacy application through development of

E-commerce and web based application.

They have a team of domain and technical experts focused on

providing the best possible solutions to the customer.

The team of experts has delivered several important benefits to the

customers, including:

Underwriting in Insurance Sector70

Risk AnalysisData capture

Decision support Underwriting Rules

Maintenance

Migration

Modernization

New application development

Increased revenues by 33% over seven years

Improved decision support

Increased profitability by 15%

Increased efficiencies by 20% at lowered costs

Underwriting in Insurance Sector71

Underwriting in Insurance Sector

CONCLUSION

72

1. Underwriting being the foundation of the insurance business. It has an

important role in appraising the quantitative and qualitative aspect of risk.

The underwriter has to see to it that the risk is properly assessed.

2. It is also seen that underwriting rules for different policies and categories

are different. The medical examination is of great importance in

underwriting. It helps to assess the amount of risk that a person carries.

3. The underwriter has to be very careful while underwriting the application

of substandard lives. Any bad decision of underwriter can hold him liable

for the same.

4. Also the introduction of Information Technology (IT) has extended the

scope of underwriting business. It has shown immense help in the decision

making process. Many insurance based companies are looking forward IT

in underwriting.

5. Lastly to conclude with underwriting business is booming in India. It is

becoming one of the most prestigious and challenges area.

Underwriting in Insurance Sector73

SUGGESTIONS

Underwriting in Insurance Sector74

1. Articles on insurance field and medical terms. Their should be lot of

references towards news paper that issue.

2. A limited data can be obtained from direct interviews thus secondary data

must be relied on.

3. As underwriting itself being very vast concept, one can select a particular

field of study in project preparation. For example method of underwriting.

4. Underwriting can also refer to the purchase of corporate bonds,

commercial paper, Government securities, and municipal general

obligation bonds by a commercial bank or dealer bank for its own

account, or for resale to investors.

5. UUnderwriting may also refer to insurance; insurance underwriters

calculate how risky it is to insure people and businesses.

Underwriting in Insurance Sector75

Underwriting in Insurance Sector

BIBLOGRAPHY

76

“Big goals requires the accomplishment of many little goals”

Thus to accomplish my project I have referred many other secondary

data sources. They are as follows:

REFERENCE RELATED TO BOOKS:

1. Name: Underwriting Management:

Publishers: ICFAI University press.

2. Name: Indian Insurance- A-Profile given by

Author H.Narayana

Publishers: Jaico Publishing House

3. Name: Insurance Management-Principles and practices given by

Authors-karam pal, B.S. Bodle

Publishers: Deep and Deep publication PVT. LTD.

REFERENCE RELATED TO MAGAZINES:

1. Insurance Chronicle, June 2007.

2. Treasury Management, July2007.

Underwriting in Insurance Sector77

REFERENCE RELATED TO WEBSITE:

1. www.google.com.

2. www.motorinsurance.com.

3. www.yahoo.com.

4. www.msn.com

5. www.wakipedia.com

6. www.ans.com

Underwriting in Insurance Sector78