In evaluating each application, an underwriter faces three options:
· Accept the application without modification
· Reject the application
· Accept the application with modifications.
And finally implementing the Underwriting Decision.
The third option requires the greatest amount of underwriting creativity. This can happen by modification of coverage, rates, terms, conditions of the policy, by arranging adequate reinsurance facility, implementation of loss control measures, etc.,
Monitoring the Underwriting Decision
Monitoring of the Underwriting Decision involves: -
· Reevaluation of decision in relation to claims – The fact that an insured has a serious loss or several losses is not necessarily an indication that the underwriter made a bad decision.
· Recommendation of additional loss control measures.
· Where there is a request for coverage changes underwriter must carefully evaluate each and every change and should make a decision.
· Modifying coverage, rate, terms and conditions as and when need arises.
· Finally cancel or rejection of renewal depending upon the experience on the particular account.
Regulation of Underwriting Activity
Two important examples of the regulation of underwriting activity are:
· Prohibition of unfair discrimination
· Restrictions on cancellation and non renewal
Prohibition of Unfair Discrimination
Unfair discrimination involves applying different standards or methods of treatment to insureds who have the same basic characteristics and loss potential.
According to state insurance laws, unfair discrimination is prohibited as an unfair trade practice.
Restrictions on Cancellation and Non-renewal
Most state requires that insurers notify the insured a specified period (such as thirty days) before a policy is to be cancelled or non-renewed.
This notice is intended to give the insured an opportunity to replace the coverage.
Generally, restrictions of this kind help insurance to serve its purpose of providing protection for policyholders.
However, such restrictions also limit the speed with which an underwriter can stop providing coverage for an insured who has become undesirable.
