UNDERWRITING

Underwriting is the process of insureds, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made.

An Underwriter is an insurance company employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage and determines policy terms and conditions.

Underwriting Activities

Underwriting includes the following activities: -

· Selecting insureds

· Pricing Coverage

· Determining Policy terms and conditions

· Monitoring Underwriting Decisions

Selecting Insureds

Insurers must carefully screen applicants to determine which one is desirable to insure. If insurers do not properly select policyholders and price coverages, some insureds might be able to purchase insurance at prices that do not adequately reflect their loss exposures. The underwriting selection process is not limited to the underwriters but also include producers and underwriting managers. Insurance company receives applications, but not all applications result in issuance of policies. An insurance company cannot accept all applicants for two basic reasons: -

· The insurer can succeed only if he selects applicants who are as a group present loss exposure that are proportionate to the premiums that will be collected. In other words, insurers try to avoid adverse selection.

An insurer’s ability to provide insurance is limited by its capacity to write new policies.

CHAPTER 5 : UNDERWRITING