Chapter 8

  1. Loss Ratio
    a ratio that reflects the percentage of premium that goes to pay claims
  2. Expense Ratio
    a rating that reflects the percentage of premiums that goes to pay the insurance company's operating expenses
  3. Combined Ratio
    the sum of the loss ration and the expense ratio
  4. contingencies
    a loading or an extra allowance for chance fluctuations in underwriting results
  5. Underwriting Loss
    the loss that results when the combined ratio is greater than 100%
  6. Underwriting Gain
    the profit that results when the combined ration is less than 100% (also called an underwriting profit)
  7. Cash Flow Underwriting
    the reliance on investment income to offset expected underwriting losses arising from the low prices being charged for insurance
  8. Underwriting Audit
    an indepth review of the files of an underwriter, a territory, line of business o a producer to determine compliance with underwriting guidelines and procedures
  9. Spread of Risk
    the attempt to minimize potential losses by writing a range of business's
  10. Niche Marketing /underwriting
    specialization in narrowly defined types of business
  11. Accomodation
    the request that is granted when producers seek an exception to the underwriting standars and ask that an otherwise unacceptable piece of business be written
  12. Career Path
    a document detailing a company's expectation for employees who wish to develop professionally.
  13. 1.What is the responsibility of underwriting management?
    UW management is responsible for determining the insurer's book of business-it's mix of business by line and size, it's reinsurance contracts and agreements, it's pricing strategy and it's relationship to the insurer's marketing strategy
  14. 2.Identify and describe the ratios used to evaluate underwriting results.
    • 1-expense ratio (expenses divided by premium)
    • 2-loss ratio (losses divided by premium)
    • 3-combined ratio (loss ratio plus expense ratio)
  15. 3.What are two different insurer philosophies about what constitutes success?
    some insurers measure success relative to their UW profitibility, while others consider operating income, underwriting, and investment income combined when evaluation relative insurer success
  16. 4.a.What is the problem with using an UW's loss ration to evaluate his or her results?
    some consider using the loss ration for an UW's book of business to be unfair. Many of the account included in an UW's book of Biz were likely accepted by the insurance company long ago and probably by another UW. Using the loss ratio alone also fails to consider the quality of the decision. Additionally UW's do not have any control over most of the factors that affect account profitibility, such as pricing levels.
  17. 4.b.What is the problem with using an UW's loss ration to evaluate his or her results? How have insurers addressed this problem?
    many insurer's have performance standars other than the ones based on underwriting profitibility. Some evaluate on the erms of, premium volume, service time, marketing, retention ratio, hit ratio, and continuing ed efforts
  18. 5. What is reviewed as part of an underwriting audit?
    file documentation, underwriting decision, adherence to guidelines, pricing and classification, compliance with laws & regulations and adherence to company standards
  19. 6.a. Describe each of the following standards of performance by which the performance of an underwriter may be judged? SELECTION
    Selection means that the UW is handling risks as specified in the underwriting manual and not exceeding her or her UW authority
  20. 6.b.Describe each of the following standards of performance by which the performance of an underwriter may be judged? MIX OF BUSINESS
    Mix of Biz standard means that the book of biz that the UW is developing complies with the insurer's marketing strategy
  21. 6.c.Describe each of the following standards of performance by which the performance of an underwriter may be judged? PRICING
    Pricing standard means that the UW is using pricing programs as the insurer intends
  22. 7.a.When is it appropriate to make an accomodation for a producer?
    when the circumstances warrant them. UW'smight choose to use some decision making flexibility but should not exceed their authority
  23. 7.b. What should an UW do after making an accomodation?
    should be recorded and tracked so that promised consessions can be realized such as the producer offering the balance of an account on renewal.
  24. 8. What are the two career tracks or paths that UW's typically follow?
    technical and managerial track
  25. 9. What role do training and education play in an UW's career path?
    designed to give UW's the skills and knowledge that they need to do their jobs
  26. G1. Is it fair to use an UW's loss ration to judge his or her performance?
    Many Insurers use an UW's loss ratio when evaluating performance. UW's need to be able to analyze their UW results and explain the performance of their books of biz. A poor property loss ratio might have been the result of a catastrophic loss, without that one event the book of biz would have been profitable. An UW's deteriorating book of biz might be caused by the insurers decision to discontinue writing insurance in a particular state.
Card Set
Chapter 8
Chapter 8