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Underwriting –In General Insurance Industry

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Underwriting In General Insurance Industry 13th March 2006 Hyderabad By G VRao Structure of presentation Who are our customers? What is underwriting? – PowerPoint PPT presentation

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Title: Underwriting –In General Insurance Industry


1
Underwriting In General Insurance Industry
  • 13th March 2006
  • Hyderabad
  • By G VRao

2
Structure of presentation
  • Who are our customers?
  • What is underwriting?
  • How is it being done now?
  • What are the objectives of detariffing?
  • What are current market characteristics?
  • Financial analysis of market trends.
  • Safeguards to orderly switch over.

3
Who are your customers?
  • Ultimate users? Their staff?
  • Brokers and Agents?
  • Surveyors? Lawyers? Judges?Outsourcers
  • Your internal colleague staff?
  • Anyone who has a financial interest in your
    product?All of them are your customers.
  • Your job is to create value to meet the specific
    needs of each entity in the value chain.

4
Pricing commodity risks
  • Insurance is a almost commodity now.
  • It is a bargain business needing skills.
  • Each customer is unique your product is not.
  • Price -- dependent on product customer.
  • As product is a commodity, evaluating customer
    risk exposures pricing risk is key to
    underwriting.

5
What is underwriting?
  • Knowledge of individual risk peculiarities.
  • Assessing how the risk a peril produce
    potential losses.
  • Estimating magnitude of lossesperil-wise.
  • Estimating insureds systems capabilities for
    prevention minimization of losses.
  • Prescribing rates, terms conditions.
  • Deciding on retention risk transfer.

6
Underwriting Risk analysis.
  • Physical/ Technical aspects of risks.
  • Moral Hazard aspects of insured.
  • Environmental business aspects.
  • Underwriting skills aspects.
  • Let us examine each point in the next few
    slides.

7
Technical aspects of U/W.
  • Risk assessment-- characteristics of risk, nature
    of perils covered, interaction between the two.
  • Frequency and severity of loss occurrences MPL.
  • Fire prevention and minimization capabilities.
  • Burning cost vs. prospective risk analysis.
  • Accuracy of claims estimatestriangulation.
  • Value addition- quality of claims handling--not
    priced. Claims experience is everything in
    rating.

8
Moral Hazard aspects of U/W.
  • Human element and its quality, expertise and
    experience in handling losses and minimizing
    them.
  • Safety audit and accident investigation
    mechanisms in place.
  • Insureds RM philosophy, sensitivity and
    implementation.

9
Environmental aspects of U/W.
  • Quality of market competition.
  • Regulatory regime.
  • Board/ Management attitude to risk exposures
    within.
  • Investor pressures and directions.
  • Availability of reinsurance.
  • Customer pressures and insurers reputation.

10
U/W skills aspects
  • KASH in u/wrisks, terrain, customers,
    reinsurers, competitors, u/w policy, brokers,
    staff, claims.
  • Terms conditions- responsibility for loss
    avoidance.
  • Pricing of risk.
  • Retention levels for insurer.
  • Reinsurance availability.
  • Customer profitability/ Profitability on risk.
  • Brokers pressures/relations.
  • Should investment income form part of rating?

11
Why detariffing?
  • Market forces of supply demand to prevail.
  • Greater customer choice.
  • To provide an enhanced role for brokers.
  • To improve insurers efficiency through
    competitive pressures on pricing and service.
  • To enhance creativity and product innovation.
  • Survival of the fittest the name of the game.

12
Current state of underwriting.
  • Tariff rates appliedno application of mind.
  • Too many underwriters. Or too few ones.
  • Mix of production underwriting job profiles.
  • Premium and not profit is the focus for most.
  • Loss prevention minimization -not an issue.
  • High-cost industry40 on EP.
  • Distribution channels have added costs.
  • LPA closure has sent wrong signals.

13
Rating agencies attitudes.
  • Financial strength also Management capability.
  • Not listedno market scrutiny, accountability.
  • More underwriters or more investment analysts?
  • Will bigger und.losses act as a market
    disincentive to write health, rural and social
    sector business?
  • What are antifraud and loss minimization measures
    of insurers now practiced?

14
Market composition on EP.
  • Motor 50 , fire 16, engineering 5 of EP.
  • Loss ratios on EP motor 90, fire 47,
    engineering 59
  • Combined ratio motor 128, fire 84, engineering
    95.
  • Expenses around 38/40--likely go up.
  • What will rate adjustment do to losses?

15
Share of Public sector.
  • Motor 84 in 2004/5 from 88-Rs 7500 cr
  • Fire 72 down from 77--Rs 3350 cr
  • Engineering 67 down from 77--Rs 835 cr
  • Market share was 75 overall.
  • Fire grew by Rs 35 cr New players Rs 206 cr.
  • Engineering Rs 22 crNew Players Rs 104 cr.
  • Motor Rs 530 crNew players Rs 510 cr
  • Matching point to point.

16
For a major insurer--Fire
17
Motor
18
TOTAL
19
Flexibility in rating?
  • Fire operating ratio 80 upwards.
  • Engineering operating ratio 90 upwards.
  • Motor operating ratio 125 and more.
  • Intermediation costs will go up- 5 or more.
  • Reinsurance will be more expensivemargins lower.
  • How will future rating structures look like?

20
Who owns detariffing process?
  • Who is the chief beneficiary of detariffing?
  • IRDA? TAC? Insurers? Brokers? Consumers?
  • Who owns responsibility for success or failure?
  • What u/w changes have insurers pledged?
  • What changes have brokers pledged?
  • What new regulatory changes are intended?
  • How will motor business be managed?

21
Declined risk pool?
  • Will it work?
  • Can membership be made compulsory?
  • Who owns management of POOL?
  • What is owners financial stake?
  • What if it pushes up costs and losses?
  • Will the remedy prove worse than disease?
  • What next it it fails?

22
Underwriters dilemmas.
  • Is he equipped to underwrite?
  • Is his loyalty to internal rate book?
  • Is his loyalty to organization?
  • How will his performance be judged?
  • Will it slow down decision-making?
  • How will he be punished or rewarded?
  • How will he deal with internal external
    pressures?

23
Market gyrations.
  • Crush competition at any cost?
  • Brokers to dictate markets future.
  • Bancassurance to melt under pressures for lower
    rates.
  • IRDA will have a fuller plate of complaints.
  • Product innovation to gain comp. Advantage.
  • Reinsurers a focus of market pressures.

24
Safeguards--1
  • Define underwriters rolejob profile.
  • Define authorityincluding discretionary.
  • Appoint underwriters 3 months earlier.
  • Use current tariff as binding reference rates.
  • Specify binding parameters for swing ratesupward
    downwards.
  • Keep current terms, wordings and conditions for
    two years.

25
Safeguards--2
  • Product changes in tariff should be treated
    differently from file and use procedures.
  • Brokers remuneration from insured.
  • If not, brokers to specify brokerage- each risk.
  • Information slip must be compulsory.
  • Inspection of risks above a limit a must.
  • GI council to set up a committee - tariff change

26
Safeguards --3
  • Leverage IT for customer communication.
  • Capture customer data on computers.
  • Use MIS for locating system weaknesses.
  • Zero on laser-like on customer dispute
    resolution. Audit the current systems and
    innovate.
  • Reduce costs- customer cannot afford 45 on EP to
    obtain cover.
  • Develop micro-insurance as a new market.

27
Get back to school!
  • Not only underwriters but management as well.
    Insurance is a community based idea.
  • Industry is for consumer benefit.
  • You are a financial intermediary and a trustee
    for customers those that pay premiums but do not
    put in claims as well..
  • All are underwriters in insurance.

28
The long haul?
  • Policies are up for renewal each year but not
    your reputations or corporate values
  • You have a right to choose your customers.
  • But do not punish customers, if they made a
    choice in you as insurer.Trust is reciprocal.
  • Be in tune with customer expectationshe is
    continually changing, demanding.
  • What are your moments of truth?

29
Happy hunting for rates!
  • Underwriting is like hunting for good customers
  • No profession in the world with so many
    financially linked in one transaction!
  • One has to be a gainer and the other has to be a
    loser.
  • It is win-lose situationand not win-win like
    Life Insurance.
  • Your character and conduct are on display.
  • How great you want to be? Or how mean?
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