Insurance Underwriting 1

8/11/2019 Insurance Underwriting 1

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INSURANCE

Before looking at the range of car insurance policiesoffered by Dial Direct it isimportant to understand some of the principles of general insurance as !ell as be

familiar !ith the industry"s terminology#

What is Insurance?Insurance enables those !ho suffer a loss or accident to be compensated for the

effects of their misfortune# $he payments come from a fund of money contributed toby all the holders of indi%idual insurance policies# In other !ords indi%idual risks are

pooled and shared !ith each policyholder making a contribution to the commonfund#

How does Insurance Operate?$he contribution paid by a policyholder is kno!n as the premium# $he premiums are

paid to the insurers !ho in turn accumulate the money into a fund from !hich claimsare paid#

Insurers are professional risk takers# $hey kno! the probability of different types of

risk# $hen they can calculate the premiums needed to create a fund large enough toco%er any likely loss payments# Clearly only a proportion of the policyholders !illre&uire compensation from the fund at any one time#

'or e(ample in car insurancea young person !ith a high)po!ered car or a dri%er!ith a long history of accidents !ill pay a higher premium than a mature and

e(perienced dri%er !ith a modest saloon and a claim free record#

Insurance Types

$here are * kinds of insurance life insurance and general insurance# +hen you buy alife insurance policy you enter a long)term commitment !here you agree to pay a

fi(ed premium for a set number of years#

,eneral insurance pays out I' something happens- a car has an accident a house is

burgled a holiday is cancelled someone is careless and damages another person"sproperty# .ost life insurance policies pay out +/EN an e%ent happens !hen

someone dies or !hen someone sur%i%es beyond a certain date#

What is Insurable Interest?Insurable interest is a fundamental insurance principle# It means that the person

!ishing to take out the insurance must be legally entitled to insure the article or

e%ent or life# $he happening of the e%ent insured against must cause thepolicyholder financial loss# 'or e(ample0 .r Smith !ould not be able to insure .r

Bro!n"s house because its destruction !ould not cause .r Smith financial loss#

General Insurance Principles

1ther general insurance principles apply to the loss# A loss is an e%ent !hich gi%esrise to a claim under a policy# Insurance can pro%ide compensation only for the

actual %alue of the property# It cannot co%er the loss of sentimental %alue# A lossmay in%ol%e financial aspects the loss2damage or destruction of property be caused

by death or in3ury or liability 4se belo!5#
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$here must be a large number of similar risks so that the likelihood of a claim can bespread among other policyholders# It must be possible to calculate the chance of the

loss so that a premium can be set !hich matches the risk# 6oss is the monetary%alue paid in order to compensate an indi%idual for the damage caused by an

incident# $he loss suffered by an indi%idual can result from damage to propertyin3ury or death

6iability of a person is the legal responsibility to compensate others for a loss# $heperson !hose action or lack of action is the cause of a loss being suffered is legally

responsible for the conse&uences of the incident#

6osses must not be deliberate and not ine%itable# Clearly you could not buy fire

insurance for a house that !as already burning# Also there are some risks !hichha%e financial implications so %ast that they can be dealt !ith only by the state#

$hese risks 4mainly those arising from !ar or nuclear 2 radioacti%e material5 are notnormally insurable# Insurance takes the risk a!ay from peoples" li%es and

businesses# It brings peace of mind to the policyholder# In return for paying thepremiums the policyholder kno!s that if the une(pected occurs and a loss is

suffered financial compensation !ill be a%ailable from the fund of premiums#

An Insurance ContractA Contract is an agreement bet!een t!o parties# $he * parties to an insurance

contract are the insurance company 4referred to as the 'irst 7arty5 and thepolicyholder 2 client 4referred to as the Second 7arty5#

An insurance contract called the 7olicy becomes %alid once the t!o parties agree

on-

+/A$ is to be insured 4the car and the dri%er5

+/A$ it !ill cost 4the premium to be paid5 and

+/A$ the period of insurance !ill be that is !hen does it commence and!hat is the e(piry date#

4.onthly or Annual 7olicy5

Motor Insurance.ost people kno! something about motor insurance# $his is because any %ehicle

dri%en on public roads must ha%e a certain le%el of insurance# $he Road $raffic Actensures that dri%ers must meet liabilities they incur should they in3ure other people

or cause damage in an accident# $he other person not the insurer or the insured iskno!n as the $hird 7arty# $he third party may be a pedestrian a passenger in the

car dri%en by the insured person or the dri%er or passenger in another %ehicle#

$he in3ured $hird 7arty claims compensation from the dri%er of the offending car and

the dri%er relies on his insurers to pay the claim#

Indemnity Insurance$he insurance Dial Direct offer is kno!n as indemnity insurance# $his means that !e

undertake to restore the insured to the financial position he2she !as in before the

loss occurred# $he car insurance policy comes into e(istence !here the client agreesto pay a premium in return for indemnity insurance# $he premium is determined by

the RIS8 !hich the client represents to the insurer RIS8 in turn is determined by-


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$he likelihood that a loss !ill occur based on the characteristics of the

dri%ers the car and the risk address#

$he probable cost in%ol%ed if a loss should happen#

Cover

$he la! says that dri%ers must ha%e insurance against third party in3ury or damage

claims !hilst being dri%en on a road 4a road means a high!ay and any other road to!hich the public has access5# $he la! also states that the insurer must gi%e to theinsured a Certificate of .otor Insurance# .ost motor policies pro%ide additional co%er

other than a simple certificate of insurance# At Dial Direct there are 9 le%els of motorinsurance policy on offer each pro%iding indemnity against certain specified perils#

A peril is an e%ent !hich can cause a loss e#g# accidents theft fire maliciousdamage storm# An Insurance Company clearly indicates the perils co%ered by its

policies and those perils !hich are specifically e(cluded#

$hird 7arty

$hird 7arty Co%er sometimes referred to as $hird 7arty 6iability Insurance isinsurance co%er that you ha%e against liability to another person#

As !ell as co%ering the insured to dri%e on public roads this policy pro%ides co%er!hen the car is being dri%en on pri%ate property# It co%ers against third party claims

and pro%ides protection against other legal liabilities#

'or e(ample passenger indemnity co%ering the possibility that a passenger in a car

may cause an accident perhaps by opening the door and knocking a cyclist o%er# Italso pro%ides co%er for certain legal costs and emergency treatment e(penses for

e(ample !hen an ambulance has been called to the scene of an accident#

$hird 7arty 'ire and $heft

In addition to the protection pro%ided by third party insurance this type of policy

co%ers loss or damage to the insured"s o!n %ehicle as a result of fire theft orattempted theft# It offers the client limited o!n damage co%er that is protection forloss or damage suffered by a person to his o!n property or person#

Comprehensi%e

Comprehensi%e policies offer the !idest form of o!n damage co%er a%ailable

although it cannot protect against e%ery concei%able risk# In addition to the co%ersdescribed abo%e comprehensi%e co%er protects in other %aluable !ays# $he most

important of these is accidental damage co%er# $his means the policyholder can ha%etheir damaged %ehicle repaired or replaced after it has been accidentally damaged

for e(ample !hen the client re%erses the car into his garden !all accidentally#

$he additional co%er that is pro%ided includes personal accident insurance a small

amount of medical e(penses co%er and co%er for the loss of or damage to thepersonal effects in the car#

nderwritin!UNDER+RI$IN, is the process !hereby information is collected in order to establish

the RIS8# 1nce !e kno! the risk the client represents the decision is made as to!hether !e ACCE7$ or DEC6INE that risk# If !e decline the risk the process stops# If


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!e accept the risk then !e calculate the 7RE.IU. the client must pay to co%er therisk#

+e ask the &uestions on behalf of the panel members and the system checks the

ans!ers against the :Under!riting Criteria; to make the decisions mentioned abo%e#

$he assessment of risk 4and hence the premium5 for motor insurers is based around9 main factors-

) $he Risk Address) $he Car

) $he Dri%er2s

It is the inalienable right of an insurance company to re3ect any risk !hich it may

find unacceptable#

$here are * stages to the Dial Direct under!riting process-

$he


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Any payment of a claim e(cept for liability claims paid to a $hird 7arty !ill besub3ect to an e(cess# $he e(cess is the uninsured portion of a loss or the

contribution the client is e(pected to pay to!ards the cost of settling the claim#

Documents

Insurance Underwriting 1