PRACTICAL ISSUES IN UNDERWRITING MANAGEMENT

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PRACTICAL ISSUES IN UNDERWRITING MANAGEMENT

• Prepared by Joe Ganly
• Joe Ganly International
• June 2009

Disclaimer The Insurance Institute of Ireland
does not endorse or approve the content of any
third party.
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What is Insurance Underwriting....And why is it
important?

• Underwriting is one of the aspects of Insurance
  that makes most Peoples eyes glaze over.
  Underwriters deal with statistics they are
  number-crunchers. Many People who have an
  Insurance Policy do not even know that at some
  point their Application passed through an
  Underwriters hands.
•  
• However Underwriting is one of the most important
  parts of the Insurance Process and knowing what
  an Underwriter does and why it is so important
  is helpful for People who are shopping around
  for a new Policy.

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What an Underwriter does

• Insurance is based on risk. When you get an
  Insurance Policy, the Insurance Company is taking
  on some of your risk e.g. if you drive a car
  there is a risk that your car will be damaged in
  an accident but having Motor Insurance means that
  if your car does get damaged, your Motor Insurer
  will pay for the repairs. By having a Policy a
  risk is lower.
• The Insurance Company makes up for the risk it
  takes on by charging Premiums and setting
  Deductibles or Excesses. If a Company charges
  too little it could go bankrupt when and if large
  Claims are filed. If a Company charges too much
  it will lose business to its competition.
•  
• An Underwriters job is to make sure that the
  Insurer charges the right amount for the coverage
  it provides. They figure how much risk you
  represent, how much Cover their Company can offer
  and how much that coverage should cost.

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Why Insurance Underwriting is important

• Insurance Companies want to stay competitive and
  stay open for business, so it makes sense why
  Underwriting is important to them.

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Underwriting in the Irish Insurance Market

• In light of recent market developments, one must
  question whether Insurers are Underwriting for
  profit or for market share.
• We have also seen how Insurance Companies are now
  dealing with the Insurance Customer. Are
  Insurers managing or processing their business?
• Insurance Companies have made the whole Insurance
  delivery process so easy for the Personal Lines
  Customer, and further strides have been made to
  improve matters from the Commercial Insurance
  Customers perspective.

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Best use of technology

• Are we making the best use of modern technology?
  We have certainly moved away from the paper
  trail. The Personal Lines Customer in many
  cases now no longer has to complete the
  traditional Insurance Proposal Form but rather
  Cover is arranged by way of a conversation with a
  Telesales Operator and the completion of a
  Statement of Fact which is a form that is sent
  out to the Proposer to confirm that the
  information collated is correct.

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Can we do more insofar as the delivery of a
service to the Commercial Customer is concerned?

• The answer in my view is yes. By way of
  example, the traditional paper presentation or
  Risk Submission which has become the norm for the
  placement of many Commercial Risks could be
  replaced by way of a short DVD or video
  presentation of the Risk in question. Think of
  how easy this would make life for the Insurance
  Underwriter and the savings that could be
  achieved by avoiding the necessity to send out
  Risk Surveyors.
• A complicated trade process system of work etc.
  is far more easily explained by way of a video
  presentation rather than a paper submission.
•  
• We have within the Insurance Industry been
  perceived as Imitators rather than
  Innovators.
•  
• If we are trying to portray ourselves to the
  Insuring Public as a Profession, then we should
  be leading by example and coming up with
  innovative ways to manage the Underwriting
  process.

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Liability Insurance Business placed in the
conventional wayor by way of large Excesses

• In the days of the Celtic Tiger, and prior to the
  establishment of the Injuries Board (formerly
  known as the Personal Injuries Assessment Board),
  IBEC and Commercial Clients took a very keen
  interest in the management of their Claims.
• Many Clients felt that by managing a lot of the
  smaller Claims themselves, they have far more
  control over their Insurance costs.
•  
• Many Commercial Clients had geared themselves up
  to being able to deal with many of the Claims
  that would come across their desk in a very
  proactive and economic fashion. Now, with a
  downturn in the economy and lack of cash,
  Insurers are encouraging Clients to return to the
  conventional way of writing Liability business
  i.e. from ground up.
•  
• I ask the question is this a backward step?

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Insurers role in accident prevention and road
safety

• Insurers spend a significant amount of money
  sponsoring radio and television advertisements
  dealing with the horrors associated with road
  accidents. Despite this, drink-driving continues
  to be a significant factor. Insurers could lead
  the charge quite easily by implementing across
  the board a situation whereby a Policyholder
  found to have been involved in an accident whilst
  under the influence of alcohol or indeed drugs
  will not be compensated for the damage to their
  own vehicle. We have all seen the rude awakening
  which Policyholders receive when they are hit in
  the pocket. Why are Insurers so reluctant to go
  down this particular route? I accept that some
  Insurers have led the charge on that front, but
  if the Insurance Profession is to be serious
  about this issue, more drastic steps need to be
  taken.

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Criminal Activity and Insurance Fraud

• Drug-dealing, gang warfare and gun-running have
  now reached epidemic proportions in this Country.
• Can Insurers play any role in trying to address
  that particular issue?
• The Insurance Fraud hotline has proved to be a
  huge success insofar as the control of fraudulent
  claims is concerned. However it is my belief
  that Insurance Underwriters could work much more
  closely with the Gardaí and in particular with
  the Criminal Assets Bureau (CAB). In my early
  days of Insurance studies I learned that
  Insurance Companies were not set up to cover acts
  or events which are contrary to public policy.
• Are we really only paying lip service to that
  particular principle?
• We all know compulsory form of Insurance in
  Ireland is Motor Insurance. As a consequence if
  we work closely with the Gardaí can we not
  isolate these Villains of society by refusing to
  protect their assets?

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The Financial Services Sector

• The Financial Services Regulator and the Banking
  Industry have come in for some very severe
  criticism over the past 12 months.
• Are Insurers next in the firing line?
•  
• What should Insurers be doing to show themselves
  to be behaving in a professional manner?
•  
• We are now in a worldwide recession, but if you
  think back on major world events over the last
  number of years Insurers have shown themselves to
  be Masters in dealing with catastrophes and
  surviving.
• Think of the attack on the World Trade Centre in
  New York, and the hurricanes in New Orleans.
  Many Financial Commentators felt that events of
  that magnitude would wipe out the Insurance
  Industry but that however proved to be far from
  the truth.
• Insurers are in the business of analysing risks
  and charging an appropriate Premium for those
  risks.
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• One of the key things to remember about Insurance
  Companies compared to Banks is that if somebody
  enters into a long-term commitment with a Bank
  and then runs out of finances to be able to fund
  that commitment, then that becomes a major
  headache for the Bank. If that happens on as
  large a scale as it has done in recent times, it
  makes the position of the Banks untenable.
•  
• Insurance Companies on the other hand are in a
  much stronger position. Having analysed the risk
  Insurance Companies then charge a Premium. If
  the Premium is not paid then the Policyholder
  simply does not have Cover.

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Analysis of Risks

• In recessionary times you are seeing Companies
  slashing their training budgets and indeed their
  maintenance budgets. One does not have to be a
  Rocket Scientist to realise in the short-term
  what impact that is likely to have on the
  Insurance Industry. With lack of training and
  instruction there is likely to be a higher number
  of Personal Injury Claims and if maintenance and
  repairs are ignored, that is only going to give
  risk to significant property losses.
• The recession has also impacted on Insurers in
  that rates are down and expenses are up, so in
  order to slash expenses Insurance Companies in
  some cases are abandoning carrying out risk
  surveys or in other cases they are asking for
  such surveys to be done at such a low rate that
  the job just cannot be done properly.
•  
• There is a duty on Insurers to make sure that in
  employing Experts to carry out surveys and other
  roles within the Organisation that those carrying
  out such jobs are paid commensurate with the
  quality of the work that they do. There is a
  huge risk that standards will drop as prices are
  slashed.
•  
• We all know that there is an inextricable link
  between claims costs and Insurance Premiums. For
  that reason there should be much greater
  interaction between the Claims and Underwriting
  function.
•  
• The strong likelihood in recessionary times is
  that Claims will increase. If Claims increase
  that means that there will be a more intimate
  relationship in the short-term between the Claims
  Department and the Policyholder, rather than the
  Underwriter and the Policyholder.
•  
• Why not use the information gathered in the
  course of Claims Investigations to assist in the
  Underwriting Process?
•  
• Use the outside Experts engaged in investigating
  Claims to also highlight inadequacies that they
  may see in the risk that could give rise to
  future Claims.

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Actions taken by Underwriters

• We are now likely to see much greater use of
  Premium Payment Warranties in the Underwriting of
  Commercial Insurance products. Premiums will
  have to be paid within a specific timeframe or
  else Insurance Cover will just not be in place.
• Not alone must the Underwriting Department be
  looking at the control of Claims costs and
  administration expenses but Management expenses
  must also be addressed.

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E-Tendering

• In many other Jurisdictions E-Tendering over the
  Internet is now becoming the norm. What will
  that do to Insurance Premiums? Are we using a
  pricing model at all? Is there in reality any
  Underwriting? How many times has a Broker heard
  the question being asked when dealing with an
  Insurance Company and seeking Terms what do I
  have to beat?

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The role of the Broker

• What skill-set does the Broker bring to bear on a
  risk? Is it only a marketing skill? What do
  they do from an Underwriting perspective? Is it
  all about placing a risk by "ambush?

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Have we done enough in revolutionising the
business?
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Conclusion

• What I have tried to do in this Presentation is
  outline a number of practical issues in
  Underwriting Management.
• Continuous Professional Development lectures, of
  the type you are all attending here today, have
  been set up as a means of taking some thinking
  time to analyse the problems that we are facing
  within the Insurance Industry and what we are
  doing to address those problems.
•  
• It is my strong view that there are a number of
  very sensible measures that can be taken by
  Insurers without incurring any major costs.
•  
• In summary, such measures could include -
•  
• Greater use of technology e.g. video and DVD
  Presentations of Commercial Risks.
• Closer liaison with the Gardaí and the Criminal
  Assets Bureau.
• Greater communication between Underwriting and
  Claims discipline and outside Experts.
• Road Safety Initiatives.
• Policy wordings such as Premium Payment
  Warranties etc.

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Question Answer Session