Moratorium underwriting

Underwriting is the very essence of insurance. Therefore, development of adequate criteria for evaluation of the insurance company’s underwriting efficiency is the first step towards increasing the profit and market value of the insurance company. What is moratorium underwriting?

What is underwriting in insurance

Underwriting is the insurer’s activity aimed at assessment of the risks accepted for insurance, determination of the adequate insurance rate and terms of insurance, formation of the profitable insurance portfolio. Thus, here are the main functions of underwriting.

• Risk assessment. Any risk is characterized by certain parameters: quantitative (probability of damage, greatest possible damage, mathematical expectation of damage, etc.) and qualitative. Risk assessment consists in determining the parameters of each risk;
• Determination of an adequate insurance rate. Insurance tariffs are calculated actuarially, and the task of the underwriter is to choose adequate increasing (decreasing) coefficients to the base tariff, depending on the specifics of the insurance contract;
• Determination of insurance conditions. One of the tools of the insurance company profitability management, along with insurance rates, are insurance terms and conditions (breadth of insurance coverage, exclusions from insured events, etc.);
• Formation of a profitable insurance portfolio. We will understand the insurance portfolio as the sum of all insurance gross premiums received (accrued) during the underwriting year for a certain insurance type or for all types of insurance, minus expenses for attracting policyholders (agent and broker fees) and expenses for conducting business.

Why do I need underwriting?

Each type of insurance has its own underwriting features. Without an understanding of insurance risks and what is accepted for insurance (the object of insurance), as well as a description of the factors that increase the likelihood of an insured event and the expected amount of insurance compensation, it is impossible to properly assess risk. And if the degree of risk cannot be expressed in monetary terms, it will not be possible to form a profitable portfolio, and even if it is, it will only be possible due to chance. Usually, underwriting is carried out by checking the risk offered for insurance against a number of parameters, which depend on the particular type of insurance. 

Obviously, for each type of insurance, it is possible to identify a certain set of parameters that have a significant impact on the probability of occurrence of an insured event and/or on the amount of damage.