Prepared by:Joe Ganly
Joe Ganly International
Disclaimer: The Insurance Institute of Ireland does not endorse or approve the content of any third party.
What is Insurance Underwriting....
And why is it important?
Underwriting is one of the aspects of Insurance that makes most
People’s 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
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
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 Underwriter’s 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.
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.
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
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 Customer’s
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.
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
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
Liability Insurance Business placed in the conventional way
or 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?”
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.
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?
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
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.
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.
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.
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.
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?”
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”?
Have we done enough in revolutionising the business?
What I have tried to do in this Presentation is outline a number of practical issues in
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.
Question & Answer Session: