Pravin Pather, senior underwriter at Centriq Insurance, shares his checklist for identifying, measuring and managing risk during the underwriting process.
The processes that an underwriter assumes when identifying, measuring and managing the relevant risk challenges at hand will generally focus on the risks assumed by intent with a full understanding thereof.
Level of risk
Basically this relates to the known risks presented to the insurer, and is generally constituted in a format as presented by the various FAIS-accredited professionals. This enables insurers to make an educated assessment of the likelihood of paying a claim and quantum thereof and is called the level of risk.
Typically the underwriting opinion of an individual risk type or portfolio can be established or identified when considering the following aspects:
• classes of cover required;
• insured perils of risk and extensions of cover required;
• limits and levels of cover required for each of these classes and extensions;
• the typical risk type on a macro level as compared to the actual risk presented on a micro level;
• ability of relevant local municipal emergency services to deliver when required;
• availability and ability of any specialist private emergency service to deliver when required;
• quality and detail of the information in the ‘broking notes’ and recent risk survey reports;
• impact of changing legislation, to ensure that liability products and solutions are relevant.
Classification and management
That said, underwriting risks can be classified and managed through the risk management measures detailed in the table below.
The process
The underwriting risk management process entails the identification and measurement of the risks assumed, where after these risks are examined for operational compliance, while deviations from minimum rating guides are recorded and justified. Budgeted turnover and profitability deviation should also be examined, justified and recorded before any corrective action can be implemented when managing portfolios of risks.
IT is crucial
It is crucial that the IT platform - as primary management tool - as well as the underwriting and claims processes, supports the implemented risk management strategy and process.
Accurate, timeous and consistent data is a prerequisite to successful risk management practice. Insurers periodically profile data of risks and claims to track risk pricing and profile geographic risk accumulations, classes, sum insured bands and products. Where there is a deterioration in profit, claims settlement triangulations are also profiled to identify and correct any inefficiencies, and to analyse claim trends while reviewing covers in relation to imminent regulatory changes.
CLASSIFICATION RISK MANAGEMENT MEASURES
Historical Risks
a.Introducing and applying claim loss ratio profitability reviews.
b.Introducing and applying multi-claimant profitability reviews.
c.Investigating catastrophe or potential catastrophe risks i.e. 50-year flood lines.
d.Reviewing the increase in values and levels of cover.
Operational Risks
a. Implementing risk identification and risk improvement measures.
b. Ensuring that policy wordings, reinsurance treaties and facultative slips offer the same cover without any gaps.
c. Periodically reviewing and updating minimum rating guide rates and terms.
d. Measuring any deviations with the rating guide minimum requirements.
e. Ensuring internal operational underwriting quoting and risk inception and renewal processes are effective.
f. Effectively managing claims leakage due to above-average claims (supplier) costs.
g. Ensuring poor claims service does not result in a loss of clients.
h. Refining reinsurance structure to ensure relevance and optimisation, thereby minimising costs.
Regulatory and Compliance Risks
a. Ensuring policy wordings and disclosures comply with FAIS, Policyholder Protection Rules and other relevant legislation.
Risks Assumed Unintentionally
a. Identifying business continuity risks from an enterprise risk management perspective and closing the gaps.
b. Implementing and testing disaster/data recovery plans.
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