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Commercial UW AU60
Commercial Underwriting Principles Assgnt 1 of 8
| Term | Definition |
|---|---|
| Underwriting | The process of selecting insured, pricing coverage, determining insurance policy terms and conditions, and then monitoring the underwriting decisions made. |
| Book of business | A group of policies with a common characteristic, such as territory or type of coverage, or all policies written by a particular insurer or agency. |
| Adverse selection | In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance. |
| Policyholders' surplus | Under statutory accounting principles (SAP), an insurer's total admitted assets minus its total liabilities. |
| Capacity | The amount of business an insurer is able to write, usually based on a comparison of the insurer's written premiums to its policyholders' surplus. |
| Underwriting guidelines (underwriting guide) | A written manual that communicates an insurer's underwriting policy and that specifies the attributes of an account that an insurer is willing to insure. |
| Underwriting authority | The scope of decisions that an underwriter can make without receiving approval from someone at a higher level. |
| Line underwriter | Underwriter who is primarily responsible for implementing the steps in the underwriting process. |
| Staff underwriter | Underwriter who is usually located in the home office and who assists underwriting management with making and implementing underwriting policy. |
| Manuscript policy | An insurance policy that is specifically drafted according to terms negotiated between a specific insured (or group of insureds) and an insurer. |
| Underwriting policy (underwriting philosophy) | A guide to individual and aggregate policy selection that supports an insurer's mission statement. |
| Advisory organization | An independent organization that works with and on behalf of insurers that purchase or subscribe to its services. |
| Protective loss costs | Loss data that are modified by loss development, trending, and credibility processes, but without considerations for profit and expenses. |
| Loss development | The increase or decrease of incurred losses over time. |
| Trending | A statistical technique for analyzing environmental changes and projecting such changes into the future. |
| Treaty reinsurance | A reinsurance agreement that covers an entire class or portfolio or loss exposures and provides that the primary insurer's individual loss exposures that fall within the treaty are automatically reinsured. |
| Underwriting audit | A review of underwriting files to ensure that individual underwriters are adhering to underwriting guidelines. |
| National Association of Insurance Commissioners (NAIC) | An association of insurance commissioners from the 50 states, the District of Columbia, and the 5 U.S. territories and possessions, whose purpose is to coordinate insurance regulation activities among the various state insurance departments. |
| Premium-to-surplus ratio or capacity ratio | A capacity ratio that indicates an insurer's financial strength by relating net written premiums to policyholders' surplus. |
| Statutory accounting principles (SAP) | The accounting principles and practices that are prescribed or permitted by an insurer's domiciliary state and that insurers must follow. |
| Return on equity (ROE) | A profitability ratio expressed as a percentage by dividing a company's net income by its net worth (book value). Depending on the context, net worth is sometimes called shareholders' equity, owners' equity, or policyholders' surplus. |
| Market conduct examination | An analysis of an insurer's practices in four operational areas: sales and advertising, underwriting, ratemaking, and claim handling. |
| Predictive modeling | A process in which historical data based on behaviors and events are blended with multiple variables and used to construct models of anticipated future outcomes. |
| Underwriter | An insurer employee who evaluates applicants for insurance, selects those that are acceptable to the insurer, prices coverage, and determines policy terms and conditions. |
| Underwriting submission | Underwriting information for an initial application, or a substantive policy midterm or renewal change. |
| Expert systems, or knowledge-based systems | Computer software programs that supplement the underwriting decision-making process. These systems ask for the information necessary to make an underwriting decision, ensuring that no information is overlooked. |
| Loss exposure | Any condition or situation that presents a possibility of loss, whether or not an actual loss occurs. |
| Hazard | A condition that increases the frequency or severity of a loss. |
| Information efficiency | The balance that underwriters must maintain between the hazards presented by the account and the information needed to underwrite it. |
| Application | A legal document that provides information obtained directly from an applicant requesting insurance and that an insurer can use for underwriting and claim handling purposes. |
| Loss run | A report detailing an insured's history of claims that have occurred over a specific period, valued as of a specific date. |
| Counteroffer | A proposal an offeree makes to an offeror that varies in some material way from the original offer, resulting in rejection of the original offer and constituting a new offer. |
| Estimated loss potentials (ELP) | Rate development factors used for operations with unique characteristics or for which inadequate statistical experience exits. ELPs are multiplied by loss cost multipliers to develop rates. |
| (a) rated classification | The rate classifications provided by the ISO Commercial Lines Manual that describe operations with unique characteristics or for which inadequate statistical experience exists. |
| Experience rating | A ratemaking technique that adjusts the insured's premium for the upcoming policy period based on the insured's experience for the current period. |
| Schedule rating | A rating plan that awards debits and credits based on specific categories, such as the care and condition of the premises or the training and selection of employees to modify the final premium to reflect factors that the class rate does not include. |
| Retrospective rating | A ratemaking technique that adjusts the insured's premium for the current policy period based on the insured's loss experience during the current period; paid losses or incurred losses may be used to determine loss experience. |
| Facultative reinsurance | Reinsurance of individual loss exposures in which the primary insurer chooses which loss exposures to submit to the reinsurer, and the reinsurer can accept or reject any loss exposures submitted. |
| Account underwriting | A method of underwriting in which all of the business from a particular applicant is evaluated as a whole. |
| Unfair trade practices | Methods of competition or advertising or procedures that end to deprive the public of information necessary to make informed insurance decisions. |
| Binder | A temporary written or oral agreement to provide insurance coverage until a formal written policy is issued. |
| Certificate of insurance | A brief description of insurance coverage prepared by an insurer or its agent commonly used by policyholders to provide evidence of insurance. |
| Combined ratio | A profitability ratio that indicates whether an insurer has made an underwriting loss or gain. |
| Underwriting cycle | A cyclical pattern of insurance pricing in which a soft market (low rates, relaxed underwriting, and uw losses) is eventually followed by a hard market (high rates, restrictive underwriting, and underwriting gains) before the pattern again repeats itself. |
| Production underwriting | Performing underwriting functions in an insurer's office as well as traveling to visit and maintain rapport with agents and sometimes clients. |
| Hit ratio | The ratio of insurance policies written to those that have been quoted to applicants for insurance. |
Created by:
lorrainel007
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