Underwriting Audits

Underwriting we like to think of as when the key to the capital box of an insurance company is given out to a client. Once a risk is accepted, the insurance company can now lose that value. It is essential that the underwriting process be measured while being competitive to the market.
Underwriting today is still about evaluating a risk, deciding whether the risk is acceptable and determining both premium and terms. However, changes in the distribution landscape, advances in technology and developments in regulation have all led to changes in the traditional role of the insurance underwriter.

In reviewing underwriting performance, the first decision is what measure to apply to underwriting results. Some companies use a combined ratio, a measure of costs over premium charged. Others look at return on equity or return on capital. Still others seek to compare rating results year to year against an actuarial standard.

A clear written underwriting process is a precursor to any underwriting department. Rating systems that can be automated are ideal though some product lines do not lend themselves to mathematical rating systems. How would you evaluate the cost of buying an insurance for a loss that has never happened? Many insurers and reinsurers had no load for the events of 9/11 as an example.
Tightening up “assumptions” and load requirements are important ways to close escape hatches for underwriters.
While there has been increasing sophistication in underwriting and pricing techniques, this has not always led to increased profits or lower combined ratios. This has been due primarily to the level of competition in the most products, the rise in claim trends, fraud and the continuation of soft market conditions. The cost of doing business has increased during recent years. Insurers have invested in improved data collection systems and customer service.
We have assisted numerous clients to accomplish audits and reviews of underwriting and provided tangible recommendations and results in our reports.