Thevantharen Muniandy

Assignment 1

1. Discuss your understanding of Underwriters Risk evaluation.

The below summarizes of the evaluation process undertaken by the underwriter when
a risk is proposed for insurance.
1. What is the probability of the activities of the insured causing an Insured Eventinjury or damages?

2. If such a thing happens, could the insured be liable in law to a third partytaking into account of where the insured is operating?

3. If so is the remedy damage?

4. If the insured could be liable in damages, who could sue?

5. What is the likelihood of them suing?

6. What are the likely costs of defending such an action or actions?

7. What level of damages could be rewarded?

The 7 steps allow us to evaluate the risk from the insured. Step 1 looks at the physical
hazards and the steps 2-7, the legal implications. Fate has a great hand to play. For
1

Thevantharen Muniandy

Assignment 1

example if in Scenario 1 no one was hurt and the insureds factory was damaged, there
would be no liability claims at all. With so much of the risk identification evaluation
processes being subjective, it is important that all the possibilities are taken into account.
The first stage of risk evaluation for the liability underwriters is assessing the physical
hazard and considering the key exposures of the insured. In an ideal situation, the
underwriter would visit each location and assess the potential exposure for themselves.
This, however, is impractical and the underwriter has to rely on information supplied to
them and on their previous experience of similar risks of that type.
Underwriting process
The underwriting uses the risk evaluation process and then apply the following
underwriting process to that analysis. They seek to ascertain:
i.
ii.

iii.

How much of this risk is suitable for transfer by insurance does it have an
element of fortuitousness?
The definition of the extend of the risk transfer :
Its limits
Its deductibles
The cover
The premium for the risk transferred

Common underwriting information for liability risks

There are some standard piece/s of information that is required by all the liability risk.
They are:i.

Details of who is seeking insurance

Typical questions include the following:
The name of the proposer in full
The proposer business address
These details are required for identification purpose and policy drafting.
There is a need for full details of all subsidiaries or other entities, such as joint
venture. If the insured is a partnership, the underwriter will want the full names of
all partners.
The liability policy usually applied to all premises at which the insureds employees
are working. Consequently, it may be necessary to seek more information regarding
other business locations beyond that of the head office/registered address.

ii.

Business of the proposer for which insurance is required.

2

Thevantharen Muniandy

Assignment 1

This includes details of any work in the UK, offshore or outside the UK and is
essential for rating purposes.
A full description of the business is required, including a statement of the exact
nature of the work or activities undertaken. It is essential that there is an
adequate description for the purposes of the policy, as only claims arising out of
the business as described, will be the subject of indemnity. General terms such
as manufacturer, contractors and engineers are not adequate as these are
generic terms potentially involving many and disparate activities. For this
reason, a comprehensive description of the business is required, for example,
leather goods manufacturer, building contractor and electrical engineer. This
is necessary so that the risk is properly rated and the appropriate cover applied.
Where a joint venture is to be covered, clarification of the business of the joint
venture is necessary. This is because it may not follow precisely the nature of
the parent insured.
iii.

Cover, limits and deductibles required

This relates to:
The cover and the extensions requested and
The limits and excess/deductibles required
The underwriter will require risk exposure information, together with details of the
risk control measure in place to support the requested cover and limits

iv.

Previous loss history

The past loss experience is an important feature in the assessment of every risk
whether the losses were insured or not. It indicates the degree of care the
proposer is exercising and the underwriter can compare the experience with
similar risks. As excessive number of accidents or several costly claims will
usually involve further investigation.
A poor record in the past indicates the need for better preventive measure, but
past experience is not necessarily a guide to the future. For example, the
insured may have ceased production of a product that have previously produced
claims, sold a problem subsidiary or instituted stringent risk management
procedures.
Depending on the business, a number of small accident may be more important
to the underwriter than a single major one. This is because their frequency may
indicate some abnormality in the physical hazard, a poor moral hazard arising
out of unsatisfactory staff relations or simply a lack of or inadequate training.
The underwriter can take steps to control the increased exposure such
circumstances create.

Thevantharen Muniandy

Assignment 1

An insurer may also ask a specific question regarding certain types of claim, for
example occupational illness (such as repetitive strain injury, deafness, lung
diseases) or pollutions and contamination claims.
v.

Previous insurance history

An underwriter is interested in all aspects of previous insurance history. If a
previous insurance has involved a declinature or the imposition of special terms,
it is essential to find out all the details. A former insurer may have declined the
risk or asked for an increased premium because of a poor claim experience, or
there may have been an unsatisfactory moral hazard. Where the explanation
given by the proposer appears inadequate, it may be necessary to seek
information directly from the previous insurers

vi.

Details of any prosecutions relating to the risk proposed.

The vast increase in legislation, regulation and Codes of Practice, particularly in
the areas of health and safety, consumer safety, and damage to the
environment, means that the frequency of prosecution in many times greater
than it was even ten years ago. Insurers are interested in all prosecutions
whether successful or not, because they shed light on the regulatory framework
in which the proposer/insured operated and this can assist on the risk evaluation
process.
A positive answer would immediately put the underwriter on enquiry. They
should seek full details of the nature of the offence, the consequences of the
breach and most importantly, the steps taken to remedy the situation that gave
rise to the action, as the basis for further consideration. There may be an
indication of poor management or poor supervision and a full survey of the risk
may be required.

vii.

Material Fact
The principle of utmost good faith is the foundation upon which insurance
contracts are built on. This applies equally to liability insurance. A proposer for
liability insurance must disclose to the insurers all material facts about the risk
offered that they know or ought to know.
The duty of disclosure continues throughout the currency of the policy. Once
insurance has been granted, the duty on the insured to advise the insurer of any
change in the material facts arises at each renewal. For some liability classes,
insurers require a renewal declaration.

Thevantharen Muniandy

Assignment 1