SABU LAMA

UNIT 6: RATE MAKING, UNDERWRITING AND CLAIM SETTLEMENT

1. What is rate making? Explain about the methods of rate making.

Rate making is the process of determining premium rate by considering various factors
including risks. In insurance companies, actuary is the person who determine appropriate
premium rate by using appropriate method to achieve objective of an organization.
The method of rate making are as follows:
 Judgmental rating: Underwriter uses his/her judgement to determine the premium
for particular policy. Generally, this method is used to determine the premium rate
of marine insurance and also for floating insurance.
 Class rating: Group is collection of people. Here, the group is class. Converting
heterogeneous group is class and determining the price is rating. This method
involves grouping is similar risk together and charging the same rate to all
members of the group. Further, it can be divided into two factors:
 Pure premium: It is calculated by dividing sum of incurred loss and loss
adjustment expenses by number of loss exposures.
 Gross premium: The gross premium is calculated by dividing pure
premium by (1-loss expenses ratio). The loss expenses ratio can be
calculated by actual- expected divided by expected.
 Merit rating: It is the mechanism of determining the premium rate by increasing
or decreasing the premium rate that is determined in class rating. Types of merit
rating are as follows:
 Schedule rating: This is the process of either reducing or increasing
policyholder’s premium based on certain conditions or factors.
 Experience rating: This method in based on the historical date.
 Retrospective rating: This method is used by insurance companies to
determine the final premium for a policy holder’s actual loss experience
during the policy terms. Retrospective= Minimum and maximum price for
the period of time.
2. Explain about tariff and non-tariff insurance business in Nepal.
If any financial charge is imposed on the movement of goods and services either export
or import than it is called tariff. On the other hand, if there is not any financial charge for
the movement of good and services then it is called non-tariff. There is high risk and
premium in tariff insurance. There is low premium and low risk in non-tariff insurance.
In Nepal, the insurance industry is regulated by the Insurance Board which oversees the
operation of insurance companies and ensures that they comply with the regulatory
framework.
Tariff Insurance: It is a type of insurance where the premium rates are fixed by the
regulatory and insurance companies have to follow these rates. In Nepal, tariff insurance
includes motor, fire and marine insurance. The premium rate for these types of insurance
is fixed based on various factors such as the type of vehicle, location and the value of
property insured.
Non-Tariff Insurance: It is a type of insurance practices that are not regulated by
insurance companies that are not regulated by Insurance companies. These insurance
products have premium rates that are determined by the insurance companies themselves.
Non-Tariff insurance includes products such as health, travel Insurance.

3. What is underwriting? Explain about the underwriting process.

Underwriting is the process of selecting, classifying and pricing the applicants. The
underwriting process involves analyzing various factors such as applicant’s credit history,
financial standing and other relevant information in order to determine whether the
applicant is eligible for financing.
Underwriting process:
 Field visit
 Information collection
 Agent report
 Inspection report
 Physical report
  Medical examination
 Financial report
 Other information
 Underwriting decisions
 Acceptance
 Acceptance with subject to change
 Rejection
 Field visit: An underwriter visits an applicant’s home or business to verify information
and assess risk. It helps the underwriter make a more informed decision and is conducted
to obtain additional information that may not be available from other sources.
 Information collection: Underwriter collect and analyze a wide range of information from
various sources to assess the risk associated with providing coverage of finance.
Information is collected through various reports like agents, inspection, investigation,
physical report and medical examination report. The underwriters uses this information to
make an informed decisions on whether to approve or deny the application and to
determine the terms of coverage.
 Underwriting decisions: It is a key part of the underwriting process. After collecting all
relevant information, the underwriter makes decisions to accept or reject application. The
decisions consider various factors like creditworthiness, risk level and determine the
terms of product or service.
Throughout the underwriting process, the underwriter may request additional information
from the applicant such as financial statements, tax returns or medical records etc.

4. What is underwriting? Explain about the underwriting process.

Underwriter is the person who issues the policy. The underwriter is responsible for
evaluating the risk associated with a particular investment or insurance policy and then
deciding whether to provide coverage for that policy.
The role of an underwriter are as follows:
 Evaluating risk: Underwriter assess the risks associated with a particular
investment or policy by analyzing the financial health of applicant.
  Setting terms: Based on risk assessment underwriter set the terms and conditions
of policy which includes determining interest rates, repayment terms, coverage
limits and premiums.
 Pricing: Underwriter set the prices that investor will pay for coverage based on
the risk assessment and market conditions.
 Managing risk: Underwriter manages the risk by diversifying portfolios, ensuring
that they have a mix of low risk and high-risk policies. They may also purchase
reinsurance to risk further.
 Ensuring compliance: Underwriter ensures compliance with regulations and
policies to minimize the risk of fraud and other illegal activities. They may also
investigate to identify potential risks.
Overall, the risk of an underwriter is to bear risk, ensuring policies are profitable
while minimizing risks to the underwriter and the policyholders.

5. Explain the determinants of underwriting.

Underwriting is the process by which insurance companies determines risk and pricing of
a policy.
Some determinants of underwriting are as follows:
 Age and health status: These are significant determinants of underwriting for life
and non-life insurance policies. Often individuals or those with pre-existing
medical conditions may be considered higher risk and may face higher premiums
or exclusion from coverage.
 Occupation: Certain occupations may be considered more hazardous and
therefore may face higher premium or limited coverage.
 Lifestyle habits: Lifestyle habits such as smoking, excessive alcohol consumption
or participation in dangerous hobbies may also impact underwriting decision.
  Credit history: It may be used as a factor in underwriting for some types of
insurance such as auto insurance poor credit history may result in higher
premiums or denial of coverage.
 Insurance history: A person’s prior insurance history including claim filed may
also be considered in underwriting decisions. A person with a history of frequent
claims may be considered higher risk and may face higher premiums or limited
coverage.
These are some of the factors that may be considered in underwriting decisions.

6. What is claim settlement? Explain about claim settlement process.

Claim settlement is the process of fulfilling the previous promise made by insurance
company while accepting the applicant’s proposal.
The claim settlement process involves:
 Claim intimation
 Claim investigation
 Negotiation
 Settlement
 Claim intimation: This is the first step in the claim settlement process. The
policy holders must provide all the necessary information and documents
to the insurance company and the time of claim intimation
 Claim investigation: The insurance company may investigate the claim
further to determine the cause and extent of damage or loss and to ensure
that the claim is not fraudulent.
 Negotiation: This step involves discussing the claim with the insurance
adjuster or appealing the decision but the insurance company has the final
say in approving or denying the claim and the amount of compensation
payout.
 Settlement: If the claim is approved, the insurance company pays out the
agreed upon amount to the policyholders.
7. What is surveyor? Explain the role of surveyor in claim settlements.
A surveyor is a person appointed by insurance company to assess the damage or loss
incurred by policyholders and provide a report to the insurance company.
The role of surveyor in claim settlements are as follows:
 Inspection of damage or loss: The surveyor visits the site of damage or loss to
inspect the extent and cause of damage.
 Documentation of damage or loss: The surveyor takes photographs and collects
other evidences of damage or loss to provide a detailed report to insurance
company.
 Assessment of repair or replacement costs: The surveyor estimates the cost of
repairing or replacing the damaged property.
 Report preparation: The surveyor prepares a detailed report that includes the
cause of damage, the extent of damage and the estimated cost of repair or
replacements.
 Presentation of the report of insurance company: The surveyor presents the
reports of insurance company which uses it to determine the amount of
compensation and the amount will be paid to the policyholders.

Overall, the role of surveyor is to prepare an independent assessment of damage or to

ensure that the insurance company is able to accurately assess the claim and provide
appropriate compensation to policyholders.

8. Explain about the role of Beema Samiti in dispute settlement.

Beema Samiti solves the dispute between insured and the insurance company. Beema
Samiti is responsible for regulating, supervising and promoting the insurance industry in
the country.
The role of Beema Samiti in dispute settlement are as follows:
 Formulate plans, policies, rules and regulations and directives.
 Issuance and license of insurance companies
 Issuance, renewal of license of agents, brokers, surveyour
 Role of mediator between insured and insurer and are not allowed to perform
discrimination
 Supporting to provide necessary documents in dispute settlement in court.