1.

Background
 Started some 400 years back (17th c.)
 Merchants depended on the safe arrival
of cargo/ship going on sea/ocean
 Promise to contribute certain amount
 Member required to write his name
underneath a document
 Underwrite – in acceptance of the risk.
 Person who wrote his name -
“Underwriter”
 2. Definition of Underwriting:
2.1. Literal: -
 signing & accepting risk liability under

an insurance policy,
 guaranteeing payment in event of loss

2.2. Practical: -
 selection of risk and rating it properly
 Selection of risks based on information

 Decision whether to accept risks or not

 If so, on what terms/conditions & at

what rate
 3. Basic Functions of Underwriter
 Gather risk information
 Assess & evaluate risk

 Risk selection

 Risk classification

 Rating of risks

 Policy coverage (terms/conditions &

exclusions)
 Retention and re-insurance
4. Auxiliary Duties of the Underwriters
 Coordination of U/W tasks
 Maintain policies in force/renewals
 Customer visit, follow up (risk data/bus.)
 Proper handling of UW Files & records
 U/W Report preparation
 Handling of alteration/cancellation
 Provide information to claim handler
 5. Importance of Underwriting
 U/W - needs emphasis in insurance
 U/W - direct impact on performance

 U/W’r responsible to investors

(shareholder)
 Responsible to the public

 Employees

 Provide protection to public fund

 etc
Poor U/W means

More claim (frequency & severity)

 More time to h handle claims
 Less time for new businesses

& keep existing ones.

 Re-insurance rates will increase

 Premium to be ceded will go up

 Premium rates sour & loss of clients
 Cash out flow increases

 Less fund for investment

 Less profit or eventually loss

 It may eat up capital/reserve

 Bad public image

 Collapse of insurer & lay off of staff

 6. Basic Requirement for Underwriting
 Large number of similar risks

 SMI (property, life, Liab.)

 Insurable Interest

 Loss must not be imminent but

accidental
 Insurable risk: Pure risks, not
speculative
 Not catastrophic,

 Loss should be definite in time, place,

cause and amount.

 No room for sentimental values.
 Scope of cover should be legal & not
against public interest.

E.g.
 PA/GPA: not for self-injury and suicide,

 Motor: not for traffic offence

 Professional Indemnity: not for misconduct

 Marine Inland: not for smuggling of goods

 7.1. New Policies
Cover Negotiation
 Risk proposal made by prospective
client (tender PF & get it completed &
signed)
 Assess the risk per inf. in PF
 Brief explanation of policy
 Examine survey report, evaluate risk
 Negotiate cover & agree on premium
Additional Source of U/W Information:-
 Further probing from proposer
 From Acquaintances

 The agent, sales person or brokers

 Physical inspection by insurer’s staff

 Report of risk surveyors

 Other inspection report (banks )

Good Proposal Form should at least
have the following information:
Details of the proposer & address

Details of property to be insured

Details of claims history

State of ownership of property

Use of property

Type of cover required

Period of Insurance

Truthful declaration of Statements of facts

presented
Signature & date of proposal.
 Policy preparation

 Enter relevant U/W data

 Appropriate endorsement, clauses, excess,

warranties etc to be included/attached.

 Make sure that underwriting slip is signed

by both parties and witnessed.
7.2. Renewals:-

No legal duty to send notice

 Renewal list of policies to be prepared 60

days ahead of expiry date.

 Notices to be prepared & dispatch before 45

days.

2nd & 3rd notice if no response before 15 days

U/W procedures to be followed as applicable.
 7.3. Treatment of Alteration

 Request for alteration should be in writing,

signed & stamped as applicable.
 Disclosure of material facts
 Evaluation of the change.
 Act upon the request (accept/reject)
 Charge premium where applicable.
 Issuance of relevant endorsement.
8. U/W Consideration by Class

Four classes to be discussed briefly:

8.1. Motor Insurance:-
Proposal Form
 Details of proposer ( name & address)
 Details of vehicle ( type, plate #, c.c. year make)
 Ownership of vehicle (insurable interest)
 Use of vehicle ( Pvt., own goods or G/C etc)
 Type of cover required ( Comp. , TP etc)
 Period of Insurance
 Names, experience & age of regular drivers
 Insurance & claims history of proposer
 Declaration & statement.
 Signature & date.

* Exceptional Cases: - big corporate companies

 Pre-risk survey
Objectives of Pre-acceptance inspection
 check mere existence of the vehicle
 examine physical & other conditions

 record mileage traveled

 Verify particulars stated in the ownership

title VS ones on the vehicle (Plate#,

engine # & chassis #)
 The reasonability of S/I proposed
 Photographing essential
 Exception for new vehicles upon

o securing of pro forma invoice

o short-period covers while being imported

(while being driven Djibouti)

o survey not be mandatory for TP covers.
 Evaluation
 On the basis of the information gathered
through the above two methods, the
underwriter is expected to evaluate the
proposal in view of potential risk
associated (physical & moral) and
company’s directives and procedures
 then either:- Reject or accept.

Rejection: e.g. old vehicles with bad

physical standings/condition. But in some
cases the rejection could be made
automatically with outgoing any further,
like vehicles with no dealers.
 Acceptance:-
 Decide on type of cover to be given.
 Premium computation per rate chart

& directives
 Decide on Excess/deductible to charge

 Secure approval from HO if applicable

 Communicate with the proposer.

 Negotiate mode of premium payment

 Issuance of policy:- Policy documents
 Standard policy wording (Motor Private &
Motor Commercial) plus Debit Note, Schedule,
clause &
fleet)
 Endorsements s applicable
 if credit sales (Conditions for continuity

of cover or claims)
 Open UW file: to keep copy of policy and other

relevant documents for record and follow up purpose.

 8.2. Fire & Lightning
Property movable and immovable and
having peculiar value needs fire insurance.
Almost all materials are exposed to fire risk
with different degree.
e.g.
 Buildings

 Furniture

 Fixture and fittings

 Household contents

 Plant and machinery

 Stock etc
 Proposal Form: - who could sign Proposal
Forms?

 Owners, Lessee, Tenants

 Mortgagor or mortgagee

 Trustees or bailees (Laundry, garages)

 Financial Institutes (like Banks )

Important information for fire risk rating
 Pre-risk survey

 Construction

 Occupancy

 Commercial, industrial, Residential

 Manufacturing Risk ( rubber, paper, food)

 Go downs/Warehouse

 Storage in open

 Shops, hotels etc

 Building construction

Ability of building to stand fire without

collapsing.

 Walling
 Window & glazing
 Flooring
 Roofing & ceiling
 Electrical Wiring
 Electrical Installation
 Other considerations:-
Fire protection/minimization (fire
extinguisher, Fire alarm system, Heat/Smoke
detector, fire escape)
Location of Fire brigade from the site

Accessibility of the site from the main road

 Availability of trained workers in safety.

 Distance b/n buildings
 Neighborhood activities
Evaluation:- Based on the pre-risk survey,
the risk is rated as 1st class, 2nd class or
3rd class.
Acceptance:-

Premium computation (class, occupancy,

area, S/I, application of warranties &
special perils, like EQ,) then issuance of
cover with appropriate attachment
(electrical clause, Mortgage clause etc.) &
collection of premium.
 Marine:- cargo cover.
 Proposal form/PF/marine declaration
 No pre-risk survey except in transit risks

 Infn sources – PF & supplier’s invoice.

 Premium computation based on S/I

(FOB, CIF + some margin)

 Type of goods, type of conveyance,
mode of packing, transshipment).
 Cover could be given: in open cover or

individual basis
 Attachments:-
Institute Classification clause (sea)

Institute Cargo clauses (A) ,(B), (C) (sea)

Institute Air cargo clauses ( Air)

 Carriers Liability

 WAR, SRCC clauses , if applicable

Others:-
Excess

Exclusions per rate chart (leakage)

Conditions:- subject to label clause

pharmaceuticals
 8.4. Bonds:-

UNIC is issuing the following list of Bonds:-

• Bid Bond
• Customs Bond
• Performance Bond
• Advance Bond

Since Dec. 2002, NBE prohibited the issuance of

Unconditional Bond & Financial Guarantee
(includes Credit guarantee)
 Unique features of Bonds:-
 Involvement of three contracting parties

 Bond business not insurance (guarantee)

 Principal & surety enters into a joint obligation

 Subrogation right against the principal

 Non-cancellation of the cover until the

fulfillment of the obligation.
 Return of bond on exipry of obligation

 Disfavored by Reinsurers
 Documents:-
Risk Assessment & evaluation
Contract copy

 Company profile & credentials regarding

past projects
 Proposal form

 Financial statement if applicable

From other sources

Moral Hazard:- Principal’s integrity, history
from other insurers
 UW Consideration:
 His capacity to undertake the contract
 Expertise & skill of manpower.

 Size of project

 Whether contract price offered by him is

adequate to finance the awarded project.

 Financial position of the contractor/

statement/his liability, liquid asset and cash

flow
 Collateral
 Adequate collateral (more 1 to 1 of
penal sum)
 Evidence kept preferably in safe

 Approval from HO

 Indemnity/counter indemnity

 Collateral Receipt signed & witnessed

 Customs bond :

 post-dated cheque &/or Promissory

Note
 Collateral Receipt in 3 copies
 Other Conditions:-

 Existing UNIC’s customers.

 Charge appropriate premium

 Follow-up the project progress, if possible

 Recover original documents

 Get at least employer’s acceptance letter

Thank You all & good stay!