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ALTERNATIVE RISK TRANSFER My current involvement with several Insurance Industry
Associations, and my direct conversations with Insurance Company executives
recently, have reminded me of experiences in the past LEARNED. Underwriting philosophies have changed in the past
18 months. Everyone is scrambling to
understand what is happening and what they should do about it. For the most part, companies usually throw PEOPLE
at the problems or MONEY. Right
now it appears BOTH are being tried. In the past, underwriters and the management
persons promulgating underwriting guidelines ASSUMED that if a risk showed a good loss history, that
the risk would continue to be profitable.
Rate changes were usually a credit and not a surcharge. In today’s world, a warning is placed on many
products saying, “past performance is not indicative of future results”. Experienced underwriting, combined with
cash flow/Market Share rating schemes, are FLAWED in that they do not
adequately consider the actual RISK EXPOSURE. Rather than practicing the preferred
method and LOST ART of “Exposure Underwriting”, the insurance industry
followed the ECONOMIC HISTORY rather than identifying the risk and the
exposure itself. Underwriting the “REALITY” of the risk and its
exposure to loss, “AT THIS TIME”, rather than rely on the past history of the
risk, will produce TRUER pricing and far better results. The underwriting, rating, and managing of
risk has not been learned or applied since 1985. This must be learned (or re-learned) as a
practical process rather than an academic application of the rules. Being able to obtain the information necessary to
properly understand and analyze a company’s exposure, knowing what it faces
in the market place, and figuring out the coverage options available, are
vitally important in producing positive results in the underwriting process. |
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