Sunday, March 30, 2014

Develop a competitive edge in underwriting

The success of an insurance company in a competitive market depends, to a large extent, on its underwriting expertise. It needs capable underwriters who are able to assess the risk and to charge a premium rate that is competitive and sufficient to cover its claims, expenses and make a profit.

Most insurance companies depend on underwriters who build up their knowledge and expertise over many years. Unfortunately, there is no guarantee that the good underwriters will stay with the insurance company. they are likely to be attracted to work for a competitor who offers a higher salary or better prospects.

An insurance company can build a sustainable competitive edge by supplementing the personal knowledge of its underwriters by a detailed insight of its actual claim experience in the market that it operates.  

The detailed insight can be developed through these three steps:

1) Use of the actuarial software to analyze the claim experience, with special algorithm to allocate the actual results to the various variables used for rating

2) Consultancy on preparing the data on exposures and claims, analyzing the data using the actuarial technique, interpreting and explaining the results, and helping management to decide on the use of the results in the underwriting and pricing process.

3) Training its internal staff to carry out the above processes on their own as a regular exercise.
The underwriting expertise, which combines the years of experience of the underwriting staff and backed by the use of your properly analyzed claim statistics, can contribute to a profitable outcome in a challenging and competitive market. 

More details can be obtained from

1 comment:

Kin Lian Tan said...

The claim experience depends on many variables, such as gender, age, occupation, location, usage, etc. The challenge in the analysis is how to allocate the claim to each variable and to avoid the effect of interaction between the variable. My actuarial software provides the algorithm to handle and remove the interaction, and reduce the error rate from an initial level of about 30% down to less than 2%. This algorithm was developed by me, and has not been published in any book.

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