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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