Underwriting

This may be defined as the selection of risks to be insured and the determination of
the terms under which the insurance is given. With non-life insurances, it also involves a
continuing process of monitoring results and individual risks, to see whether renewals
should be offered, and on what terms. Special features to note are:
(a) Life insurance: for individual life policies, underwriting is a once only exercise,
since the policy cannot be cancelled by the insurer and changes are only possible
with the insured’s consent. Because of its crucial importance, life insurance
underwriting is often centralised.
(b) General insurance: here the range of different cover is very wide and mistakes in
underwriting are not permanent, in the sense that policies will come up for renewal
and their terms be reviewed, and can even be cancelled if necessary. Therefore
much less centralised underwriting is still affordable.
(c) Guidelines: whilst underwriting is at a ‘one to one’ level, there is obviously a need
for the preparation of underwriting manuals, rating guides and similar guidelines
for staff. These involve considerable research and development, again with much
attention to trends and results.
(d) Target risks: curiously, this term could mean highly desirable types of business
(in Life Insurance) or highly undesirable types of business (in General Insurance).
In the former, of course, this is business the insurance intermediaries should be
encouraged to seek diligently. In the latter, the term could mean large, hazardous
risks, e.g. petrochemical plants.
Each insurer will have its own ideas about what constitutes desirable or
undesirable risks. Typically, however, in life insurance, healthy young
professionals are likely to be desirable contacts. In theft insurance, jewellery
stores in Central Hong Kong may not be favoured.
(e) Stop-lists: sometimes given other names, a ‘stop-list’ indicates those types of
business that should not be encouraged, or should be rejected if offered. Some
examples may readily come to mind, with different types of insurance, although
not every insurer will have the same opinions on this subject. Nevertheless,
compiling such lists involves considerable underwriting expertise, especially
bearing in mind the sensitivity over discrimination of every kind