Underwriting Considerations Chapter 8 Underwriting Considerations 12 questions = 16% of the exam

Learning Objectives: After studying this chapter, you should be able to: Describe underwriting principles both generally and in connection with specific classes of business Identify the procedures used to prevent and detect fraudulent claims Explain the consequences of fraudulent claims Explain the effects of the Equality Act 2010 and the Data Protection Act 1998 on insurance

Consumer Insurance (Disclosure and Representations) Act 2012 Reminder Proposal Form Statement of Facts Consumer Insurance (Disclosure and Representations) Act 2012 Insurance Act 2015

Basic Principles of Underwriting The underwriting of different types of insurance can vary in complexity. Commercial risks tend to be more complicated to underwrite than personal risks due to it being less homogenous in their nature. However there is some common areas between the two: Claims experience Average claim per member Characteristics in relation to average member.

Motor Insurance Age of Driver Type and Make of Vehicle, inc. modifications Type of Use Geographical Area Where it’s Kept Driving Record Cover required

Health Insurance Occupation Age Family Circumstances (income) Lifestyle & Physical Condition Medical History

Household Insurance Buildings: Construction Location Contents: Occupation Security Level of Cover

Travel Insurance - Destination. - Purpose & Duration. - Group Policies. - Medical Conditions

Commercial: Fire & Special Perils Use and Type of Building Goods Stored Construction Safety Features Risk Management Method of Heating and Lighting Location

Commercial: Theft Trade Geographical Area Moral Hazard Construction of Property Security

Commercial: Glass Use of Building Location

Commercial: Money How much money is handled Security precautions How employee’s are paid Nature of business

Pecuniary: Legal Expenses Establish a proposer’s susceptibility to legal action Factors: Employment criteria Occupation

Pecuniary: Business Interruption How quickly could the business get up and running: Operate from other premises Availability of replacement machinery Critical machinery or processes Seasonal features External dependencies

Liability Insurance: Employers Liability: Trade & Occupation Public Liability: Trade & Business Product Liability: Trade & Business Pollution Liability: Trade & Materials Professional Indemnity: Occupation, Qualifications & Consequences

Extended Warranties: Not underwritten in a traditional sense. Insurers will refer to statistics that relate to those items breaking down.

Types of fraud Inventing a loss that never occurred Exaggerating the number or value of items stolen Deliberately engineering an insured event Exaggerating the effects of an insured event.

What are the consequences of fraud? Insurer: Cost and reputation Policyholders: Increased premiums Fraudsters: Continue to do it, punishments

Insurance Fraud Bureau Set up by Association of British Insurers (ABI) Co-ordinate industry wide action (involving police forces, insurance companies and others) Actively run public education campaigns Operate centres of expertise on fraudsters and their methods of operation

Shared databases Motor insurance anti-fraud and theft register (MIAFTR) Motor insurance database (MID) Claims and underwriting exchange (CUE) Art loss register (ALR)

Possible fraud indicators – what claims handlers look for Claims made just after inception or renewal Where the insured has no documentation for lost items. When the insured has a number of similar small claims in a short period of time.

Other points Completing claim forms over the phone Claims settlement by replacement rather than cash Application fraud

Equality Act 2010 This act was brought into replace a number of previous acts and ensure a consistency in practice. Protected characteristics: age, disability, gender reassignment, race, religion or belief, sex, sexual orientation, marriage and civil partnership, pregnancy and maternity.

Direct discrimination Associative discrimination Equality Act 2010 Direct discrimination Associative discrimination Perceptive discrimination Indirect discrimination

General Data Protection Regulations (GDPR) - Application Race Ethnic Origin Politics Religion Trade union membership Genetics Biometrics Health Sex life Sexual orientation Data Controller: Determines purposes and manner of personal data processing Data Processor: Processes the data on behalf of the data controller Personal Data: Relates to living identifiable human beings. Includes online identifiers (e.g. an IP address) and pseudonyms Sensitive date requires extra care

GDPR Principles processed lawfully, fairly and in a transparent manner collected for specified, explicit and legitimate purpose adequate, relevant and limited to what is necessary accurate and, where necessary, kept up to date kept in a form which permits identification of data subjects for no longer than is necessary processed in a manner that ensures appropriate security

Consent Consent under the GDPR must be a freely given, specific, informed and an unambiguous indication of the individual’s wishes and firms need to make it simple for people to withdraw consent. Firms can rely on other lawful bases apart from consent – for example, where processing is necessary for the purposes of an organisation’s or a third party’s legitimate interests.

Rights of individuals The right to be informed. The right of access. The right to rectification. The right to erasure. The right to restrict processing. The right to data portability. The right to object. Rights in relation to automated decision making and profiling.

International Restrictions on transfer of personal data outside the EU Must ensure protection of individuals meet GDPR standards

Data Protection Act 2018 Data Protection Bill became law in May 2018 Transposes EU Data Protection Directive into UK law – applies regardless of BREXIT Deals with some processing that does not fall within EU law (e.g. related to immigration) Intelligence services required to comply with internationally recognised data protection standards Additional powers for Information Commissioner’s Office Higher penalties

Data Protection Act 1998 Data Personal Data Sensitive Data Data Subject / Controller Processed Fairly and Lawfully Held for a Specified and Lawful Purpose Adequate, Relevant and Not Excessive Accurate and up to date Kept No Longer than Necessary Rights of the Data Subject Unauthorised Access, Loss or Destruction Not Transferred Out of the EEA

What is the principal rating factor when underwriting employers' liability Insurance? a. Trade and occupation. b. Number of premises. c. Location of risk. d. Number of employees.

Under which act is it unlawful to discriminate against disabled people in the provision of insurance? a. Equal Pay Act 1970. b. Sex Discrimination Act 1975. c. Disability Discrimination Act 1995. d. Equality Act 2010.

One of the major organisations that is proactive in fraud prevention is: a. Prudential Regulation Authority (PRA). b. Financial Ombudsman Service (FOS). c. Financial Conduct Authority (FCA). d. Association of British Insurers (ABI).

What is the principal rating factor for products liability? a. Proposer's trade. b. Number of employees. c. Number of customers. d. Situation of premises.

Which motor database contains details of all total loss and theft claims? a. Driver and Vehicle Licensing Agency (DVLA). b. Claims and Underwriting Exchange (CUE). c. Motor Insurance Database (MID). d. Motor Insurance Anti-Fraud and Theft Register (MIAFTR).

On what database can a claims handler check that a vehicle has not already been a total loss? a. Claims and Underwriting Exchange (CUE). b. Motor Insurance Database (MID). c. Motor Insurance Anti-Fraud and Theft Register (MIAFTR). d. Driver and Vehicle Licensing Agency (DVLA).

For how long is information kept on the Claims and Underwriting Exchange (CUE) database regarding personal injury and illness claims? a. Indefinitely. b. 6 years. c. 10 years. d. 3 years.

Which of the following is NOT a reason why commercial vehicles attract higher premiums for third party cover? a. Poor claims history. b. Frequency of use. c. Value of vehicle. d. Size of vehicle.

The insurance underwriting process includes an assessment of the proposer’s characteristics in comparison with: a. the 'average’ policyholder or member b. the 'lowest risk’ policyholder or member c. the 'total' membership. d. 'selected’ policyholders or members.

Under the Equality Act 2010, insurers are only able to impose specific underwriting terms in what circumstances? If there is an additional cost in respect of dealing with the risk. Where the previous insurers have imposed terms. If it is based on information that is relevant to the assessment of the risk, including actuarial or statistical data, medical research information and medical reports. If it is agreed with the Financial Conduct Authority (FCA).