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

3. 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

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

7. 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.

9. 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

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

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

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

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

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

15. Commercial: Glass
Use of Building
Location

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

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

18. 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

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

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

22. 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.

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

24. 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

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

26. 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.

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

29. 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.

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

32. 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

33. 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

34. 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.

35. 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.

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

37. 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

38. 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

40. 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.

41. 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.

42. 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).

43. 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.

44. 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).

45. 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).

46. 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.

47. 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.

48. 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.

49. 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).