Underwriting in insurance is a process where the risk to be insured is carefully examined to determine the rate of premium and whether the risk will be accepted or not.
Most times, the insured is quick to price down the premium rate that is provided by the insurer, when they are about to effect an insurance cover on the risk under review. This happens because; the insured feels he is merely giving the insurer free money. However, when the claim occurs, the insured is quick to call on the insurer to pay the insurance claim.
When the expectation of the insured is not met on the claim settlement from the insurer, the insured feels he has been shortchanged by the insurer.
However, if there has been adequate underwriting, there would have been adequate claim settlement.
The following are the 5 benefits the insureds enjoy from adequate insurance underwriting:
- Equitable premium
- Adequate insurance cover
- Asset Protection
- Commensurable claim
- Peace of mind
This is the insured’s contribution to the risk he is bringing into the “common pool” This contribution is fair enough to reflect the degree of risk the insured brings to the pool. When the insured prices down the premium that was prescribed to him by the insurer, what that means is that the insured is not willing to pay a suitable premium for the risk he wants to insure. If the premium is not suitable or equitable, that means the insured is bringing the unfair contribution to the common pool. This will lead to inadequate underwriting. The equitable premium ensures that the insured is not undercharged or overcharged on the rate of premium that is expected from him.
Anytime the insured pays the equitable premium as his contribution to the risk he is bringing to the common pool, the insured in return enjoys adequate cover. If for instance, a man has a car of N5 million to insure and the insurer has asked him to pay a premium rate of 5% on the car. If the man decides to negotiate the premium rate down to 2.5%, what he has just called for is a restricted cover. The implication of this is that, the insured has simply informed the insurer that he is willing to share the risk of his car theft or car accident with the insurer. i.e. should a claim occur on the car, he is willing to share the claim cost with the insurer. This is what the insured communicates to the insurer unknowingly each time they price down the insurance premium rate.
When next you are bringing your risk for insurance, be willing to pay an equitable premium to the insurer in order to enjoy adequate cover in return.
Another benefit the insured enjoys from adequate insurance underwriting is asset protection. Imagine if you have just bought a new car for #5million and the car is stolen after a month of purchase. If you have adequate insurance cover on the car, you would need not look for money to purchase another car. Your insurer will provide money to buy another car. If you are a businessman, for instance, you wouldn’t deplete your capital to replace the stolen vehicle or accidental car. With adequate insurance cover in place, your capital is adequately secured.
Imagine if the car was debt-financed and the car got stolen while servicing the loan, you would still continue servicing your loan without enjoying the benefits of loan repayment, but if the car was adequately protected through an insurance cover, your car will be replaced and your loan repayment would not be in vain. This is Asset protection.
The claim manager usually liaises with the underwriting units of every insurance company during claim processing. This is to ensure that all the conditions precedent to the contracts which are underwriting conditions are met. If the claim manager finds out that in the course of underwriting the risk for which claim has been crystallized, there was no adequate premium paid, the claim will be prorated to the amount paid.
PEACE OF MIND
At one time or the other, as human beings, we are confronted with the fear of uncertainties, “what if this or that happens”. At such times we usually draw up strength from the provisions, that are available. If for instance you recently bought a new car and at your low moment, the thought of “if the car is stolen” suddenly cross your mind, even if you immediately sway the thought away, within you, you would still draw up the strength that at least the car is adequately protected by the insurer. That gives you a form of succor. This is peace of mind.
The above discussions are insights to the immense benefits the insured enjoys from adequate insurance underwriting.
When next you are in need of inurance services, kindly reach out to us at Bimbol Consultancy Services
Mobil: +234 802 694 0605