1. Underwriting
1.1. How
1.1.1. Judgement
1.1.2. Models
1.1.2.1. Can aid but not completely replace human common sense
1.1.2.2. Models and data underpin decisions but do make them
1.1.2.2.1. Models have limitations
1.1.2.2.2. Soft considerations such as long standing relations
1.1.3. Data
1.1.3.1. Have a lot more data than individual brokers
1.1.3.2. New Topic
1.1.4. Actuarial support
1.1.4.1. Necessary but not sufficient / complete
1.1.4.1.1. Too backward looking in terms of data
1.1.4.1.2. Lower margins
1.2. Underwriter
1.2.1. Assumes risk with the objective of charging an appropriate premium to the underlying exposure
1.2.1.1. Makes money when paid 10-1 rather than 5-1
1.2.1.2. Considers the odds that a loss will occur and charges a premium that is hopefully higher then the odds would warrant
2. London market
2.1. Syndicate selected by policyholder’\s broker to be the leader
2.1.1. This leader calculates rates and agrees the details of the policy
2.1.1.1. Leader handles claims
2.1.1.2. Must have respect / credibility in the marker
2.1.1.3. All should aspire to be leaders otherwise passive followers adding no value
2.1.2. Leader takes on a percentage of the policy then broker goes round with a placing slip
2.1.2.1. Other syndicates take on percentages as followers
2.1.2.2. Followers follow the rate, policy language and conditions set by the leader
2.1.2.3. Done until fully subscribed
2.2. most policies are written on a subscription basis
2.3. components
2.3.1. Lloyds
2.3.2. Company
3. Reserving
4. Time range
4.1. Long tails
4.1.1. Liability for claims that do not proceed until a final settlement until a long time after the policy date
4.1.1.1. Difficult to price
4.1.1.1.1. Constantly reprice based on changing conditions to cover in pricing for subsequent policies
4.1.1.1.2. C
5. Reinsurance
5.1. Definition
5.1.1. Insurance purchased by an insurer
5.1.2. Mechanism through which an insurer can spread risk
5.1.2.1. Treaty reinsurance
5.1.2.1.1. Immediately transfer risk to reinsurer under terms of treaty
5.1.2.2. Facultive reinsurance
5.1.2.2.1. Reinsurance purchased on a policy by policy basis
6. Broker - Insurer relationship
6.1. Process
6.1.1. Commercial buyer hires a broker before any insurance is purchased
6.1.1.1. Obtain coverage for certain exposures
6.1.1.2. The client provides the broker with information about the exposures so the broker can then make a proposition to the underwriters on behalf of client
6.1.1.2.1. Given in the form of paper documents which broker enters into system
6.1.1.3. Broker produces a ‘slip’ which is a précis of the proposed policy based on the data
6.1.1.4. Price and terms agreed through negotiation among the insurer, broker and client
6.1.1.5. Broker then issues the policy on behalf of the underwriter and issues invoice or debit note to the client
6.1.1.5.1. Premium paid to broker and passed on to insurer net commission
6.1.1.6. Passed on to
6.1.2. A broker acts as a consultant and intermediary and works for the client
6.2. Brokers
6.2.1. Solicits quotes from different insurers for different classes of business
6.2.2. Provide distribution to insurers
6.2.2.1. Method used by insurers to reach policyholders
6.2.2.2. Other distribution channels
6.2.2.2.1. Agents representing one insurer
6.2.2.2.2. Direct contact with the clients
6.2.3. Advises on
6.2.3.1. How insurance should be placed
6.2.3.2. risk management
6.2.4. Brokers rate insurers primarily on turnaround time, product innovation and price
6.3. MGA - Managing general agent
6.3.1. A form of cover holder
6.3.1.1. A cover holder is an insurance intermediary authorised by an insurer or Lloyds managing agent to enter into constracts of insurance in the name of the insurer (or syndicate), subject to t&c.
6.3.1.1.1. A cover holder is often referred to as a binding authority as they have the mandate to ‘bind’ the insurer to certain risk
6.3.2. Has additional duties compared to a broker
7. Process problem - Data handing
7.1. Challenge
7.1.1. Data for classes of property / casualty insurance is extremely variable
7.1.2. ~50% commonality between 2 classes of business
7.1.2.1. I.e. set of data required for a property is different to what you would need for a D&O (directors and officers’ liability) policy
7.1.2.2. Level of complexity that is peculiar to London market as opposed to other sectors where 95% of data is usually identical
7.2. Need
7.2.1. Establish systems that can collect data differently according to the class of business to be underwritteno
7.2.1.1. One size does not fit all
7.3. Document heavy process
7.3.1. Initial policy
7.3.2. Endorsement
7.3.3. Claim management
7.4. Multiple parties
7.4.1. Data and process must flow through multiple parties, i.e. intermediate brokers
7.4.2. Often incompatible systems creating quadruple entry
7.4.2.1. Error prone
7.4.2.2. Inefficient