In the first article in a new topic—Insurance Industry Market Practices—Peter Polstein describes the elements that are included in a full underwriting submission, using a recent casualty renewal as an example.
I was gratified to have heard from a significant number of insurance professionals around the country responding to my Risk Tip on "Three Deadly Sins," featured in IRMI Update #48, including a number of retired A&A'ers, as well as others with whom I had the pleasure of working, and who have moved on to other entities. A number of e-mails asked me to define, or comment on, what I considered to be a "full underwriting submission" and I thought it might be appropriate to respond, using as an example a recent submission that I put together in conjunction with an agency covering a casualty renewal on a midsized chemical company.
Executive Summary—Provide a brief outline of the company, when it was founded, the overall philosophy, management style, and management's commitment to control of their product line and safety.
General Information—Give the marketplace a description of plants and include complete information on the security systems, such as central station systems from remote movement sensors, key pad security to GPS onboard trucks, etc.
Physical Description—Include details on plant locations, square footage, construction, use of the facilities, names of key personnel, federal I.D. numbers, D&B number, SIC codes, and a detailed description of the tank farms, hours in operation, and number of employees per location.
Certification (if applicable)—In my recent submission, the risk was ISO 9001 certified, as well as being certified by a national association that requires their members to certify and re-certify in order to retain membership. Detail the requirements and include copies of the certificates.
Coverage Specifications—Include limits and extensions for all lines. By the way, include under coverage extensions everything that you believe the insured requires, irrespective of whether you have heard that insurers will or will not grant these covers.
Underwriting Information—The following information should be submitted for each coverage line.
- Include payrolls by State, Code and include at least 3 years' prior data, which affords the underwriter a sense of changes, if any.
- In this specific case we included details relating to
- Safety Procedures and Training
- Vapor Control
- Breakdown of sales, which in this specific case reflects the insured's exposures as:
- Brokered, Direct Shipments, Repacked Product, Manufactured Product
- Three years' prior sales history
- Details as respects their Product Recall program.
- Description of all vehicles, including year, model, vehicle identification number, and value.
- Driver's license numbers with expiration, dates of birth, dates of hire, and if required, which was applicable in this case, the date of their last physical.
- At least 3 years' prior history of vehicle count.
- DOT SAFER information, and if above average, describe circumstances and what is being done to correct.
- Delivery or use radius.
- Training requirements.
Loss Information—This case was a bit unusual due to the fact that on workers compensation, only two claims remained open over the past 5 years, but medical was separated from compensable, with descriptions of all "large" claims, as well as those that remain open. The remainder of the risk had nothing but a few minor incidences.
If there is significant claims activity, just don't utilize loss runs. Remember, they only provide a snapshot of loss at a particular moment; they do not include trend and development, and you need to be prepared to discuss real loss pictures. There are a number of software programs that can be purchased for little cost which provide trend and development factors. If you utilize these, it leaves very little room for discussion with underwriters over whose loss pic is right.
Suit Status (if applicable)—These are suits where the loss potential must be estimated.
Premium Expectations—Rate the workers compensation program. If you have a guaranteed cost program it's simple. If it's a loss-sensitive program, take the standard premium; depending on losses and loss containment, work out the minimum, maximum, and the nonrisk costs which include LCF, tax, profit, and administration. These should be in the range of 21 to 25 percent.
The liability segment will be based on sales, square footage, etc., and the manual will provide details if rated or S Codes are used. Work it out depending on premium to contain losses. For automobile, rate it up, and work out premium to contain losses.
Don't be afraid to utilize deductibles or self-insured retentions. Keep in mind that it costs your clients in the vicinity of $1.10 to $1.20 for every $1.00 of claim paid by the insurer. You can dramatically reduce premium costs by having the insured pay for those claims they normally would have to pay for in any event.
Brochures and Annual Reports—These should be well-written and provide the marketplace with some insider insight into the risk. A note of caution, however: read the reports! There are times when they contain a bit of hyperbole, and you do not want to get blindsided by underwriters asking what "X" means in the report.
Lastly, in designing the insurance program, irrespective of coverage, don't be afraid to utilize nontraditional placement methods. Depending on the size of the risk, losses, premium volume, etc., think about loss-sensitive programs, deductibles, self-insured retentions, offshore or onshore captives. Deal directly with reinsurers, especially where the primary insurer tells you they must obtain reinsurance. Be a part of that transaction. This is especially important when placing umbrella or excess insurance. Remember, if the primary insurer requires reinsurance, then the pricing becomes a function of the reinsurance marketplace. If it's unusually pricey, hold the primary to net, and just place more layers—it's usually cheaper.
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