Individual risk underwriting
Individual risk underwriting involves underwriters dealing with each insurance application on a case-by-case basis. The underwriter carefully composes the appropriate terms, limitations, conditions and premiums by giving relevant consideration to:
- risk characteristics
- physical hazards
- applicant moral hazard (including attitudes to risk management, claims history and frequency of past losses)
- any insurance cover automatically provided by legislation (for example, the Earthquake Commission in NZ).
When an insurer oversees a large number of risks of a similar product type and confidently understands those risks to be relatively undifferentiated, they can underwrite on a portfolio-wide basis.
Methods used in portfolio underwriting may include:
- evaluating risks endemic in the product
- characterising the geographic spread of risks
- evaluating and applying generalised indicators of risk
- examining the total at-risk value in the portfolio as a whole.