金融学assignment：保险核保程序 Underwriting Process in Insurance

为了使保险公司获利，并向保险人收取适当的费率，他们必须接受承保过程。承保是保险公司确定投保人是否符合保险条件和投保人是否有资格收取保险费率的过程。简单地说，这是一个风险分类的过程。保险承保的目的是在保险人的范围内分散风险，这样既有利于保险人，又有利于客户。保险公司需要像其他许多企业一样盈利。因此，如果他们为投保人出售保险，那就没有意义了。他们可能不想过度的高收费的客户并不是他们同样的保费收取每个投保人好。”承销使公司能够剔除某些申请人，并向剩余申请人收取与他们风险水平相称的保费”。
承销过程包括评估申请人和复杂的定价模型的精算师，帮助制定价格的保险公司开发使用的几个来源。我将把重点放在风险分类，以及一些因素，帮助保险公司分类每个投保人和使用保险信用评分，允许保险公司的保费价格。

 

In order for the insurance companies to make profit and charge the appropriate rate for an insured, they undergo the underwriting process. Underwriting is the process in which an insurance company determines if an applicant is eligible for insurance and the rate they should charge if the applicant is eligible. In simpler words, it is a process of risk classification. The purpose of insurance underwriting is to spread risk among a pool of insured in a way that is both profitable for the insurer and fair to the customer. Insurance companies need to make a profit like many other businesses. Therefore, it doesn't make sense if they sell insurance for everyone who applies for it. They may not want to charge an excessive high rate to the customer and also it is not good for them to charge the same premium to every policyholder. "Underwriting enables the company to weed out certain applicants and to charge the remaining applicants premiums that are commensurate with their level of risk" (Conrad, Clark, Goodwin, Morse & Kane, 2011).

 

The underwriting process consist of evaluating several sources of an applicant and the use of complex pricing models developed by actuaries that help the insurance companies set prices. I will focus on the risk classification along with some of the factors that help the underwriters classify each applicant and the use of insurance credit scoring that allow the insurance companies to price the premiums.

 

Factors 因素

 

An insurance company usually looks at various factors during the underwriting process in order to evaluate a potential customer in terms of risk. These factors enable the insurer to determine whether or not the potential customer is insurable. If the potential customer is determined to be insurable, then these factors will help to place them in the appropriate risk group. Some of the factors considered are age, sex, health history, current health/physical condition, personal family health history, occupation, personal habits/character, financial condition, and hobbies (Clark, et al, 2011).#p#分页标题#e#

 

"Some people believe that any characteristic over which we have no control, such as gender, race, and age, should be excluded from insurance underwriting and rating practices" (Baranoff, Brockett, & Kahane, 2009, p.157). This argument reflect the idea that the factors used by insurance companies should be based on the behavior of the people instead of the quality on which they are born.

 

Risk Classification 风险分类

 

Risk classification plays an important role in the pricing of the policy. The premium that the customer pays will depend on the category he/she belongs to. Underwriters classify the applicants into four types of risk groups: standard risk, substandard risk, preferred risk and uninsurable/declined risk.

 

Standard risk. Individuals who have a likelihood of loss or the probability of filing a claim that is not significantly greater than the average are classified as standard risks. Based on the underwriting standards of the insurance company, the people in this group are given a term of insurance without being charged for any extra fees or be subjected to any policy restrictions and they are charged with the standard premium rate (Clark, et al, 2011). Most individual life and health insurance policies are issued at standard premium rates.

 

Substandard risk. Insured that are classified as substandard risk or rated risk, are those that have a greater chance of filing a claim. Applicants are classified in this group because of their health and/or other factors that makes them more likely to die earlier than those who don't possess these kinds of risk factors (Clark, et al, 2011). They are usually charged a higher than standard rate because of the added risks that they possess. Examples of people that may be in this category are those who possess a history of high blood pressure, diabetes, drugs and alcohol. Or maybe they engage in some dangerous activities like skydiving or rock climbing.

 

Preferred risk. Applicants classified as preferred risks are those who are expected to have an above average life expectancy (Clark, et al, 2011). People in this group are preferred by the insurance companies because of their health history and good habits. They are usually offered a lower rate or preferred rate. Applicants that may belong to this group are nonsmokers or people that have a good health history.

 

Uninsurable risk. Individuals categorized as uninsurable or declined risk are those that pose a risk that is too great for the insurance company to cover. The applicants' conditions are so rare or unique that the company may not be able to arrive at a suitable premium (Clark, et al, 2011), so their policies are generally declined. Examples of this category include people who have a serious illness and people who conduct illegal activities.

 

Insurance Credit Scoring in Pricing 保险定价中的信用评分

 

After classifying the applicants into one of the risk groups, the insurance company needs to set price for the policies. One of the tools used by the insurance companies for pricing is the credit scores that help them determine the adequate premium for each consumer.

 

Insurance scores are confidential rankings based on credit history information. Insurance scores are used to provide insurers with a snapshot to provide service to consumers. The score is derived from the consumer's previous credit history. This data allows the insurers to price insurance premiums/rates more accurately. (Almarshary, Erbek & Reddic)

 

Insurance scores estimate the probability of having insured file a claim. The variables commonly used to estimate insurance scores include measures of performance on credit obligations, credit-seeking behavior, use of credit, length of credit history, and types of credit used (Powell, 2009). They do not include race, color, religion, national origin, gender, marital status, sexual orientation, age, address, salary, disability, occupation, title, employer, date employed or employment history for scoring purposes (Anonymous, 2009).

 

Insurers have found a strong correlation between insurance claims and credit scores. People with low scores are more likely to file claims than people with high scores (Lankford, 2007). They also discovered that people who made late payments tended to have more claims (Almarshary, et al). Improving credit score can certainly make a big difference in the premiums. More insurers now are considering credit scores when setting premium rates.

 

Credit scoring enables insurers to better assess the risk of future claims. In fact, insurance credit scoring helps insurers to differentiate between higher and lower insurance risk (Almarshary, et al). Therefore, insurers will charge a premium based on the information provided by the credit score.

 

"When insurers use insurance scores to improve the accuracy of predicted losses, it benefits individuals and society" (Powell, 2009). Premiums are closely related to consumer's risk of loss on average, so insurance scores increase the fairness in insurance pricing outcomes. Insurance scoring also adds value to insurance transactions. Because insurance scores are accurate and inexpensive rating variables; it reduces the overall cost of providing insurance and this reduction in cost is applied to the premiums of the customer (Powell, 2009).

 

Many people may not be familiar with the underwriting process, but knowing the factors that affect the decision of the insurers of placing you into one of the risk groups, is very useful. In this way, you can easily know if you can be chosen as a potential customer based on your personal information and even if you are not chosen as a potential customer, you might at least know what to avoid in order to decrease the chance of your policy being rejected. Finally, we have to notice the importance of the credit scores, because many insurance companies used it nowadays to price the premiums. Having a good credit history is a key factor to get a lower premium rate in the policy.#p#分页标题#e#