14.08.2015 – Dieter Aigner, Insurance Matters VI: “Today we draft a covering letter and add an example of a property policy – in extracts.”
After having collected the relevant risk information (physical hazards or features/ material facts and the moral hazard), the underwriter must decide whether the risk is insurable or not. Insurable losses are misfortunes that occur by chance. If the loss is an intentional act or results from normal wear and tear (or other occurrences certain to take place), then the loss is uninsurable. In addition to this, risks may be uninsurable because the hazard is too great or cannot be quantified, or because it is a business risk or a trade risk which an entrepreneur is expected to bear himself/ herself. If the underwriter thinks the risk should be acceptable, the next step is to calculate the premium.
The calculation of the risk premium (claims cost/ claims expectancy) must be based on sufficient statistical experience or a mathematical model (if applicable, a Pareto model, a reliable power function, etc.). In contrast, calculating by sticking one’s thumb in the air would be very risky.
After having the premium calculation completed (including a loading for expenses as well as for fluctuations and a profit margin), the underwriter will submit an offer.
“Thank you for your inquiry of 25th February. We are pleased to submit you the requested offer. All details are shown in the enclosure/ attachment. We hope our offer will meet your wishes. Please contact us if you have any questions. We are looking forward to hearing from you soon. Our offer made today is binding until 10th January, 2016.”
Link: Submitting an offer (PDF)
Dieter Aigner has long experience in insurance business including adult vocational training. Since 2009 he has been holding seminars in Insurance English on behalf of BWV Rhein-Main. Since 10.07.2015 we have been presenting on VWheute. (vwh)
Picture: Dieter Aigner (Source: private)
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