Introduction:-
Insurance industry is a regulatory targeted industries where there is a web of complex rules and regulations that needs to be adhered at each and every stages of its operations. Therefore, the fundamental purpose of insurance regulatory law is to protect the public as insurance consumers and policyholders. Regulating and standardizing insurance policies and products; Controlling market conduct and preventing unfair trade practices; and. Regulating other aspects of the insurance industry are all the different hindrances that the insurance industry faces during its day to day affairs. The Insurance Regulatory and Development Authority (IRDA) is a national agency run by the Government of India. Role of Insurance Regulatory and Development Authority (IRDA) is to protect the interest of and ensure just treatment to insurance policy holders. To encourage and ensure the systematic growth of the insurance industry so as to benefit the common man and help in bringing economic growth. There are other external agencies that keeps strict vigil on the workings and performances of the insurance industries like Competition commission of India, The secutities and exchange Board of India, The department of Income Tax, The consumer protection agencies etc. In this tight scanning of performances achieving the bottom line(Profitability) is like building a castle in the air and the only gate through which the insurance companies can peep a ray of hope is efficient underwriting.
Meaning of Underwriting:-
What is underwriting and how it affects the bottomline of any Insurer is the main question that needs thorough analysis..
Underwriting:- The word itself is very astonishing because if we look at the various departments of insurance,the name of the department and its related works coinside with each other like Accounts deals with accounting works, Claims deals with claim related, Renewal dealing with retention works but what about underwriting ? And there lies the real meaning.. In bygone days the person bringing the risk used to write the name under the same which gave birth to the word ` Underwrite` and the technique of managing the risk was termed as Underwriting.The efficient Underwriting’s first step comprises of managing the risk that starts with below process:-
- Risk Identification
- Risk Analysis
- Risk Evaluation
- Risk pricing
- Risk control
- Risk placement
Purpose of Underwriting:-
Insurance companies assumes voluminous financial risk annually,which is transferred from Individual and businesses via the insurance transactions. Insurance underwriters, using the underwriting process and various supporting underwriting tools,are employed by insurers to access both their new and current business. An Insurance company’s overall profitability can depend significantly on the quality of its underwriting. Underwriting has multiple purposes. The overarching purpose is to develop and maintain a profitable book of business for the insurer.Underwriting is crucial to an insurer’s success, underwriting goals flow directly from the insurer’s corporate strategies and objectives. Favourable underwriting results is necessary for an insurer’s ability to sustain profitable growth and hence this is known as effective underwriting.The day to day underwriting affairs involves risk scrutiny through:-
- Providing the premium quotation
- Imposing suitable terms and conditions
- Imposing suitable deductibles on the risk
- Finalising the premium
- Checking the burning cost of the product
- Analysing the filled proposal form
- Resolving the pendencies on the risk
- Final delivery of the policy
- Quality check of the issued policies
- Finalising the conversion ratio(Quotes v policy)
- Reinsurance arrangement for the risk
- Facultative supports
- Liasioning with the claims team
Meaning of Bottomline:-
As soon as we say bottom line or underwriting profit, first thing comes to mind is prudent underwriting or efficient underwriting. Many insurers are now defining their declined risk in separate lines of business. Based on technology and data, insurers are now able to analyze on many parameters like geography and other risk parameters, the risks which are having high claim ratio. To achieve profitability, the underwriting norms needs to be rigorously followed. Now the point is what is the meaning of bottomline in insurance industry. More specifically, the bottom line is company’s income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company’s bottom line can also be referred to as net earnings or net profits.
Now there are so many traditional methods of enhancing the bottom line of any organisation like:-
- Adjust your pricing. …
- Cut down on expenses. …
- Reduce interest payments. …
- Look for new opportunities. …
- Learn to fail quickly. …
- Work smart. …
- Utilize the power of a mentor. …
- Actively reach out to potential customers.
Analysis of how underwriting affects bottomline:-
But in this expressions we are typically involved in effective underwriting for achieving the bottomline of any insurance industry.This effective underwriting can be achieved first of all through efficient manpower.The insurance industry is reeling under severe shortage of insurance professionals most particularly in the underwriting sections. By efficient underwriter I particulary focuses on those skills which are entirely dedicated towards the insurance knowledge.The most basic one is doing MBA in insurance or risk management, acquiring the qualifications provided by Insurance Institute of India,Further enhancement of knowledge can be done through the courses provided by Chartered Insurance Institute UK.Now the individual acquired with this knowledge can deliver effective underwriting practices which in turn will lead to growth in the companies objectives.
Appropriate mentoring is another factor in the organisation’s growth.The newly inducted skills should be sincerely given the input with respect to the risky proposals and inturn this skills will nurture for further organisational aims.So input is must for the new workforces.
Tranining and Development should also be a part of the carier growth in the insurance industry.All the work forces should be given adequate training and development opportunity.The underwriters should be given adequate training with respect to the prevailing market conditions like hard market or soft markt.The todays market conditions is a soft market where the following features can be found
Soft market:-
- Lower insurance premiums
- Broader coverage
- Reduced underwriting criteria, which means underwriting is easier
- Increased capacity, which means insurance carriers write more policies and higher limits and
Increased competition among insurance carriers
Now again the situation arises in Insurance field where the soft market turns into hard market.
Hard Market:-
- Higher Insurance premium
- Restricted coverages
- Harder underwriting criteria
- Decreased capacity.
Conclusion:-
The above scenario clearly depicts that the insurers complete fate depends on the technique and skill of its underwriting.If the underwriting fails then fails the entire objective of the insurer. Due to this reason it is clearly stated that the role of underwriters are supreme in nature and selection of this supreme authority is the call of the time.
