Theory and Practice of Insurance

Introduction

There are many corporations that have been opened by various individuals so as to offer the insurance services. The insurance firms have various terms and conditions regarding the insurance applications and the compensation after a particular issue happens. The people are encouraged to insure everything they have as anything can happen such as the natural calamities, accidents or death. The organization offer the insurance services to all the persons provided one is able to pay for the costs monthly or yearly depending on the agreement. On the other hand, every type of anything that one needs to insure falls under the set premiums and one must comply with them. The people can insure their property, life, motor vehicles, businesses, casualty and many others.  The individuals are required to fill the forms that indicate the descriptions they want to insure and also attach evidence. Moreover, the firm later verifies the details presented and also administer a risk assessment to ascertain the amount of compensation one would receive in case of any danger happened. However, before anything is compensated the insurance firm conducts its investigation to ascertain whether the issue is within their jurisdiction. Therefore, any facilitated incidences by the persons are not to be compensated and may lead to heavy penalties. The discussion outlines the class of business and underwriting approach.

Life Insurance

The class of business describes the particular type of insurance or reinsurance enterprise that id based on the risks that are to be covered. There are eight main underwritten classes of insurance and reinsurance business. They include property, reinsurance, marine, energy, aviation, motor, casualty and life. In addition to that, they also contain various sub-classes that also important and should also be inclusive while the insurance process will be taking place. However, the business written in the life class is done by different life syndicates and also the premium is held on distinguishable trust funds. The management of the insurance firms ensures that all the people are handled with the respect and dignity they deserve as they help generate income for the organization. Moreover, the corporations also advertise their services on various platforms to ensure that they create awareness to the public. They also teach on the importance of insuring ones property, life and many other things. They advocate for the significance and due to the market competition their costs of various premiums vary so as to attract more clients. It is the duty of the people seeking any insurance service to understand the terms and conditions stipulated by the organization. It is to ensure that no any complications will occur in the future if one does not honor the regulations. The underwriters help an individual in filling out the forms and assessing what needs to be insured and the compensation amount. They ultimate goal is to protect the company and also offer the client the quality services they require. They are highly skilled in their work and have great experience as they undergo special training on their various specializations (Whelehan, 2002).

The most significant class of business that has been underwritten is life as many persons value their value and also the insurance companies. The process is performed by an underwriter who is highly qualified and has experience over the past years. The individual has the ability to understand the risks that the underwritten issue can be exposed to. Moreover, they also offer the best advice to the clients in regard to the risk protection. The insurance corporations have identified various factors that highly increase or decrease the likelihood of the claim on a certain policy. The significant considerations include the physical risk or the moral risk that may affect the life of an individual. The life insurance of an individual possesses a physical risk depending on the type of sickness that one has contracted. The underwriter determines the type of risk through a thorough thought process. First of all, it is important for an individual to fill the application form that contains the details of what an individual wants to insure. The document is highly important in the times of claim or any dispute that may arise. The form is required to comply with the legal requirements with respect to discrimination, confidentiality and also the relevant consumer laws. However, the life insurance is sold through various channels such as the agents, brokers, enterprises or the banks. Every channel that sells the insurance has its own different application forms (Murphy, 2010).

Several steps are undertaken by the underwriter to asses a particular risk that is related to the life of an individual. First of all, when the application is received by the insurance corporation the administration clerk will set up the application on the underwriting system. The clerk will do a check up to ascertain whether the insurance company had any prior insurance on the life and if there is any application that had been submitted previously. In addition to that, the clerk will check the medical records of the person that had been presented while seeking for insurance at first. Later on, they will be counter matched with the current to see whether any earlier sickness or disability was inclusive. All the details are available on the company’s database and this gives the underwriter or clerk an easy task to verify the situation. Secondly, the corporation determines whether the insurable interest existed and also if the consent of the insured was obtained to avoid any legal implications. The presence of the insurable interest is highly important and must be established to any life insurance policy. It ensures that the insurance contract is not at any time challenged to be an illegal agreement. The insurable interest must be recognized at the time of underwriting for the policy to be issued. It benefits the insured if the individual continues to live and is likely to suffer any loss or detriment. The underwriters screen the applications that have been presented regarding the life insurance to ensure that the insurable interest that is required by law will be met when the policy is submitted (Koller, 2011).

In addition to that, an individual is subjected to having unlimited insurable interest on one’s life and health. However, the beneficiaries of the policy do not have to provide any proof as long as they are concerned with the insured life. The state laws have been established to provide guidelines to the individuals and entities deemed to have an insurable interest on the proposed insured life. There are three main categories and they include blood or marriage, business relationship and creditors. Moreover, based on the relationship of blood and marriage the husbands and wives, parents and children, grandparents and grandchildren, brothers and sisters, and the engaged couples are entitled to insurable interest. On the other hand, the other relatives by marriage, nieces and nephews, cousins, uncles and aunts, stepchildren and stepparents have no any insurable interest. In regard to the business relation, an individual who gains any economic benefit from the life and quality health of another should have an insurable interest on that person’s life. The creditors are not supposed to give the debtors the life insurance and with their consent. The mortgage and credit insurance fall under this category and should also be taken seriously. The occupation of an individual should also be put into consideration as some of them are hazardous and highly increase the risk of death, disability or various accidents (Mezzullo, 2009).

Current Position

The life insurance of this class of business in the underwriting cycle has been put the priority and has remained on top. The underwriting business often faces various fluctuations over a period of time. The cycle may span on several years while the market conditions vary from time to time. On the other hand, the underwriting business is soft at the beginning of the cycle due to the high competition and excess insurance capacity. It is facilitated by the low premiums and also when a particular natural calamity occurs the less capitalized insurers are out of the enterprise. The less competition among the insurance firms leads to favorable underwriting conditions for the insurers who are still in the business. The premiums are raised and hence good generation of income that boosts the various organizations. The underwriting cycle affects all the other types of insurances except the life insurance. It is because there is adequate information to minimize the risks and hence the adverse effects of the cycle. It makes the life insurance to remain on top as the value of others changes from time to time. In addition to that, the underwriting environment highly attracts many competitors thus leading to more capacity and less premiums. The underwriting cycle is very hard to eliminate in the business unlike other enterprise cycles. The corporations often face the challenge of managing it from time to time as it is not consistent like the others (Shuntich, 2003).

The management of the insurance companies ensures that their clients get the quality services despite the competition they face from other organizations. It is the duty of the managers to come up with ways to market their services to the public to ensure they attract as many individuals as possible. Moreover, the life insurance is given the priority and many people encouraged to buy the premiums so as to get compensation in times of unwanted calamities. The cost depends on the organization offering the insurance and the underwriter has to guide the persons and giving them the advice they require to understand the terms and conditions. The number of persons that the insurer needs insure is recorded down as evidence in case anything happens in the future. It allows the insurance company to have substantial evidence to ascertain whether a particular incident requires compensation or not. The government of the state has also come up with rules and regulations regarding the life insurance of the individuals. The corporations offering the insurance services should comply with the laws for them to continue operating their businesses smoothly. The failure to adhere to the rules may lead to heavy penalties if the matter is presented at the court of law. However, the judge will require substantial evidence so as to give the final ruling about the case. The life of the people is highly important and their good health helps contribute to the growth of the country’s economy. Therefore, the insurance organizations give it the priority and encourage the people to insure their life as no one knows about the future (Kutty, 2008).

It is highly recommended for the people to buy the life insurance premiums as they less affected by the underwriting cycle. It has various benefits to an individual in case anything happens to their normal functioning body. It ensures that one gets compensation for the disaster or catastrophe that arises from time to time. It is also essential to ensure that one does not incur a lot of expenses catering for the illnesses or accidents that occur as they are catered for by the insurance company. The people can live a better life that is not stressful when they insure their life with the appropriate insurance companies. The persons can carry out their normal duties on a daily basis without worrying about their future as the insurance caters for them. However, they are supposed to comply with the monthly payments to ensure that they benefit well in the future. The failure to pay the required amount as instructed will cause complications and hence no compensation will take place. The underwriters should provide the appropriate advice to the clients who require the life insurance. Moreover, they should outline the terms and conditions clearly to ensure the client understands what to comply with. The amount that one should pay either monthly or yearly should be stipulated clearly. The individual should also be informed on the disadvantages of failing to pay the expected amount at the scheduled time (Harris et al, 2014).

Changes in the Underwriting Approach

The fluctuations in the underwriting cycle make various changes to the approach that the insurance companies utilize. The life insurance industry has been using the same financial underwriting guidelines and making less changes to the underwriting approaches. The companies’ life insurance premiums have been similar and constant for decades and they do not vary like the other business cycles. They are not affected like the other types of insurances that the corporations make various adjustments. However, as time is moving on there should be various changes to be implemented to the underwriting approaches. The amount of income that acquires either monthly or from time to time will continue to steadily rise in the course of one’s working life time. The life insurance should be determined by the ones income from time to time as one ages gracefully. The corporations should charge the monthly pay differently and should increase with time as the years move on. The monthly salary of an individual should determine the amount of life insurance an individual will be eligible. In addition to that, the organization should determine all the sources of the earned income of the client to ascertain the amount of cash one should pay monthly and the life insurance one should get. It is important as some income of various individuals end up unrecognized by the insurance companies (Briys & Varenne, 2001).

On the other hand, the life insurance organizations consider the premium to income ratios to undertake their underwriting process. A certain percentage of amounts of the income that an individual earns is spent on the life insurance. There should be changes that ensure that all the people no matter their income they can access the life insurance. The corporations should not discriminate any person regardless of their income. They should be given the privilege and opportunity to access the life insurance at a certain amount to be paid per month. The underwriters should analyze all the income of an individual and fill the details on the application form. The net worth of a person should be determined to be able to know the eligible amount of life insurance that an individual should get. In addition to that, an accountant should verify the income and value of the assets and sign the document. The signature of a recognized accountant will be effective to ensure that the insurance company legally recognizes the income and assets. The information is highly important to the organization as it is used to determine the value of the life insurance of an individual. The management is responsible for the activities that happen and also ensuring that the people gain their compensation in case anything happens to their life. The life of the people is highly important and the persons should make an effort to insure it. The underwriting approach should be changed to cater for various fluctuations that take place. It is essential for all the people regardless of their monthly income to be able to afford the life insurance. The managers of the organizations should assign the responsibilities to the highly qualified underwriters who can take care of the clients and also protect the company (Rothstein, 2004).

Recommendations to the Underwriting Approach

The management of the insurance companies should make various changes to the underwriting approach. It is significant to ensure that they overcome the fluctuations that arise through the underwriting cycle. On the other hand, the organizations should change the underwriting guidelines that have been continuously used over a decade. The similar underwriting approaches are still being utilized in the corporations till today. The management should come up with other changes that favor every citizen in the country regardless their income amount. The insurance companies should ensure that people are not discriminated irrespective of their origin or occupation. The life insurance is highly important to the people and they do their best to insure their life and that of the loved ones as anything can happen in the future. The premiums should not fluctuate at higher rate as the less stable individuals may not afford. The financial status of the people should also be considered by the insurance companies so as to offer them a chance to get the life insurance. It is beneficial to the persons as the natural calamities or accidents can occur at any time and cannot be predicted when they can happen. The institutions always encourage the people to acquire the life insurance as no one knows about the future. The government has come with the laws that the insurance organizations should follow in allocating various insurances to the people (DesRochers, 2004).

In addition to that, the income of an individual should determine the amount of life insurance that an individual should be eligible. The corporations should charge a particular percentage of the income of a person to be spent on the life insurance. Moreover, the occupation of an individual should determine the amount one pays monthly or the required dates to cater for the life insurance. The people earn differently and have other sources of income other than their main occupations. Therefore, the underwriters should analyze all the sources of income of the people to determine their net worth. It should then be used by the corporation to ascertain the eligible life insurance that one may get in case of any emergencies. Therefore, the companies should change their ways of allocating the life insurances to the clients. The underwriting cycle should be changed like any other business cycle. However, the life insurance is rarely affected by the underwriting cycle. The challenges of the underwriting cycle that are faced by the industries are not well responded to by the managements. The managers of the organizations should come up with ways to overcome the challenges and ensure a better life of the industry. Lastly, the institutions should hire the highly qualified and experienced underwriters to handle the insurance applications and issuing of the policies. It will ensure that the clients get the quality services and also the company is protected from the various issues that may affect it in the future. The consumers need a good understanding of the terms and conditions before committing themselves to complying with them and paying for the life insurance premiums (Bhuyan, 2009).

Conclusion

In conclusion, there are different companies that offer the insurances to the people. They range from property, life, motor, aviation, reinsurance and casualty. Every class of business has its own cost and terms and conditions that one should comply with from time to time. It is essential that one follows the organization rules and regulations so as to get compensated in the end. The failure may lead to heavy penalties or lack of compensation when a certain issue arises in the future.

References

Briys, E., & Varenne, F. . (2001). Insurance: From underwriting to derivatives ; asset liability management in insurance companies. Chichester [u.a.: John Wiley & Sons.

Bhuyan, V. B. (2009). Life markets: Trading mortality and longevity risk with life settlements  and linked securities. Hoboken, N.J: John Wiley & Sons.

Dewan, N. (2008). Indian life and health insurance industry: A marketing approach. Wiesbaden: Gabler.

DesRochers, C. J. (2004). Life insurance & modified endowments: Under Internal Revenue Code sections 7702 and 7702A. Schaumburg, Ill: Society of Actuaries

Harris, T. F., Easton, A. E., & Abkemeier, N. J. (2014). Actuarial aspects of individual life insurance and annuity contracts. Winsted, Conn: ACTEX Publications.

Koller, M. (2011). Life insurance risk management essentials. New York: Springer

Kutty, S. K. (2008). Managing life insurance. New Delhi: Prentice-Hall of India.

Kutty, S. K. (2008). Managing life insurance. New Delhi: Prentice-Hall of India.

Murphy, S. A. (2010). Investing in life: Insurance in antebellum America. Baltimore, Md: Johns    Hopkins University Press.

Mezzullo, L. A. (2009). An estate planner’s guide to life insurance. Chicago, Ill: Section of Real    Property, Trust and Estate Law, American Bar Association.

Rothstein, M. A. (2004). Genetics and life insurance: Medical underwriting and social policy.       Cambridge, Mass: MIT Press.

Organisation de coopération et de développement économiques. (2000).Liberalisation of   international insurance operations: Cross-border trade and establishment of foreign             branches = Libéraliser les opérations internationales d’assurance : les échanges      transfrontières et l’établissement de succursales étrangères. Paris: Organisation for          Economic        Co-operation and Development.

Outreville, J. F. (2000). Theory and Practice of Insurance. Boston, MA: Springer US.

Shuntich, L. S. (2003). The life insurance handbook. Columbia, Md: Marketplace Books.

Whelehan, D. D. (2002). International life insurance. London: Chancellor.

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