What are the major challenges underwriters in the United States, Canada, the UK and Australia face? And what can they do to overcome these key challenges?
Underwriters play significant roles in the insurance industry but they are not without challenges. This article presents some of the challenges facing underwriters in the United States. If you want to become an insurance underwriter, you must be acquainted with these challenges and seek ways to solve them.
Before we go into the challenges of underwriting in the United States, let’s discuss who insurance underwriters are and what they do.
Who is an Insurance Underwriter?
These days companies look at every little detail to make sure all the risks are considered. The marketplace is very competitive, especially in the vehicle segment that they also have to make sure they are one of the inexpensive auto insurance providers, in this case. It is the underwriters’ job to look at every available statistical data, recent claim records and market conditions and come up with rates that are profitable as well as competitive.
In case of larger risks like marine, a person may do the calculations and offer a price. Today computers do all the calculations for home or automobile premiums. But the parameters are still set by actuaries and even mathematicians. For example, they look at a particular driving record and decide how much of a discount they need to offer for someone with a five years clean history.
Certainly, they cannot see everything because they are looking at the past data and trying to estimate the future happenings. Nevertheless, they consider every minute detail, thanks to the latest programming capabilities and try to win more business while remaining profitable. It is essentially a balancing act of guessing who is more likely to make a claim and punishing them adequately for it while encouraging drivers who will never trouble them with good discounts.
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What is the Work of an Insurance Underwriter?
There are various types of underwriters who perform different functions. Insurance underwriters are saddled with the responsibility of:
1. Evaluating the risks involved in offering an insurance cover
2. Deciding if the insurance company should offer an insurance cover
3. Establish pricing for insurance covers
4. Determine how insurance companies make their money
5. Assuming the risk of future events and determining premiums for them.
The insurance underwriting sector is a very profitable industry. If you are interested in joining the industry, you are sure of making profits. But before you enter the underwriting industry, be in the know of the major challenges facing underwriters in the United States.
6 Key Challenges Facing Insurance Underwriters
1. Fierce Contest
The growing rise in insurance needs in the United States has produced more and more insurance professionals. The underwriting sector is not left out as there has been an increase in the number of insurance underwriters.
According to the United States Bureau of Labor Statistics, there are over 89,000 insurance underwriters. And the Employment RSE is pegged at 2.3 percent.
This has produced a stiffer, fierce contest among underwriters. Underwriters have to struggle and juggle for the available underwriting jobs.
2. Increasing Insurance Needs
From online stores in need of cyber liability insurance to families in need of life insurance to businesses in need of general liability insurance to consultants in need of professional indemnity insurance, the insurance needs of Americans have enjoyed a steady increase.
This heightened need for insurance policies poses the increased work process for underwriters. As an underwriter, your duty is to meet both the needs of the insurance companies and those of the seekers of insurance covers.
Meeting their needs and doing so with speed is what both parties expect from you at all times.
3. Increasing Risks
The idea behind the buying of insurance policies and covers is to manage, protect, and compensate insurance policyholders from risks. An insurance policy covers for a particular risk, paying claims when the unfavorable event takes place.
Underwriters have to assume the cost of a risk and determine the cost of insuring against it. This is a tedious task as every day the potential risk faced by United States citizens is growing. For online stores as an instance, they have grown to be major targets of hackers and cybercriminals. This has increased the risk the industry faces.
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Victoria Melvin, Head of Research at AXA said, “Increasing risk awareness among the public and private actors is a great first step as basic security measures are sufficient to prevent the many of the most harmful attacks.
Underwriters must be able to cover for the growing nature of risks we are subjected to.
4. Uncertainty in the Insurance World
Kathleen Felderman believes that one of the major challenges facing underwriters is the inability to deploy capital and still make money for their respective insurance companies.
The job of insurance underwriters includes assuming the cost of a future event or risk and evaluating the risks involved in providing an insurance cover. This is done by estimations and predictions. Oftentimes, underwriters do not get these predictions correctly. After all, they are only predictions, not certainties.
Even with the specialized software insurance underwriters use in performing their underwriting jobs, the uncertainties that cloud the insurance industry still affect the accuracy of underwriters.
5. Time-consuming Tasks
Among the professionals in the insurance industry, underwriters are saddled with the most responsibilities and perform the most tedious of tasks. Another challenge facing underwriters in the United States is the truck-load of time-consuming tasks.
They must ensure that they meet the requirements placed on them as quickly as they can while maintaining the right dose of accuracy, expertise, and professionalism. The dilemma of completing tasks fast and with accuracy is increased due to the nature of their work.
You will need to deal with time-consuming tasks while completing them on time and perfectly well.
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6. Claims Review
Another challenge facing underwriters is the reviewing and resolution of claims. When insurance policyholders file claims after the occurrence of an insured risk or event, the underwriter is mandated to check and review their claims.
The reviewing of claims is done to ascertain if the insurance policy covers for the event that occurred, whether the event actually occurred according to the provisions and stipulations of the insurance policy, and whether the insurance policyholder is entitled to receive claims.
The trouble with claim reviews often comes when an underwriter has to verify from the proofs presented by the policyholder if the covered peril or event actually took place.
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It is true that the underwriting industry is a highly profitable industry. Else Warren Buffet would not invest so much into purchasing GEICO Insurance and starting Berkshire and Hathaway Reinsurance Company.
Nevertheless, there are quite a number of challenges facing underwriters and you must brace yourself to overcome them. It is what you will consider pain and pleasure income.