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Underwriting department
Motor Claims department
Accounts
Non-motor claims
Risk management
Underwriting department can be termed as the backbone of any insurance company. The employees in
this department experience more work pressure than those of the rest.
The name is derived from the Lloyd's of London insurance market. Financial bankers, who would
accept some of the risk on a given venture (historically a sea voyage with associated risks of
shipwreck) in exchange for a premium, would literally write their names under the risk information
which was written on a Lloyd's slip created for this purpose.
DEPARTMENT HEIRARCHY
VICE PRESIDENT
Assistant Vice
President
Manager
Deputy Manager
Assistant
Manager
My observations of this department have led me to draw a final picture of the under writing process at
AICL which is as follows:
Process starts with the prospective employee’s intimation about his intention of buying
insurance from AICL.
After obtaining the particulars of the subject matter through risk inspection report
underwriter rates the risk looking at the market practice or by taking guidance from the
Tariff rates as given by Tariff Guide of IAP (Insurance Association of Pakistan,(especially
in case of fire)
All risks falling under the limit of Branch are rated and approved in branch. For special
rating approval is obtained from the head office.
After rating if customer agrees then cover note is issued for a period of 30 days.
In 30 days if the customer pays the amount of premium then the underwriter issues the
policy document.
Any alterations are made through the endorsements.
Each insurance company has its own set of underwriting guidelines to help the underwriter determine
whether or not the company should accept the risk. The information used to evaluate the risk of an
applicant for insurance will depend on the type of coverage involved. For example, at AICL, in
underwriting automobile coverage, an individual's driving record and claim ratio statement prepared
by the claims department is critical and is given much importance at the time of renewal of the policy.
Similarly, the premium statement of each client is also considered important in this regard.
While underwriting the motor policy the underwriter needs to be very careful as the loss ratio
and fake claim ratio is very high in motor class of insurance.
• Theft
• Total Loss
• Partial Loss
• Third Party Property Damage
• Third party bodily injury
• Loss/Damage to vehicle in transit by Road, Rail and Air.
• Terrorism(optional)
The motor vehicle insurance process is different from the independent customers and the customers
who lease the vehicle from bank.
INSURANCE COMPANY
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4
2
CUSTOMER BANK
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CAR DEALERS
Explanation
• In case of any damage to the vehicle, the company gives the insured the amount after
deducting depreciation of that part.
• In case of theft, the company pays the insured according to the current market value of the
car not the price of the new car.
• For repairs /damages of the vehicles, the company has some workshops on its panel.
• For small losses, company tells the insured that he should shall it repaired from any
workshop and give them the bill for the recovery.
• For big losses, a team first inspects the vehicle and then after proper investigation they act
accordingly.
Property and fire under writing has proved to be one of the most technical sides of under writing
throughout my internship period. Property insurance provides protection against most risks to
property, such as fire, theft and weather damage. Fire under writing is mostly guided and governed by
the Fire Tariff that lays down the terms of coverage, the premium rates and the conditions of the Fire
Policy.
PERILS COVERED:
The perils covered are as follows:
Discounts available
The marine under writing department of any insurance provider holds a great deal of importance to the
country’s foreign trade sector. Importers and exporters depend much on it for smooth running and
security of their business. This is the most profitable class of business for AICL because of minimum
claim ratio. A prudent and compact marine under writing ultimately adds value to the country’s
foreign trade environment.
AICL’s marine under writing in Lahore Zonal Office is performing its services with full dedication
and in complete harmony with the Head Office.
CLAIMS DEPARTMENT
Claims processing is one of the most crucial activities that the insurance companies perform. This is
one of those core areas that are considered to judge the overall performance of an insurer.
I worked for one week in the claim management department of AICL.
PRE-ACTION CHECKS
Before initiating the formal claim process, the claim manager will check the following:
• Cover was in force at the particular time of loss.
• Validity of the claimant as the one of the authorized claimants.
• Whether the peril is a covered peril.
• The insured has complied with the conditions and warranties applied by the policy.
• Exclusion
The initial response from the insurer to the insured may be only an acknowledgement or a
request for further information. Depending upon this further information the insurer must then convey
their “claim decision” which can be one of three choices:
• Payment
• Negotiation
• Rejection
Claim decision must be made within a specific time period to meet the statutory requirements
this decision can be for the admission or denial of liability.
Insurer may not be able to make a claim decision and there may be a need for further probing for fact
finding. For this purpose insurer may refer the case to the internal claims inspector or appoint loss
adjuster to undertake an independent investigation. Investigations must be:
After completion of investigation insurer must respond to the insured immediately of the
results.Investigation encourages both the parties to negotiate the claims because all types of
information/documents are in their knowledge along with merits and demerits of the case. Negotiation
may be through arbitrator/mediator. If these are failed then last resort is litigation for the commercial
clients and insurance ombudsman for private clients.
Where the liability is accepted by the insurer, the claim is paid immediately. Where the liability
is denied even after thorough investigation, insurer may pay the claim on ex-gratia basis although
legally he/she is not bound to do so.
• Third party, who may be liable in full or partly to the incident under
subrogation right.
• In case of reinsurance, from the re-insurer.
• Contribution may arise if another insurer is also involved.
Insurers are required to review theire performance periodically to learn a lesson from past
experience and for improvement in the future.
1. MARINE CLAIMS:
• My discussions with the AVP claims have led me to sum up the salient features of marine claims
which are given below.
• Marine claims are document based claims and the documents included in the marine claim file are
much more important than the documents of other claim files.
• Loss assessment, document collection, document verification are the most important issues and
need to be dealt with great care by the claim manager.
• Marine import claims sometimes rely upon the joint survey conducted by port authorities during
investigation. For example Marine Bulk Consignment ship shortage cases do not involve the
appointment of surveyor by AICL.
• Some times a copy of joint survey report is also issued to the client on request and a fee is also
charged for that.
• Marine loss assessment is done by the claim manager himself because marine claims focus more
on documents. This is not the case with the motor and fire claims hence the surveyor’s fee in fire and
motor is higher than that of marine.
Letter Of Credit
Commercial invoice (issued after Performa invoice/provisional invoice. Quotation is
exchanged before Performa invoice)
Packing list (most important for inland transit cases)
Non-negotiable copy of BILL OF LADING
Triplicate copy of BILL OF ENTRY
Original policy document
Debit Advice issued by Bank
Original Bank Cost Memo
Claim bill
Weigh mint note
Inward / outward gate passes
Sale receipts (used in inland cases)
Final short lending certificate(issued at port of discharge on confirmation of ship
shortage)
Original Inland Transit Receipts (Bilty)
Original port survey report
Joint survey report
Letter of subrogation
Loss vouchers(evidence from client that he has received the claim amount)
Survey report of appointed survey
2. MOTOR CLAIMS:
The claim management for motor cases depends largely upon the type of cover obtained by client.
Third party motor claims
Salient features:
a. Submission of claim forms(Along with copy of driver's driving license of driver's I.D.
Card Vehicle Registration Document)
b. Consent of insurance company prior to admitting liability toward third party.
c. Submission of court orders to insurance company
d. Police reference number should be informed to the company, incase third party injury is
involved.
Comprehensive Cover
OWN DAMAGE CASE:
Submission of claim forms (Along with copy of driver's driving license of driver's
I.D. Card Vehicle Registration Document).
Signing of Letter of Authorization to let the insurer take the driver’s statement.
Submission of repair quotation to the insurer for approval
Appointment of surveyor to investigate the claim
Completion of repairs
Discharge Form signed by client, repair charges made by insurance company after
deduction of depreciation.
In case of third party injury or property damage under comprehensive cover, the claim
handling will be the same as discussed in the “Third Party Only” cover.
3. FIRE CLAIMS:
In case of loss the clients should report the case to the insurance company immediately.
Describe the time, date, cause etc of the fire in detail.
• Insurance company will then appoint an adjuster / surveyor to investigate the fire. A detailed
adjuster's report will be made. Client is not supposed to discard or remove any destroyed
items without the Company's prior approval.
• If the loss is minor, insurance company would probably not appoint a loss adjuster. Instead,
clients will be asked to submit the relevant quotation for repair or receipts of goods damaged
to the insurance company. In that case, clients should also send original photos showing the
extent of loss to the insurer.
• If there is damage to building:
Clients should obtain a quotation from the builder on the cost of restoring the
building to its state immediately before the fire. Clients must make sure that
Company’s interest is notified.
Company will then pass the quotation to the loss adjusters for assessment.
Company has the sole discretion on how to provide an indemnity.
• If there is damage to furniture, stock or other contents:
• Clients should provide a full list of articles destroyed or damaged. Clients should not
admit liability for damage to third party without Company's approval and clients should
submit any court order of claim letter to the Company as soon as possible.
• If there are other insurances in force, clients should also inform the Company about the
name, sum insured etc. of the co-insurance company.
• The clients should submit the following to the Company:
A copy of the Fire Department Report (if available)
A full list of articles destroyed or damaged
All accounting records, including all stock records, record of last renovation, rental
record etc.
All documents received concerning third party liability losses
Claim form
A BRIEF OVERVIEW
The risk management department of AICL consists of a Senior Manager and two deputy managers. All
three of them, being engineers, are highly skilled for serving this department well.
The main functions being performed by t hem are:
Reporting to the under writing departing department and discussing the important areas of
the report presented.
The risks amounting to below 10 million are managed by the branch itself and the rest are
forwarded to the zonal office.
The risk manger is only supposed to give his logical opinion about any risk being
considered for under writing and does not take the responsibility for giving a straight away
decision of acceptance or rejection. R.M departments in other big organizations may be
the authority to take decisions but AICL does not practice it so far.
The department can also outsource the duty to conduct survey from any reputable
surveyor’s company but this practice is found quite rare.
The clients with relatively greater risk are:
• Textile industry
• Cotton Ginning and pressing factories(CGP)
• Chemical manufacturers
• Sugar mills etc.
Speaking in the global perspective, the history reveals various examples where the organizations had
to bear unlimited losses, catastrophic losses more precisely, merely because they practiced either no or
poor risk management tools.
In 1980’s, there has seen a dramatic rise in the number of insolvent insurers. The apparent causes of
these insolvencies were various. Some of the insolvencies were caused by rapidly rising or declining
interest rates. Mis pricing of insurance policies, natural catastrophes, and changes in legal
interpretations of liability and the limits of coverage hurt still others. The “churning” of policies by
unscrupulous sales agents, insolvencies among the reinsures backing the policies issued,
noncompliance with insurance regulation, and malfeasance on the part of officers and directors of the
insurance companies affected some as well.
But despite the numerous apparent causes of these insolvencies, the underlying factor in all of them
was the same: inadequate risk management practices. In response to this, insurers almost universally
have embarked upon an upgrading of their financial risk management and control systems to reduce
their exposure to risk and better manage the amount they accept. In short, the industry has turned to
financial risk management techniques as a way to improve performance.
Insurers are in the risk business. In the process of providing insurance and other financial services,
they assume various kinds of actuarial and financial risks. In many instances they will eliminate or
mitigate the actuarial and financial risk associated with a proposal by proper business practices; in
others it will shift the risk to other parties through a combination of reinsurance, pricing and product
design. Only those risks that are not eliminated or transferred to others are left to be managed by the
firm on its own account. This is the case because the insurance industry recognizes that it should not
engage in business in a manner that unnecessarily imposes risk upon it, nor should it absorb risks that
can be efficiently transferred to other participants.
PROMINENT ROLES OF RISK MANAGEMENT DEPARTMENT
There are only a few insurance companies in the local industry who practice a full fledged function of
risk assessment before under writing. AICL is one of those few prudent companies who have learned
to consider risk management as a pre-requisite for efficient under writing.
RISK ASSESSMENT
The core function of this department is the risk assessment for the ultimate purpose of under writing. It
starts when there is an intimation about a new proposal. The prospective risks amounting to above 10
million are normally forwarded to the risk manager for proper inspection as said earlier.
Risk inspection survey serves as the best tool for the assessment of any risk.
The report generated as a result of the survey provides an objective opinion about the risk as being
low, medium or high. The historical information about losses also helps in assessing the severity and
frequency of losses. However complete statistical information is normally not available therefore
prediction in terms of statistical analysis is sometimes difficult for the risk managers.
ESIMATED MAXIMUM LOSS is an important term to assess the risk statistically and provides much
guidance to under writers while taking decisions.
The first obvious outcome of risk management in AICL or any insurance company is that the under
writing function becomes standardized and creates value for the company as well as clients. This leads
to an increased prudence and efficiency involved in under writing. Where competition cannot be
tackled in terms of pricing, prudent under writing comes to the company’s rescue and its found at the
end of the day that the claim ratio was much better than the company who performed under writing
only to survive the competition and without sticking to any risk measures.
This is the second major benefit of risk management that was observed during my work in AICL risk
management department. My findings in this regard are a result of the assignments given by the
relevant instructor and are described as below:
History reveals many catastrophic incidents that became possible only because of insufficient risk
measures. Such incidents include:
• CHERNOBYL
• CHALLENGER SPACE SHUTTLE
• KING’S CROSS FIRE
• ZEEBURG
• LOCKERBIE etc.
The need and importance of risk management was felt after these catastrophes actually hit hundreds
and thousands of people and assets. Likewise in insurance companies, the risk management is thought
to be one of the tools to reduce or at least minimize such huge losses.
Since the risk manager performs all necessary steps to evaluate the frequency and severity of expected
losses, any probabilities of future catastrophes can be estimated which can help in catastrophe
management to a certain extent.
RISK MANAGEMENT PROCESS AT A GLANCE: