Insurance is a contract between two parties’ insurer and insured in which one party (the insurer, in return of certain and agreed amount of money called the premium), assure the other party (the insured) to make the financial loss. The insured may suffer as a result of occurrence of the specified, insured and unforeseen events (perils) that take place within the period described in the contract.
There are two types of insurance in the market, namely Life Insurance and Non-Life or General Insurance. Life Insurance provides cover for human and human related things. General Insurance Company Nepal Limited only issues Non-Life Insurance.
Non-Life or General Insurance provides cover for all the rest (automobiles, showrooms, house, industry, warehouse etc.) apart from that covers in Life Insurance. However, Personal Accidents, Personal Medical, Third Party Liability, Production Liability, Travel Trip are also covered in Non-Life Insurance. The nature of Non-Life insurance cover is normally short term, such as one year.
Underwriting is the function of evaluating the subject of insurance, whether a person, property, profession, business, or other entity, and determining whether to insure it. The underwriter must apply company standards to each applicant and, based on these standards, ascertain whether the application represents an acceptable risk. Underwriting is the foundation of the insurance transaction process.
Underwriting involves examining application forms, supporting documents such as appraisals or Bills that verify the value of property, or medical reports that verify the health condition of an individual, looking at insurance maps that provide information relevant to the statistical possibility of certain types of loss, reviewing statistical data applicable to the risk to be insured, reviewing company records regarding the application and evaluating site inspection reports. Upon a thorough examination of all the data, underwriters then assign rates to the application, or decline to issue a policy if it does not meet underwriting standards. During the entire process, the underwriting department frequently communicates with agents, inspectors, adjusters and other field personnel.
Underwriting is the process of determining whether an insured is an acceptable risk, and if so, at what rate the insured will be accepted. Insurers cannot accept every applicant. An insurer has a responsibility to its current policyholders to make sure that it will be able to meet all the contractual obligations of its existing policies. If the insurance company issues policies on applicants that represent risks that are uninsurable or risks that require premiums higher than the insurer may charge can cover, the insurer’s ability to meet its contractual obligations is jeopardized. On the other hand, a for-profit insurer wants to make money and to increase its number of policyholders. No insurer wants to reject applicants unnecessarily. All these factors must be taken into consideration in the underwriting process. An insurer is also regulated by the states in which it does business. The states expect the insurer to establish reasonable, non-discriminatory standards for accepting insured. Regulation is another important factor in the underwriting process; most of the risks are tariff governed.
The purpose of proposal form is to get information from the insured to issue an insurance policy. The information is as followed:
- Name & Address of proposer
- Details about the proposed properties, persons, liabilities etc.
- Location, Transit route etc. of proposed
- Property, profession age etc. of proposed persons, nature of business for liabilities etc.
- Proposed Value, Limit of liabilities, Sum Insured etc. for the insurance
- Risks required
- Period of insurance
- Past insurance and claim record…..etc.