Underwriting and Claims Management
This domain examines how insurers select and price risk, and how claims are handled consistently with policy wording and fair practice.
Underwriting
Underwriters gather information from proposals, medical reports, surveys and claims history. Rating factors include age, occupation, construction, occupancy, location, sum insured and excess. Moral hazard is the risk of behaviour changing after cover; adverse selection is the tendency of poorer risks to seek insurance. Terms such as exclusions, warranties and deductibles control exposure, while reinsurance protects capacity and solvency.
Claims handling
Claims pass through notification, verification of policy liability, quantum assessment and settlement. Loss adjusters investigate larger or complex losses. Insurers set reserves, including incurred but not reported reserves. Salvage and subrogation recoveries reduce net cost. Fraud indicators include late notification, inconsistent statements and inflated values.
Worked example
A liability award is LKR 6m, the policy limit is LKR 5m and defence costs are LKR 400,000. If costs are payable in addition to the limit, the insurer pays LKR 5m plus LKR 400,000, total LKR 5.4m. If costs are within the limit, total outlay is capped at LKR 5m, so the insured bears the balance of the award. The wording decides the outcome.
Traps that cost marks
- Paying a claim without checking conditions and exclusions.
- Overlooking an average clause or excess.
- Failing to set adequate reserves, especially IBNR.
- Missing subrogation or salvage recoveries.
- Accepting fraud indicators without investigation.