Insurance Operations
Insurance Operations
Insurance Operations tests how a carrier converts a submission into an issued policy and a reported claim into a settled file. Expect questions on underwriting authority, workflow controls, claims practice, reinsurance placement, premium audit, and compliance.
Core operating rules
- Authority follows the file. An underwriter may bind only within written limits for line, class, territory, and limit; anything above authority is referred. Document every exception.
- The workflow is a control chain. Clearance, data capture, loss-run review, rating, quote, bind, issue, and endorsement each need a check; missing loss runs or wrong classification is a defect, not a shortcut.
- Claims set reserves early and revise on evidence. First notice of loss, coverage verification, investigation, case reserve, payment, subrogation, and salvage are separate steps. Reserve changes need a stated reason.
- Reinsurance changes net capacity. Treaty reinsurance is automatic within its terms; facultative is negotiated per risk. Gross limit does not equal net retention.
- Audit and endorsement change premium. Workers' comp and other exposure-rated policies are audited; additional premium is not new business.
Worked example
A property submission requests an $8 million limit on a $15 million TIV. The underwriter's net authority is $2 million. The per-risk treaty provides $4 million excess of $2 million, and facultative capacity is available for $2 million. Capacity is $2M retention + $4M treaty + $2M facultative = $8M. Manual premium is $96,000; expected loss ratio is 60%, expense ratio 28%, and facultative cost is 8% of premium. Expected loss is $57,600; expenses are $26,880; facultative cost is $7,680. Total expected cost is $92,160, or 96% of premium. With a 3% investment income ratio, operating ratio is about 93%, so the risk clears capacity and price tests. If the loss ratio were 75%, total cost would exceed premium and the file should be referred.
Traps that cost marks
Do not confuse gross limit with net retention. Do not treat a treaty as covering risks outside its terms. Do not set a reserve to hit a ratio. Do not count audit premium as new business.