Underwriting, risk assessment, pricing and policy documentation
What this domain tests
How insurers assess and price risk, what the applicant must disclose, and how policy documents record the deal.
Underwriting
Underwriters assess physical hazard (construction, age, location, flood or fire zone), moral hazard (claims history, intent) and morale hazard (carelessness). They may impose loadings, excesses, warranties, exclusions or decline.
Disclosure
New Zealand law requires applicants to disclose material facts a prudent insurer would consider. The common-law remedy of avoidance is modified by the Insurance Law Reform Acts 1977 and 1985, which restrict technical defences and 'basis of contract' clauses. Advisers should record the client's disclosures and answers.
Pricing
Base rate × rating factors (construction, occupancy, protection, claims history, excess) + loadings − discounts. Commission and premium funding affect what the client pays but not the risk price itself.
Documentation
Schedule, wording, endorsements, disclosure statement and certificate. Endorsements can widen or restrict cover; the schedule records sums insured, excesses and period.
Worked example
A commercial building sits in a flood-prone area. The insurer adds a 25% flood loading and a $10,000 flood excess. The adviser explains the restriction, records the client's acceptance and notes that the standard wording still excludes gradual seepage. If a flood claim occurs, the $10,000 excess applies before the insurer pays.
Traps
- Treating the schedule as the whole contract.
- Missing an endorsement that restricts cover.
- Assuming every non-disclosure lets the insurer avoid the policy.
- Confusing premium loading with an excess.
- Failing to explain the effect of a warranty.