In Workers’ Compensation Underwriting Philosophy as Partnership, workers compensation expert witness David L. Stegall, CPCU, ARM, ARe, RPA, writes:
An underwriting philosophy is the logical analysis of the principles and processes underlying the conduct, thought and knowledge used in selecting and assuming the risk of another party.
Philosophy attempts to draw unity from diversity. It attempts to deduce conclusions (leading to unity) based on overall observations, both direct and indirect (diversity). The unity we are attempting to achieve is profitable business. The diversity is all of the risks, which we, as a company, have the capacity and authority to assume. Selection is the key. Underwriting is a process of selection.
In a voluntary and competitive market, there will always be selection in insurance. The question is whether the selection will be done by the insurance company or by the insurance buyer. The two opposite poles in this continuum are selective underwriting vs. adverse selection. It is the job of the underwriter to select rather than be selected. By analogy, an underwriter is similar to a loan officer at a lending institution. There is nothing difficult about lending money (the assets of the company). The key is to make good loans: loans that will be paid back and at an adequate rate of return. An underwriter has the power and responsibility to use the assets of the company for the benefit of the stockholders and must think much like a loan officer to create, maintain and maximize the value of the company’s assets.
David Stegall is the Principal Consultant at Risk Consulting & Expert Services.