Commercial insurance underwriting is the process of analyzing information for insurance documents that determines the risk of whether or not the insurance company should insure property and write the policy to cover potential losses.
The underwriter’s job is to simply asses the risk of insuring the company based on standards that are set by the various insurance companies. They’ll also look at the potential client’s history including claims and risk assessment. They’ll determine whether or not the client will be worthwhile to insurance and they will determine the cost of the insurance policy.
In order to determine this, they will have a set rate that they work off of. This rate is a standard rate and the underwriter will analyze various risk factors and then adjust the rates accordingly. A good example is that a real estate agent is far less likely to burn than say a factory that produces fireworks. Thus, the real estate office is going to have a lower premium than that of the fireworks factory.
There are many important factors to consider including the size of the facility, the use of the facility, whether or not they utilize company vehicles, the liability aspects including public and private, and other risk factors. Typically, commercial lines insurance is done through a broker to help offset the cost. A broker is an agency that may represent several different insurance companies.
The broker deals with the client directly and will give the insurance company the information regarding the client. It’s like a middleman. The broker will work directly with the insurance company to ensure that the business is getting the best possible deal on their insurance for their money and needs.
Since the broker works with the same insurance companies, they get to know each company and their policies. They are able to build up a good rapport with them and can often help the client to find the ideal insurance package without any undue stress.
Here are some basic things that commercial insurance underwriters need to know when assessing the risks:
Maintenance And Repair Information
The underwriter needs to know some basics of maintenance and repair in order to properly assess the risk associated with a specific company.
This information tells the underwriter if a survey has discovered a hazard on the property that is to be insured. The field analyst will call and let the underwriter know if there are any high-risks that should be considered.
Exposure Data Adjacent
If the property is adjacent to any type of exposure data that could cause a liability. This includes adjacent buildings, near a construction site, high-hazard operations, storage tanks that may contain potentially flammable contents, local wildlife, flood potentials, earthquake zones, and other serious potential risks that may affect the premium of the policy.
The potential risk for loss and an assessment of how risky it may or may not be. What is the potential for a single loss? What is the estimate should there be a fire? Are the proper mechanisms in place to save the facility and employees? Fire alarms, sprinklers, smoke detectors etc. All of these factors are considered.
What Is The Estimated Replacement Cost?
This amount should be at least the actual replacement value to replace the facility should a catastrophic event occur. According to industry studies, approximately 75% of all commercial buildings are underinsured.
Risk Improvement Suggestions
This includes installing fire alarms, smoke detectors, sprinkler systems and other means to identify a hazardous condition and avoid it. It may suggest modifications and other recommendations to help prevent loss.
The determination of whether or not there is a potential fire risk for the property. The main consideration is that they must assign the proper class of construction. They must identify the materials of construction and the risk factor of each individual material.
The numerical rating of the combustibility of the facility contents that measure the potential risk factors. This includes the square footage, employee count etc.
How close is the facility to a fire hydrant? How close is the facility to a fire station? What is the estimated response time should the fire department need to be called in? Typically, this is assigned on a scale of 1 to 10. A 1 would indicate that the proper protection is in place while a 10 would indicate that it was seriously lacking in meeting the proper protection criteria. This would also include alarm systems, sprinkler systems, and safeguards at the business location.
The underwriter should also understand both common as well as special hazards that may put a business at risk. Underwriters for commercial property the clear and concise understanding of the potential risk factors are vital to providing the proper policy and details for any business. Understanding the hazards will help the underwriter to fully assess the potential risks based on the conditions. This includes all heating systems and cooling systems, any housekeeping equipment, all personnel, flammable products, cutting, welding, cooking, and other potential hazards.
Clearly, there are many factors that must be considered regarding commercial insurance underwriting. Each individual facility must be fully assessed, and the risk factors must be calculated accordingly. The combined underwriters of Miami, will utilize computers, spreadsheets, data, current information from a title company, a legal team, and any other information that is required to come to their conclusion of whether or not to insure a company, and how to determine the exact premium for the company. Not all underwriters work for the same industries. Some focus on specific companies and industries in an effort to focus on providing the best possible service to a business.
Commercial insurance underwriting takes modern technology as well as old-school informational gathering information and pieces this together to help identify risk assessment and the best possible premium for a business’s insurance. Not all underwriters are created equal just as not all businesses are created equal. In an effort to provide the best possible services they will work closely with their team to identify the risk factors.