Insurance Companies' Risk Evaluation Procedures

Insurance companies risk evaluation procedures takes into account the cost of risk and the ability of the company to underwrite it. Risk evaluation is an essential function of an insurance company involving the company’s actuaries and risk managers who assess the quality of risk, the likelihood of its occurrence and the cost to policy owners.

Looking at Risk from Insurance Company Perspective

When an insurance company looks to underwrite risk of particular type such as life or property. To be competitive with other insurance companies, the insurer is looking at ways to keep premiums low without adversely adding to the potential overall risk to existing policy owners. This comes about through the risk evaluation process that is undertaken by the insurance company.

May Hire a Consultant

The insurance company may hire an outside consultant to assist with the process of creating a workflow process for the evaluation of risk. This process helps the insurance company determine the potential impact of the risk and what its potential cost may be to the insurer. The insurer will look at comparable statistics for similar types of risk as a basis for its evaluation process.

Documentation for Risk Evaluation

The insurance company will create a set of documentation of its practices associated with risk evaluation. Actual processes are created and members of the risk evaluation team seek out data necessary to support the insurance company’s pricing strategy. The underwriters for the insurer are another source of information for the risk evaluation process. Underwriters have access to the information regarding the types of factors presented when underwriting risk and the commonality of certain risk factors.

Data Gathering and Analysis

How data is used by the insurance company determined how risk is evaluated. The type of data used also influences the risk evaluation process. An insurance company’s procedures, which will vary from company to company, include the divergent elements of the insurer with access to information with risk information.

Streamlined and Automated Procedures

The processes and procedures of the insurance company are streamlined and automated in order to provide the actuaries with the ability to develop pricing models. Once the insurance company develops an understanding of the nature of risk and the potential impact that it may have on the insurer. This analysis creates the appropriate pricing in comparison to what other insurers assess for the same level of risk. This is an important aspect of the process because pricing risk to high will make the insurance product unsellable and pricing it too low will create a loss for the insurer.


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