” Why is proper underwriting of property risk so important”?
Underwriting risks is one of the most important aspects for an insurance company.
Prudent underwriting policy is largely responsible for the loss and profit of an insurance company.
Underwriting risks, especially property risk is a serious matter and should not be taken lightly. It requires good knowledge of the product, experience, training and above all technical expertise.
A good property underwriter needs to be prudent, proficient in performing their task.
They cannot afford to show lax attitude and negligence in their work as this might invite serious consequences for the company in the event of a dispute.
Risk Inspection and Risk Management are two important areas well connected with property risk underwriting.
A property underwriter should make the best use of these techniques before accepting a risk.
When they receive a proposal for “Fire insurance” or “Industrial All Risks Insurance ”, they should immediately arrange inspection of the risk as necessary, put forward risk improvement recommendations in writing and get proposer’s agreement to comply with the recommendations within the stipulated time.
One cannot be a good property underwriter without having knowledge on various aspects of insurance mentioned above.
On receipt of a proposal, underwriters should carefully and minutely go through every information supplied in the “Proposal Form”.
If they find any information relating to the risk is incomplete, vague or unclear, they should immediately raise queries and obtain correct information from the proposer.
While underwriting property risks, underwriters should be particularly careful about past claims history of the prospect, their market reputation, any abnormal feature in the risk and most importantly the underinsurance aspect where value declared for the property is felt to be low.
Once the risk is accepted, underwriters should be careful and attentive to include correct information based on physical inspection of the risk.
They should not solely rely on the information supplied by the proposer which may be incorrect, misleading, vague or unclear.
While issuing policy documentation, they should be careful and attentive to include correct information in the policy namely; 1. Occupation of the insured, 2. Detailed description of property insured, 3. Address of risk location, 4.Construction details of the building etc.
Mistakes committed by the insurance company in issuing policy documentation shall be construed as their negligence for which they have to accept responsibility in the event of a dispute.
They cannot argue in the Court of law that they took all precautions in this regard.
In the event of a dispute the Court generally takes the view that as insurance companies know more about insurance compared to the insured who may be a layman, it is the responsibility of the insurance company to check, verify information supplied by the insured through their own means and mechanism.
They simply cannot disown their responsibility and put the blame on the insured.
“Contra Proferentem Rule” applies in case of mistakes or ambiguity found in the policy documentation issued by the insurance company which goes against the Insurer.
In the light of the important issues discussed above, it is important and essential for an insurance company to exercise due diligence in order to avoid a possible dispute in the event of a fire claim at a future date.
Mr. Haque was brought up and educated in Dhaka. He obtained his master’s degree with honours in Biochemistry from University of Dhaka (DU). He spent nearly four decades in Dubai (UAE) working for several multinational insurance companies in various capacities. He obtained his Fellowship (FCII) from The Chartered Insurance Institute (CII), London, Associateship (AIRM) from The Institute of Risk Management (IRM), London, Associateship (ACIArb) from The Chartered Institute of Arbitrators (CIArb), London. He has authored several books on insurance which have been acclaimed both at home and abroad. He contributes regularly on insurance matters in various online insurance news portals and is a founder General Secretary of Bangladesh Insurance Professionals Society (BIPS). Presently Mr. Haque is serving as the Director of Sadharan Bima Corporation, Dhaka.