Question

Risk managers rely on statistics and trend analysis in making their risk decisions. Chapter 2 provides a refresher course in statistics and mathematical concepts. Risk managers must provide executive management is hard number reasons for the directions they must take. Consider an insurance company that wants to underwrite automobile insurance; the actuaries need historical data involving claims and motor vehicle violations to properly rate their product. If you were the risk manager charged with developing a new line of auto insurance, which market would you pursue and which ones would you not pursue? Provide examples with factual data (and cite your sources) in your answer.

Answer 1

The purpose of insurance underwriting is often to establish rules that should or would result in securing the average proportion of the risk of the vehicle (Karapiperis, et al., 2015). To determine a new line of auto insurance, underwriters have the different market to pursue when developing it. The accomplish of the purpose of underwriters, a company’s average claims cost would be lower, and the company would be able to get insurance policies at the lowest possible net cost/premium (Karapiperis, et al., 2015). Thus, the company would attempt different rate risks faced by their vehicles. The company set the rules according to underwriting rules of the insurance company (Karapiperis, et al., 2015). The rule that is adopted by the company is to secure the desired results that are based on their experience, judgment, and research and lastly intuition.

The company would not just aim to have an insurance policy that can provide compensation (BestED, n.d.). The company must identify risks and try to minimize the risk by paying the minimum premiums. The car insurance company would be the most appropriate market. Thus, the rules offer guidance on how the operation can be successful completed and thus, there should be an excellent balance between homogeneity and class of risks that achieve predictability of future results (BestED, n.d.). Thus, company venture into the market that permits acceptance of the large majority of risk at minimum or standard premium rates