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Science of assessing risk
Raymond Ma
update on Friday, July 30, 2010
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An underwriter's role is to assess applications for insurance coverage against the insurance company's policies, and to decide whether to grant the applicant cover. The types of risks they examine depend on where they are employed.

Underwriters in life insurance firms focus on mortality risks of individuals, while those in general insurance will look at material risks depending on their specialisation. This could range from risks due to piracy in shipping insurance, to that arising from fire, theft, or weather damage in cases of property insurance. Underwriters who are employed in banks - sometimes called credit analysts - underwrite loans rather than insurance policies.

Ann Law, assistant vice-president for underwriting and claims, Hong Kong individual financial products at Manulife (International), says an underwriter's job involves measuring risk exposures, selecting profitable risks and determining what rate class should be charged on insurance products and plans. "Underwriting is a science that uses critical-thinking processes to arrive at the best risk selection and is conducted by professional underwriters," she says.

Paul Carson, chief administration officer at AXA Hong Kong, says underwriters maintain relationships with agents and intermediaries, such as financial advisers, bankers, brokers and agents selling insurance policies, who they work with in explaining to insurance applicants the reasons why cover is granted or not, and to conduct follow-up activities such as requests for more information. Underwriters typically start their careers as trainees. Some may have formal actuarial training. Their apprenticeship lasts about two years, after which they become full underwriters. As they accumulate product knowledge and expand their relationships with intermediaries, they will be called upon to assess more complex risk and cases involving higher insured sums.

After five years as an underwriter, some may progress to become senior underwriters. They will then spend at least another five years before becoming underwriting managers, leading and managing teams of underwriters.

Underwriting managers are typically qualified actuaries, while some may move into sales roles. According to John Mullally, senior consultant at Robert Walters Hong Kong, underwriters with two years' experience can earn as much as HK$40,000 a month. Actuaries may earn an extra 20 per cent.


Qualification involves exams and work experience

  • The most recognised qualification across the life and general insurance profession, and in banks, is the Fellow of the Institute of Actuaries, according to John Mullally, of Robert Walters Hong Kong.
  • The qualification involves examinations split into four sections, and at least three years of work experience as an actuary.
  • All candidates must be at least 23 years of age. 

Numbers game

  • People say that accountants are "numbers people", but underwriters take the label to a whole new level.
  • In deciding whether to grant insurance coverage, underwriters must examine complex risks, using mathematical tools such as conditional probabilities, statistical calculus and actuarial mathematics.
  • They must also have good commercial sense, as an insurance firm which takes no risk will not profit. Underwriters need to be able to exercise good commercial judgment in determining whether a policy should be granted.

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