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David Miles, the incoming member of the MPC, has this evening suggested that the worst of the UK recession may be over and house prices may have bottomed out. While there is some scepticism with...
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Sunday 24th August 2008
Following on from part one of our article on underwriters, we hereby enclose details of how insurance underwriters operate.
Insurance Underwriter
When you take out any insurance there is always a risk that you will use the insurance to claim for a loss of some kind, whether it is the cost of refurbishing a home after a fire, a car accident, or any other form of financial loss. The insurance agent that you use will traditionally use Lloyds of London (the largest insurance market in the world) in order to acquire an insurance policy, add their profit to the cost and then resell to you.
The group which supplies the underlying insurance is known as the underwriter and using complicated calculations they are able to calculate the probability of any event happening and then apply a cost to the policy. However, with very large insurance policies you may well see underwriters approach other underwriters to sub-underwrite part of the risk, with the original underwriter giving away part of their premium income to reduce their risk.
While underwriting one insurance policy is very risky, the main underwriters will underwrite hundreds if not thousands of policies which means their statistical analysis of risk should be borne out. However, if their underlying probability calculations are incorrect it can be very very costly! |
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