What is Property Underwriting?

Let us look at this question by process of elimination:

Sometimes we come across the expression “the art of underwriting”. In our opinion, this is not accurate. Artists have total freedom to execute and design their works.  And often they are far ahead of their time, making it difficult for contemporaries to assess their work. Finally, art is often mysterious and not necessarily subject to reason.  This distinguishes art from underwriting, which must be in keeping with the times, logical and transparent.

Another common saying is that we strive to achieve a “feel for underwriting.” But this analogy likewise slightly misses the point. True, the very experienced underwriter uses his intuition to evaluate a submitted risk and he may even sometimes “underwrite the person”. But these abilities must not be  rated higher than the factual risk assessment. Moreover, whilst the risk of error lies in the past, the one of change lies in the future and cannot be “felt”. It must always be judged anew based on facts and forecasted developments.   

So, then, can we describe underwriting as a science? No, such a claim would overstate the power of risk tools.. Working with reliable risk models, experience and exposure ratings are undoubtedly very important aspects of the underwriting process, but they cannot replace the underwriter’s own assessment. Basing judgements solely on tools is inadequate.

All that is left then is our preferred image: underwriting as a craft.  A craftsman has learned all the techniques necessary for performing his work and uses them every day. Even if he often produces similar products, his work is never a production line – it is always made to a client's specific requirements. A craftsman also acts as a model and instructor for his apprentices. Most importantly, he is an entrepreneur. A good fire underwriter can be described in the same way: he handles his employer’s capital as carefully as if it were his own.

This and much more can be read up on in Swiss Re’s recently published technical brochure “Fire Insurance”

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