In this article the writer will focus on the importance of Risk Assessment and Underwriting which are both critical fundamentals of insurance in general.
For an Insurer to appropriately underwrite any risk, proper assessment of the risk is required. This is also crucial in determining the correct premium to be contributed to the pool fund by the Insured. The higher the risk, the higher the premium.
Loss Adjusters, because of their expertise and knowledge of different insurance policies, play an important role in the assessment of risks and often advise Insurers of recommendations required to improve the risk.
To sensibly understand the importance of the role played by Loss Adjusters, one needs to explain in brief what a Loss Adjuster is and what is expected of them when they are appointed on a claim.
The first duty of the Loss Adjuster is to establish whether the insurance company is liable under the terms of the insurance policy, and if so, to what extent. The Loss Adjuster will typically review the following things:
- That adequate insurance is in place to cover the loss
- That all conditions and endorsements in the policy have been met
- That the loss or damage to the property falls within the terms of the policy
- That the amount being claimed for is reasonable
- That only valid items are included in the claim
Ultimately, the Loss Adjuster will be looking to establish the cause of the incident and whether the damage suffered as a result, is covered by the insurance policy.
The Loss Adjuster will also do a full risk assessment which normally includes amongst others, fire and theft. In terms of fire, the Loss Adjuster will check for any fire hazards and protections (smoke detectors, sprinklers, flammable products etc) and make recommendations to Insurers/Insured. In instances of thefts, the Loss Adjuster will review protections such as alarm systems, security gates on doors, burglar bars on windows etc.
The risk improvement recommendations are communicated to an Insurer who will then advise the Insured to implement in order to improve the risk. This is sound underwriting which benefits all parties.
Back in the days Insurers used to employ Risk Surveyors who were responsible for the assessments of new risks. Over the years, most Insurers have been accepting risks in their books without any assessment. Now one can buy insurance over the phone and the underwriter relies on the information provided by the buyer. This is often done in “Call Centres” by staff who do not have knowledge of insurance. This we can assume is done to cut down costs of insurance. If critical questions are not asked about the risk, then the underwriter only relies on the information provided which can lead to poor underwriting of a risk. The other critical area that is lacking is training. The “old generation” with technical skills is retiring in most cases without transferring their technical skill to the younger generation.
So, with the Risk Surveyors out of the picture, Insurers now rely solely regarding the risk assessment function on recommendations made by Loss Adjusters whenever they are appointed on a claim. The contribution from Loss Adjusters in the insurance industry remains significant.
The recent unrests experienced in Gauteng and Kwa-Zulu/Natal have also highlighted the significant the role played by Loss Adjuster in the insurance industry. The nature of Loss
Adjusting work is full of pressure which Loss Adjusters are used to, this has come in handy because all pressure is on them and they are working tirelessly to get businesses back on track.