Insurance Underwriting, Claims and Reinsurance

01Purpose and scope

• This manual supports the course Insurance Underwriting, Claims and Reinsurance. It describes how the three functions work together inside a property and casualty insurer, using examples from homeowners, personal auto, and small commercial accounts. It is written for underwriters, claims adjusters, reinsurance analysts, and the staff who support them.
• Life, health, and specialty lines follow different mechanics, so they appear here only where the logic carries over. Rules on rate filings, policy forms, claim handling timelines, and unfair claims practices depend on jurisdiction and line of business. Check the current requirements of the state, province, or country where you operate with your compliance function and the regulator's published sources. This guidance does not replace qualified professional judgment, approved company procedures, licensing requirements, or the authorization needed for any binding decision.

02Core principles

• Underwriting decides which risks to accept and at what price. Claims pays covered losses accurately and within the time the policy and law require. Reinsurance shares part of the exposure so the insurer can hold a manageable amount of loss on its own balance sheet. Each function depends on the others, and a weak decision in one usually shows up later in the others.
• Underwriting works on information that the applicant controls. Good practice assumes the file is incomplete until it is verified, and it treats material misstatements as a reason to stop and ask questions. Claims adjusters face the reverse problem, since the insured knows what happened and the insurer must confirm it. Both functions rely on documentation that a second reader can follow without a conversation.
• Consistency matters as much as accuracy. Two similar accounts should receive similar terms, and two similar claims should receive similar treatment unless the facts differ in a way you can name. Reinsurance treaties reward this discipline because they are priced on the insurer's track record, which is only credible when the underlying decisions were made the same way over time.
• Profitability is usually read through the loss ratio, which is incurred losses divided by earned premium, together with the expense ratio. The combined ratio adds those two. Reserve estimates move these figures, so the people who set reserves and the people who set prices should talk regularly.

03Planning and preparation

• Start with the carrier's written risk appetite statement and its authority matrix. The appetite statement describes which classes, geographies, limits, and hazards the company wants to write. The authority matrix states who can quote, bind, endorse, and settle at each dollar level and for each type of exposure. Without both documents, a file becomes a judgment call made by whoever happens to be available.
• Build a file standard before you need it. For a new commercial submission, that means the loss runs for the prior five years, the application signed by an authorized person, the building or operations description, and any inspection report the account requires. For a claim, it means the first notice of loss record, the policy in force on the date of loss, photographs, and a contact log. Missing items are easier to request at intake than after a dispute begins.
• Reinsurance planning runs on its own calendar. Most property and casualty programs renew on a fixed date, and the submission package for a treaty usually goes to reinsurers weeks before that date. Confirm the treaty structure, retention, limits, and reporting obligations early. A quota share, an excess of loss layer, and a facultative certificate behave differently in a large loss, and the claims team needs to know which one responds.
• Set up data and tools before the workload arrives. Underwriting usually needs a rating engine, a submission log, and a referral queue. Claims needs a claim management system with reserve history and payment controls. Reinsurance needs a bordereau process that pulls claim and premium data from those systems on a defined schedule. Test the extract before the first treaty report is due.

04Recommended workflow

1. 1
   : Log the submission on receipt and record the broker, the effective date, the requested limits, and the lines involved. Assign it to an underwriter whose authority covers the size and class. If the account falls outside appetite, decline early and say why in a short, factual note.
2. 2
   : Review the file for completeness and consistency. Compare the application with loss runs, public records, and any inspection report. Note every gap, and do not rely on a broker summary in place of the underlying document.
3. 3
   : Assess the risk. Identify the main hazards, such as fire load, roof age, driver history, or products liability exposure. Decide whether the account needs an engineering survey, a site visit, or a specialist review before terms are offered.
4. 4
   : Price the account using the filed rating plan where one applies, and document every manual adjustment with its reason. Check that the premium covers expected losses, expenses, and the reinsurance cost that the account will carry. Refer the file upward if the result departs from the guideline range.
5. 5
   : Issue quote terms, conditions, and subjectivities in writing. Subjectivities are conditions that must be met before binding, such as a completed inspection or a signed protective safeguards endorsement. Track each one to closure on the file.
6. 6
   : Bind coverage only after the required approvals and payment or deposit terms are satisfied. Confirm that the policy issued matches the quote, including forms, endorsements, and limits. Send the policy and cover note to the broker and record the transaction in the policy system.
7. 7
   : Handle claims from first notice. Acknowledge the report within the time your jurisdiction and company standard require, confirm coverage in writing or reserve rights with a reservation of rights letter where a coverage question exists, and set an initial reserve based on the known facts. Investigate promptly, including inspection, statements, and independent estimates where appropriate.
8. 8
   : Evaluate and settle the claim. Compare the loss against the policy terms, deductibles, and limits, then document the basis for each payment. Update the reserve as facts change and close the claim only when all payments and recovery steps are finished. Notify the reinsurance team when a claim reaches a treaty reporting threshold or a facultative notice trigger.

05Quality checks, risk controls and compliance

• Audit a sample of underwriting files each quarter or on the schedule your company sets. Check that the file contains the required documents, that the rating matches the filed plan, that manual adjustments have reasons, and that authority limits were respected. Use the findings to coach individual underwriters and to update the file standard.
• Reserve adequacy needs its own review. Compare case reserves with paid losses and with the actuarial estimate, and examine files where the reserve has moved more than once without a documented reason. Stale reserves are one of the most common causes of surprise adverse development, so ask adjusters to explain changes in plain language.
• Fraud indicators call for referral to a special investigations unit, not an informal conversation with the insured. Typical signals include a recent policy increase, a loss shortly after inception, inconsistent accounts, and a damaged item that does not match the scene. Follow the company's referral procedure and the state or national rules on reporting suspected fraud.
• Sanctions and anti-money laundering screening apply to premium payments and claim payments alike. Screen named insureds, payees, and beneficiaries against the lists that apply in your jurisdiction, and hold any payment that produces a match until compliance clears it. Claimant personal data also needs protection under the privacy rules that govern your business, so limit access and log every disclosure.
• Reinsurance recoverables need monthly reconciliation. Match each ceded claim to the treaty year, the layer, and the reporting date, and chase unpaid recoveries before they age. Errors in bordereaux can cause a reinsurer to dispute a recovery, so the reinsurance team should review a sample of each report before release.

06Collaboration and documentation

• Underwriting and claims should meet at least once a quarter to review large losses and accounts that produced them. The underwriter learns what the claim revealed about the risk, and the adjuster learns which policy terms caused confusion at settlement. Record the outcome in the account file so the next renewal reflects it.
• Write notes that a stranger could follow. An underwriting note should state the risk, the key facts relied on, the price basis, and the reason for any referral or decline. A claim note should record the date, the action taken, the person contacted, and the reason for any reserve change. Avoid speculation and label opinions as opinions.
• Reinsurance depends on clean data flowing from both teams. Claims must report paid, outstanding, and recovery amounts consistently with the system of record, and underwriting must report premium and exposure by treaty class. When the two disagree, the reinsurance analyst should trace the difference to its source rather than adjusting it in the report.
• Legal and coverage counsel should be involved early on disputed coverage, bad faith exposure, or a claim that may exceed policy limits. Keep counsel's advice in a privileged channel and document the business decision separately. Where a regulator asks for a file, the documentation should show what was known and when it was known.

07Measures and continuous improvement

• Track a short set of indicators and review them monthly. For underwriting, watch the quote-to-bind ratio, referral rate, average premium change on renewal, and loss ratio by segment. For claims, watch the number of claims reported, average days to first contact, average days to settlement, and the share of reserves changed after the first thirty days. For reinsurance, watch the time to collect recoveries and the number of bordereau corrections.
• Be careful with targets. Acceptable ranges depend on the line, the geography, the company's risk appetite, and the reinsurance structure, and published benchmarks are often not comparable. Set internal goals based on your own history, then test whether a change in practice moves the indicator without hurting results elsewhere. A faster claim cycle is not better if it comes from lower quality investigation.
• Use the review cycle to change the guidelines themselves. When a segment repeatedly produces poor results, ask whether the appetite statement, the rating plan, or the referral thresholds need adjusting. When claims repeatedly reopen for the same reason, check whether the policy wording or the claim intake script is causing it.
• Trade-offs are unavoidable. Tighter underwriting reduces losses but can cut premium volume and push business to competitors. Faster claim payment improves customer experience but may leave less time for investigation. Reinsurance buys stability but costs premium and can limit upside. Document the decision and its expected effect so the next review can test it.

08Common mistakes and how to prevent them

• Relying on a broker summary instead of the underlying document is the most frequent error in underwriting. Require the loss runs, the signed application, and the inspection report in the file before quoting, and note any document the broker could not supply.
• Setting an initial reserve too low and not revisiting it leads to large adverse development that surprises management and reinsurers. Require a reserve review at fixed intervals and after any material event, such as a litigation notice or a medical update.
• Sending a coverage position without reserving rights can waive a defense the company intended to keep. Use a reservation of rights letter when a question exists, and have coverage counsel review unusual wording before it goes out.
• Mismatched wording between the policy and the treaty causes recovery disputes. A claim may be covered by the policy and still fall outside the treaty, or the reverse. Have the reinsurance team review new forms and endorsements before they are filed or issued.
• Bordereaux built from manual spreadsheets often contain duplicate claims, wrong dates of loss, or missing currency codes. Automate the extract where possible, reconcile totals to the ledger, and keep the reconciliation with the report.
• Unclear authority levels lead to bindings that no one approved. Publish the authority matrix, configure the policy system to enforce it where possible, and review exceptions weekly.

09Practical checklist

• Confirm the submission falls within written appetite and that the assigned underwriter holds the required authority.
• Verify that the file contains the loss runs, the signed application, and any required inspection or survey report.
• Document each manual rating adjustment with a reason and an approver where the matrix requires one.
• Issue quote terms with subjectivities listed and track each one to closure before binding.
• Acknowledge every new claim within the time your jurisdiction and company standard require and record the date.
• Issue a reservation of rights letter where a coverage question exists, and have counsel review unusual wording.
• Set an initial reserve on each claim and document every change with a plain reason.
• Screen payees and insureds against applicable sanctions lists before releasing any payment.
• Refer suspected fraud to the special investigations unit under the company procedure.
• Reconcile reinsurance recoverables and bordereaux to the ledger before each report is released.
• Review a quarterly sample of underwriting and claims files against the file standard and record the findings.

★Learning sources

• Micro Degree: Insurance Underwriting, Claims and Reinsurance
• Micro Degree: Accounts Payable Management
• Micro Degree: Bank Reconciliation Operations
• Micro Degree: FinTech Fundamentals