CHAPTER 5.pdf

# Underwriting and risk assessment Underwriting is the process by which an insurer evaluates a prospective insured's risk to decide whether to offer insurance coverage and on what terms [3](#page=3). ### 1.1 The role of underwriting in insurance Underwriting is a crucial process that determines who and what an insurance company will insure. It involves assessing risk, deciding on acceptance or rejection of a proposal, and setting the appropriate premium. It also dictates the terms, conditions, and scope of coverage if a risk is accepted [14](#page=14) [3](#page=3). ### 1.2 Objectives of underwriting The core objectives of underwriting are multifaceted and aim to ensure the financial health and fairness of the insurance operation. These include [4](#page=4): * **Profit:** The primary goal is to enable the insurer to make a profit by balancing administrative costs with the underwriting process for risk selection and classification [5](#page=5). * **Pooling:** Underwriting facilitates the pooling of risks, where the losses of a few individuals are covered by the contributions of many, leading to stability through the law of large numbers [5](#page=5). * **Access and affordability:** Insurers strive to keep premiums affordable and to avoid declining proposals, thereby ensuring fair access to insurance for individuals, businesses, and public bodies. In some jurisdictions, governments may mandate access to insurance at reasonable prices [6](#page=6). * **Equity:** Underwriting aims to ensure that insured individuals or entities are offered terms and conditions that match the risk they represent to the pool. This prevents low-risk insureds from subsidizing high-risk insureds, ensuring that equivalent risks are treated equally and dissimilar risks are not [6](#page=6). ### 1.3 The underwriting process The underwriting process can be broken down into a series of key steps [14](#page=14) [7](#page=7): 1. **Assess the risk:** The underwriter meticulously evaluates an insurance application to gauge the level of risk involved. This involves identifying and quantifying characteristics that are likely to impact future claims costs under the proposed insurance contract [14](#page=14). 2. **Decide whether to accept or decline the risk:** Based on the risk assessment, the underwriter makes a decision. If the risk is deemed too hazardous or uninsurable, the proposal will be declined. If the risk is accepted, the underwriter determines the specific terms, conditions, scope of coverage, and the insurer's retention limit (the amount the insurer will cover) [14](#page=14). 3. **Calculate the suitable premium:** A premium is calculated and determined that is fair and reflective of the degree of hazard presented by the risk [14](#page=14). > **Tip:** Underwriters act as gatekeepers for insurance companies, balancing the need for profitability with the obligation to provide fair coverage to a diverse range of risks [3](#page=3) [5](#page=5) [6](#page=6). --- # Premium computation Premium computation is the process by which insurers determine the amount a policyholder pays for insurance coverage, incorporating various components to cover expected costs, operational expenses, potential fluctuations, and profit [12](#page=12) [8](#page=8). ### 2.1 Components of premium computation The total premium charged to a policyholder can be broken down into several key components: the risk premium, expense loading, contingency loading, and profit loading [10](#page=10) [12](#page=12). #### 2.1.1 Risk premium The risk premium is the fundamental portion of the insurance premium that an insurer must collect to cover the expected claims costs during the policy period. It represents the pure cost of the risk being insured [10](#page=10). * **Definition:** The portion of the premium intended to cover expected claims costs in the insurance period [10](#page=10). * **Calculation:** * **Risk premium rate:** This is calculated as the average total claims divided by the average total value insured, expressed as a percentage [10](#page=10). $$ \text{Risk Premium Rate} = \frac{\text{Average Total Claims}}{\text{Average Total Value Insured}} \times 100\% $$ * **Risk premium:** This is then determined by multiplying the risk premium rate by the specific value at risk for the policyholder. $$ \text{Risk Premium} = \text{Risk Premium Rate} \times \text{Value at Risk} $$ * **Average Total Claims:** This refers to the overall mean of the losses experienced [11](#page=11). > **Example:** For machinery insurance, if past claims data shows an average total claim of 150,000 dollars for a grinding machine, and the average total insured value is 20,000,000 dollars, the risk premium rate is calculated as: > $$ \text{Risk Premium Rate} = \frac{150,000 \text{ dollars}}{20,000,000 \text{ dollars}} \times 100\% = 0.75\% $$ > This means 0.75 dollars for every 100 dollars of sum insured. For a grinding machine valued at 74,000 dollars, the risk premium would be [11](#page=11): > $$ \text{Risk Premium} = 0.75\% \times 74,000 \text{ dollars} = 555 \text{ dollars} $$ #### 2.1.2 Expense loading Expense loading is an addition to the risk premium that covers the insurer's operational expenses for each policyholder. These expenses can include costs associated with actuarial valuations, inspections, loss prevention efforts, sales activities, and commissions paid to agents [12](#page=12). * **Purpose:** To ensure the policyholder contributes their fair share towards the insurer's operational costs [12](#page=12). * **Method:** It is typically added as a specific rate to the risk premium rate [12](#page=12). > **Example:** An insurer might add an expense loading of 0.05% to the risk premium rate [12](#page=12). #### 2.1.3 Contingency loading This component is added to the premium to account for the inherent volatility in insurance claims. It acts as a buffer for the insurer against the possibility that actual claims costs may exceed the initially expected claims costs [12](#page=12). * **Purpose:** To cushion the insurer from unexpectedly large claims and variability in claim costs [12](#page=12). * **Method:** It is added to the risk premium rate [12](#page=12). > **Example:** An insurer could include a contingency loading of 0.03% to be added to the risk premium rate [12](#page=12). #### 2.1.4 Profit loading The profit loading is included in the premium to ensure the insurer achieves its business objective of making a profit. This portion is intended to cover expected dividend payments to the insurer's shareholders [12](#page=12). * **Purpose:** To generate profit for the insurer and cover shareholder dividends [12](#page=12). * **Method:** It is added as a specific rate to the risk premium rate [12](#page=12). > **Example:** An insurer might assume a profit loading of 0.04% to be added to the risk premium rate [12](#page=12). ### 2.2 Gross premium calculation The gross premium is the final amount charged to the policyholder and is derived by summing the risk premium with the various loadings [12](#page=12). > **Tip:** To calculate the gross premium rate, you would sum the risk premium rate with the rates for expense loading, contingency loading, and profit loading. The gross premium itself would then be this gross premium rate applied to the sum insured. For example, using the rates from the examples above: > $$ \text{Gross Premium Rate} = \text{Risk Premium Rate} + \text{Expense Loading Rate} + \text{Contingency Loading Rate} + \text{Profit Loading Rate} $$ > $$ \text{Gross Premium Rate} = 0.75\% + 0.05\% + 0.03\% + 0.04\% = 0.87\% $$ > For a machine valued at 74,000 dollars, the gross premium would be: > $$ \text{Gross Premium} = 0.87\% \times 74,000 \text{ dollars} = 643.80 \text{ dollars} $$ --- # Documentation of insurance contracts Documentation in insurance contracts refers to the various documents generated throughout the lifecycle of an insurance agreement, from the initial proposal to the final policy and its renewal [16](#page=16). ### 3.1 Proposal form A proposal form is a document drafted by the insurer, containing specific questions designed to gather essential information about the risk that the proposer wishes to insure. The proposer completes this form, and their answers help the insurer assess the physical and moral hazards associated with the risk [18](#page=18). #### 3.1.1 Functions of proposal forms Proposal forms serve several key functions: * **Convenience:** Standardized forms expedite the collection of required information [19](#page=19). * **Advertising:** Most forms detail the coverage available under the insurer's standard policies for that class of insurance [19](#page=19). * **Offer:** The completed proposal form acts as an offer from the proposer to the insurer [19](#page=19). * **Basis of a contract:** If the insurance contract is finalized, the proposal form becomes the foundation upon which the contract is built [19](#page=19). #### 3.1.2 Structure of most proposal forms Proposal forms typically include sections for: * **Proposer's Name, Address & Situation of Risk:** Primarily for identification, communication, and underwriting purposes [20](#page=20). * **Proposer's Occupation:** Crucial for underwriting, as it can indicate physical and/or moral hazards [20](#page=20). * **Insurance History:** Important for underwriting decisions, especially if previous insurers declined or refused renewal [20](#page=20). * **Loss Story:** Provides insights into potential poor physical and/or moral hazards [20](#page=20). * **Sum Insured (or Limit of Indemnity for liability insurance):** Essential for premium assessment and potential reinsurance needs [20](#page=20). * **Subject Matter of Insurance:** Details on the description and situation of the insured item, vital for identification and underwriting [20](#page=20). ### 3.2 Policy form A policy form is a document issued by the insurer that formally outlines the terms and conditions of the insurance contract. It is important to note that the policy itself is not the contract but rather the written evidence of it. For legal admissibility in court, an insurance policy must be stamped in accordance with the Stamp Act [22](#page=22). #### 3.2.1 Structure of a policy A typical policy document is structured with the following components: * **The Heading:** Displays the full name and registered address of the insurance company at the top of the first page [23](#page=23). * **The Preamble (or Recital Clause):** Serves as the introduction, outlining the circumstances under which the policy will be operative [23](#page=23). * **The Operative Clause:** Details the specific perils for which the insured is indemnified or benefits are payable [23](#page=23). * **Exception:** Specifies any limitations or restrictions on the scope of the insurance coverage provided by the operative clause [23](#page=23). * **Schedule:** Contains type-written information unique to the specific contract, such as the policy number, insured's name, premium, and sum insured [23](#page=23). * **Attestation or Signature Clause:** Affirms the conditions of the contract and is signed by an authorized official of the insurer [23](#page=23). * **Conditions:** All policies are subject to conditions, which can be categorized in two main ways: express and implied, and conditions precedent and subsequent [23](#page=23). #### 3.2.2 Classification of policy conditions Policy conditions are further classified as follows: * **Express and Implied Conditions:** * **Express conditions** are explicitly stated within the policy document, such as claim conditions or cancellation clauses [24](#page=24). * **Implied conditions** are read into the contract by law, even if not explicitly written. These include the insured having an insurable interest, the parties observing the duty of utmost good faith (U.G.F), the subject matter insured being in existence, and the subject matter being identifiable [24](#page=24). * **Conditions Precedent and Conditions Subsequent:** * **Conditions precedent to the policy:** Must be fulfilled before the contract is valid, such as the implied condition of utmost good faith [25](#page=25). * **Conditions precedent to liability:** Must be met before the insurer is obligated to pay a claim, for instance, a claim condition [25](#page=25). * **Conditions subsequent to the policy:** Must be fulfilled for the contract to remain in effect after it has become binding, such as notifying the insurer of a change in occupation in a personal accident policy [25](#page=25). > **Tip:** Understanding the distinction between conditions precedent and subsequent is crucial, as failure to meet a precedent condition can invalidate the contract, while failure to meet a subsequent condition might allow the insurer to terminate coverage [25](#page=25). ### 3.3 Cover note/e-cover note A cover note is a document issued in advance of the full policy document, typically when the policy issuance might take some time or to provide provisional cover during negotiations. Cover notes are widely used in various insurance classes and are generally issued for a limited duration, often one month. They can be printed with specific details or sometimes handwritten or typed slips. With technological advancements, some insurers are now issuing full policies directly, bypassing the need for cover notes for simpler risks like motor insurance [27](#page=27). ### 3.4 Certificate of insurance A certificate of insurance is usually issued when insurance coverage is legally mandated. It serves as official confirmation that the insurance has been provided by an authorized insurer and complies with all statutory requirements [29](#page=29). ### 3.5 Endorsement An endorsement is a means of recording changes to the terms and conditions of an insurance policy during its active period or to modify the printed wording at the time of issue. This process avoids the need to cancel the original policy and issue a completely new one [31](#page=31). ### 3.6 Renewal notice A renewal notice is issued to inform the insured that their policy is due for renewal for a further period. It is important to understand that a renewal is not a continuation of the existing contract but rather constitutes a new contract. Renewal notices often remind the insured to inform the insurer of any changes that might affect the policy from its inception or the last renewal date, emphasizing the ongoing duty to disclose [33](#page=33). > **Example:** If a policyholder changes their occupation, which was disclosed at the time of policy inception, they must notify the insurer as this could constitute a condition subsequent to the policy, impacting its continuation [25](#page=25) [33](#page=33). --- # Reinsurance principles and types Reinsurance is a mechanism where primary insurers transfer a portion of their risk to another insurance company, known as the reinsurer, to mitigate their own potential losses and enhance their financial stability. ### 4.1 Definition and functions of reinsurance Reinsurance involves an arrangement where a primary insurer (the ceding company) transfers part of its insurance portfolio to another insurer (the reinsurer). The fundamental nature of reinsurance is to provide protection for primary insurers [35](#page=35). The key functions of reinsurance include: * **Protection for primary insurers:** Safeguarding the ceding company from significant financial losses [35](#page=35). * **Increase capacity:** Allowing insurers to underwrite larger risks or a greater volume of business than their own capital would permit [35](#page=35). * **Risk spreading:** Distributing risk across multiple entities, thereby reducing the concentration of exposure for any single insurer [35](#page=35). * **Creating financial stability:** Ensuring solvency and financial health by buffering against unexpected claims [35](#page=35). * **Technical expertise and services:** Providing access to the reinsurer's knowledge and support [35](#page=35). * **Financial management tool:** Assisting in capital management and optimizing financial resources [35](#page=35). ### 4.2 Types of reinsurance Reinsurance can be broadly categorized into two main types: proportional reinsurance and non-proportional reinsurance [37](#page=37). #### 4.2.1 Proportional reinsurance In proportional reinsurance, the reinsurer agrees to share a predetermined percentage of both the premiums and the losses of the ceding company. This means the reinsurer actively participates in the original insurance contract's financial outcomes in proportion to the share they have assumed [41](#page=41). Proportional reinsurance treaties can be further classified into: * **Automatic proportional reinsurance treaties:** These are typically quota share and surplus reinsurance [41](#page=41). * **Semi-automatic proportional reinsurance:** This refers to facultative obligatory reinsurance [41](#page=41). * **Non-automatic proportional reinsurance:** This is facultative reinsurance [41](#page=41). ##### 4.2.1.1 Quota share treaty Under a quota share arrangement, the reinsurer accepts a fixed proportion or percentage of all risks within a specific class of business. The reinsurer receives this specified percentage of the premium for every risk that falls within the defined portfolio. There is usually a maximum limit on the liability applicable to the entire portfolio, known as the gross limit or monetary limit [39](#page=39). > **Tip:** Quota share is characterized by a constant percentage applied to all risks, irrespective of their individual size. ##### 4.2.1.2 Surplus treaty In a surplus treaty, the ceding company retains a fixed amount of each risk, referred to as the retention or 'line'. The ceding company will only reinsure the portion of the risk that exceeds this retention amount. If a risk's value is below the retention, the ceding company retains the entire amount. The maximum amount that can be ceded to the treaty is expressed as a multiple of the retention amount, termed a 'line' [38](#page=38). > **Example:** If an insurer has a retention of 100,000 dollars for a specific risk and the policy is for 500,000 dollars, they would retain 100,000 dollars and cede the remaining 400,000 dollars under a surplus treaty. ##### 4.2.1.3 Quota-cum-surplus treaty It is common for a surplus treaty to be implemented in conjunction with a quota share treaty. When both are placed together, the arrangement is termed a quota-cum-surplus treaty. This approach allows for a base level of proportional coverage through quota share, with additional proportional capacity provided by the surplus treaty for larger risks [40](#page=40). #### 4.2.2 Non-proportional reinsurance Non-proportional reinsurance, also known as excess of loss (XOL) reinsurance, operates differently from proportional reinsurance. In this type of agreement, the reinsurer agrees to pay the reinsured company all losses that exceed a predetermined deductible limit. The reinsurer is liable for losses only once they surpass this specified deductible or retention level. The reinsurer receives a reinsurance premium that is independent of the original premium collected by the ceding company [43](#page=43). > **Tip:** Non-proportional reinsurance is primarily concerned with the severity of losses, not their frequency, unlike some proportional treaties. There are three main forms of excess of loss reinsurance: * **Working or per risk excess of loss:** This covers losses on individual risks exceeding a specified amount [43](#page=43). * **Catastrophe / per event excess of loss:** This protects against multiple losses arising from a single, catastrophic event (e.g., a major natural disaster) [43](#page=43). * **Excess of loss ratio (stop loss):** This covers the reinsured's aggregate losses when the loss ratio (losses to premiums) exceeds a defined percentage [43](#page=43). #### 4.2.3 Facultative reinsurance Facultative reinsurance is the oldest method of reinsurance and is less commonly used than treaty reinsurance in some markets. It is arranged on a case-by-case basis, where each individual risk is offered by the ceding company to reinsurers. Reinsurers have the discretion to decide whether to accept the risk and on what terms. Any alterations to the original insurance contract or claims handling typically require the reinsurer's agreement [42](#page=42). > **Example:** A reinsurance broker might approach several reinsurers to find coverage for a unique and high-value property risk that does not fit neatly into an existing treaty. Facultative reinsurance provides coverage for specific, individual risks, such as a single insured subject matter, an individual insurance policy, or a particular corporate entity. It is frequently employed to cover risks that are not suitable for inclusion in treaty reinsurance arrangements [42](#page=42). --- # Claims procedures and settlement This topic details the entire insurance claims process, from initial notification and insurer processing to final settlement, highlighting the crucial role of intermediaries and the handling of claim disputes [1](#page=1) [44](#page=44). ### 5.1 The claims process A claim is formally defined as a request for reimbursement or compensation submitted by the insured to the insurer. It is important to note that a claim can be lodged even if an insured loss event has not yet occurred; however, such a claim would ultimately be invalid if no covered loss materializes. Conversely, an insured loss event may occur without a claim being filed, for instance, if the insured is unaware that their policy provides coverage for that specific peril [44](#page=44). ### 5.2 The claim department's role The conduct of personnel within the claims department significantly influences an insurance company's public image. It is imperative that claims department staff receive comprehensive training. This training should equip them to [45](#page=45): * Consider all practical justifications for both approving and denying a claim [45](#page=45). * Strive to resolve issues in favor of the claimant whenever feasible [45](#page=45). * Possess clear and convincing evidence of invalidity or fraud before denying a claim [45](#page=45). ### 5.3 General features of insurance claims procedures #### 5.3.1 Claim notification The insured bears the primary responsibility for notifying the insurer of a claim. This obligation is a stipulated condition within the insurance policy, typically requiring prompt notification within specified timeframes [47](#page=47). #### 5.3.2 Claim processing Following notification, the insured is responsible for substantiating their loss by demonstrating that it resulted from a covered peril and for establishing the value of that loss. The insurer, through its claims department, then undertakes a thorough verification process, checking [48](#page=48): * That insurance coverage was active at the time of the loss [48](#page=48). * That the claimant is indeed the correctly identified insured party [48](#page=48). * That the specific peril causing the loss is covered under the policy terms [48](#page=48). * That the insured has adhered to all policy conditions [48](#page=48). * That no policy exclusions are applicable to the claim [48](#page=48). #### 5.3.3 Claims settlement The final stage of the general claims procedure is the actual monetary settlement. The nature and quantum of the settlement are contingent upon the type of insurance contract [49](#page=49). * **Indemnity basis:** Under an indemnity contract, the claim payment should be precisely enough to restore the claimant to the same financial standing they held prior to the loss [49](#page=49). * **Reinstatement basis:** For reinstatement contracts, the claim payment is determined by the cost of rebuilding the damaged property to its original state, with deductions for any improvements or betterments [49](#page=49). * **Valued policy:** This type of contract pre-agrees the amount payable in the event of a total loss, known as the "agreed value." Consequently, the claim payment is based directly on this agreed sum [50](#page=50). * **Specified sum agreement:** This applies to policies such as Life Insurance and Personal Accident Insurance, where a specific sum is agreed upon for payment [50](#page=50). ### 5.4 The role of intermediaries in the claims process When an intermediary was involved in arranging the insurance contract, claim notifications typically proceed through them [51](#page=51). #### 5.4.1 Assistance with claim documents Intermediaries frequently assist the insured in completing the claim form that is to be submitted to the insurer's claims department [52](#page=52). #### 5.4.2 Claim review An insurance intermediary will review the claim to pinpoint any potential issues that could impede or delay the agreement and settlement process. This review ensures all necessary information accompanies the claim and that the insured has not made any obvious errors [53](#page=53). #### 5.4.3 Recording and monitoring of claims Upon receiving a claims advice, an intermediary establishes a dedicated claim file containing all pertinent information, including comprehensive coverage documentation [54](#page=54). #### 5.4.4 Claims negotiation and broking If a claim requires the intermediary to engage directly with the insurer's claims handler, the intermediary is then performing a claims broking function [55](#page=55). #### 5.4.5 Communication of positions Intermediaries play a vital role in maintaining effective lines of communication between the insurer and the insured [56](#page=56). #### 5.4.6 Claim settlement facilitated by intermediaries If the insurer is satisfied that the claim is valid, they will communicate their acceptance of the claim, usually via the intermediary [57](#page=57). #### 5.4.7 Funding of claims by intermediaries In situations where the insurer experiences delays in settling a claim, an intermediary may opt to disburse the settlement amount from their own funds before receiving reimbursement from the insurer. This practice is referred to as "funding." [59](#page=59). ### 5.5 Handling claim disputes Disputes arising from insurance claims primarily concern the insurer's liability to pay and the amount that should be paid [58](#page=58). > **Tip:** Understanding the specific conditions and exclusions within your policy is paramount to preventing potential claim disputes. > **Example:** An insured might dispute a denial if they believe a loss, initially thought to be excluded, actually falls under a covered peril due to a specific interpretation of policy wording. The intermediary would assist in clarifying this interpretation and presenting the case to the insurer. --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Underwriting | The process by which an insurer evaluates and decides whether to accept or decline a risk, and if accepted, on what terms and at what premium. It involves assessing the likelihood of a loss and the potential cost associated with it. | | Risk Assessment | The systematic process of identifying, analyzing, and evaluating potential risks to an insurance company, enabling informed decisions regarding the acceptance or rejection of insurance applications. | | Premium | The amount of money charged by an insurer to an insured for providing insurance coverage. This amount is calculated based on the risk being insured, administrative costs, and desired profit. | | Risk Premium | The portion of the insurance premium that is intended to cover the expected costs of claims during the policy period. It is calculated based on historical claims data and the total value insured. | | Expense Loading | An additional amount added to the risk premium to cover the insurer's operational expenses, such as administrative costs, marketing, commissions, and actuarial services. | | Contingency Loading | An addition to the risk premium designed to cushion the insurer against unexpected variations in claim costs. It accounts for the volatility and uncertainty inherent in insurance claims. | | Profit Loading | A component of the insurance premium that represents the profit the insurer aims to make from the policy. This profit is often intended for distribution to shareholders as dividends. | | Proposal Form | A document completed by a prospective insured that contains questions designed to gather essential information about the risk being proposed for insurance, aiding the insurer in risk assessment. | | Policy | A legal document issued by the insurer that serves as written evidence of an insurance contract, detailing the terms, conditions, coverages, and limitations of the agreement. | | Cover Note | A temporary document issued by an insurer providing provisional insurance coverage for a specified period, typically issued before the formal policy document is prepared. | | Certificate of Insurance | A document certifying that an insurance policy has been issued by an authorized insurer, often required by law for compulsory insurance types, confirming compliance with legal requirements. | | Endorsement | An amendment or addition to an insurance policy that alters its terms, conditions, or scope of coverage during its currency or at the time of issue, recorded on the policy document. | | Reinsurance | A contract under which one insurer (the ceding company or reinsured) transfers part of its risk portfolio to another insurer (the reinsurer). This is done to manage risk, increase capacity, and stabilize finances. | | Surplus Treaty | A type of proportional reinsurance where the ceding company retains a fixed amount of a risk (retention) and reinsures the portion that exceeds this retention, often expressed as a multiple of the retention. | | Quota Share | A type of proportional reinsurance where the reinsurer agrees to accept a fixed percentage of all risks within a specified class of business, sharing both premiums and losses proportionally. | | Facultative Reinsurance | A reinsurance arrangement where each individual risk is offered by the ceding company to reinsurers on a case-by-case basis, allowing reinsurers to decide whether to accept or decline the risk. | | Non-proportional Reinsurance | A type of reinsurance where the reinsurer's liability is triggered only when losses exceed a certain deductible or retention amount. It is often referred to as excess of loss reinsurance. | | Excess of Loss Treaty | A form of non-proportional reinsurance where the reinsurer agrees to pay for losses that exceed a predetermined deductible or retention limit, covering either per-risk, per-event, or ratio-based excesses. | | Claim | A formal request made by an insured to an insurer for compensation or reimbursement following a loss or damage covered by the insurance policy. | | Claims Processing | The systematic examination and evaluation of a submitted insurance claim by the insurer to verify its validity, assess the loss, and determine the amount payable according to the policy terms. | | Claims Settlement | The final stage of the claims process, involving the monetary payment made by the insurer to the insured to compensate for a covered loss, based on the policy's terms and the assessed amount of the claim. | | Indemnity Basis | A principle of insurance where the claim payment aims to restore the insured to the same financial position they were in immediately before the loss occurred, without allowing for profit. | | Agreed Value | A basis for settlement in certain insurance contracts (like valued policies), where the amount to be paid in the event of a total loss is predetermined and agreed upon by the insurer and the insured at the inception of the contract. | | Funding | A practice where an insurance intermediary may advance payment for a claim from its own funds to the insured before receiving reimbursement from the insurer, particularly to expedite settlement. |