3. Background Information of the Research Companies
4.3. Internal Business Processes and Delegation of Authority Policy
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立 政 治 大 學
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4.3. Internal Business Processes and Delegation of Authority Policy
This section explores internal business processes and delegation of authority policy in the non-life insurance industry and how these two factors could influence operational efficiency in a property insurance company. First, this part will explain the delegation of authority policy in a non-life insurance company. Second, it will focus on underwriting in the insurance industry.
Third, it will give details regarding underwriting guidelines. Finally, it will provide evaluation metrics to measure the underwriting performance of a department or a company in the insurance sector.
4.3.1. The Purpose of Establishing the Delegation of Authority Policy
The primary aim of establishing delegation of authority policy is to give authority from general manager (GM) or managing director (MD) to each department or every manager to make decisions based on this delegation of authority policy. For example, underwriters from the different departments will follow underwriting policies and underwriting guidelines that are for different insurance products like fire insurance, automobile insurance, or liability insurance to judge each insurance policy’s risks. Then, underwriters will decide to provide quotations with an appropriate premium based on its risks, or they might reject to offer quotations for customers if underwriters identify risks are not acceptable or the other companies offer unreasonable quotes. Therefore, if a company plans to amend the delegation of authority policy, it usually has to require approval from the general manager or managing director.
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國立 政 治 大 學
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4.3.2. The Purpose of Underwriting in the Insurance Industry
Underwriting for an insurance company is to select acceptable cases and provide reasonable quotations to customers to buy insurance policies. The primary purpose of underwriting in an
insurance company can be divided into the following points.
To achieve the maximum profits, one way to realize the maximum profits is to offer the cheapest quotations to customers or introduce an entirely new insurance product with potential demand from consumers.
To avoid adverse selection or moral hazard, insurance companies need to recognize each quotation request by its risks and decline some unacceptable cases like those that insured already has been diagnosed with a disease.
To select insurable risk cases from all insurance quotation requests. According to 廖述源
（2007） , the method of selecting an insurable risk case can be separated into three types: preselection, selection during the insurance period, and post-selection.
Preselection means that underwriters need to evaluate each case’s risks by its risk levels, and underwriters will decide to accept or reject this offer. Selection during the insurance period means that an insurance policy during the insurance period might terminate the contract or change its terms and conditions of the policy because underwriters find that risk levels of this policy increased or underwriting policies of insurers changed. Post-selection means that an insurance company or an underwriter might decide to renew, decline, or change its original terms and conditions of an insurance policy after the insurance policy is due.
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To ensure all steps meet internal and external regulations, an underwriter in the insurance sector needs to help the company to make sure all processes are not against laws or compliance because the insurance industry is highly regulated. If an insurance company breaks the rules, this company could be heavily fined. For example, in the worst situation in Taiwan, under article 149 of the Insurance Act in Taiwan, the regulator can order
insurance companies to suspend sales of an insurance product or products or cannot launch a new insurance product. Besides, the regulator can order managers or employees of an insurance company to remove from their positions.
To ensure all insurance policies meet underwriting policies and underwriting guidelines of a property insurance company.
4.3.3. Operational Policy, Underwriting Policy, and Underwriting Guidelines in the Insurance Industry
According to 廖述源（2007）, insurance operational policies consist of growth policy, stability policy, and fairness policy. The growth policy means that an insurance company must pursue a growing business performance in revenue and profits at the same time. In addition, the stability policy implies that an insurance company needs to operate in a sustainable development manner.
Moreover, the fairness policy means that an insurance company treats its employees or its customers equally, and this company does not provide special or differential treatment based on an individual or an organization’s status or relationship with others. Therefore, an insurance company needs to find a balance among the three operational policies mentioned above, and this company might need to change its operational policies with the different operational environments accordingly. Still, the company cannot only focus on one policy and ignore the others.
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Underwriting policy is a policy for an underwriting department of an insurance company to follow, and this policy is based on a company’s operational strategy to formulate. The underwriting policy usually decides on two sides, including dimensions of underwriting policy and limiting factors like capacity, compliance, underwriters, and reinsurance market.
The purpose of underwriting guidelines is for underwriting departments and underwriters in an insurance company to obey and decide whether an insurance offer could be accepted or be rejected by the underwriting guidelines. Also, the primary function of underwriting guidelines is to: (1) ensure all cases to be homogeneous (2) help arrange facultative reinsurance (3) maintain consistency across insurance policies (4) help business development and marketing (5) simplify claims settlement (6) establish consistency of underwriting philosophy （廖述源，
2007）.
4.3.4. Underwriting Performance Evaluation Metrics
This part will focus on some evaluation metrics to measure the underwriting performance of a department in an insurance company or an insurance company. According to 廖述源 （2007） , this part provides five evaluation metrics as follows:
1. Average underwriting cases = The total number of quotations offered / The total number of underwriters. This metric aims to measure what an underwriter can deal with relative to the total number of quotation requests. Therefore, the higher this metric is and the better the performance will be.
2. Average time to underwrite a case = The total spend time for underwriting / The total number of signed cases. The meaning of this metric is an underwriter might create better performance when the value is smaller.
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國立 政 治 大 學
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3. Underwriting error rate = The total number of underwriting error cases / The total
number of proposals received. The metric can help to measure an underwriter’s skills and ability. Besides, if the metric value is smaller than the others are, it means that this
underwriter has better underwriting performance.
4. Average premium per insurance policy = The total number of written premiums / The
total number of signed insurance policies. It shows that if this metric value is higher than the others value, a department or an insurance company has better underwriting
performance.
5. Underwriting loss ratio per signed policy = The total number of claims / The total number of signed policies. This metric measures underwriting performance by a claim that might occur in the number of approved insurance policies. Hence, when this value of an underwriter is lower than the other underwriter’s value, it means that this underwriter has a better underwriting performance.