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Financial Risk and Insurance
Published in Oscar H. Gandy, Coming to Terms with Chance, 2016
Underwriting is the term used to describe the decision process by which insurers determine whether they will offer, or deny insurance to an individual on the basis of information used to assign that individual to an appropriate class, generally understood as a risk pool.
Classification of the Insureds Using Integrated Machine Learning Algorithms: A Comparative Study
Published in Applied Artificial Intelligence, 2022
Due to the increase in competitiveness of the insurance industry, customer retention is of particular importance and requires deeper and more accurate knowledge of customers, their buying behavior, and losses. Therefore, if customers are classified, and their losses could be predicted, the insurance company’s profitability can be increased, and insurers can take steps to reduce the loss ratio. The process that assesses the insured’s risk is called underwriting, and the Premium and terms of the insurance contract are determined based on the assessment of the level of risk (Fung et al. 1998; Briys and De Varenne 2001). Where every insured imposes a different level of risk on the insurance company, thus, to ensure receiving a fair premium, insurers determine the level of risk and place every policyholder in one of the risk classes, which consequently, the higher the risk, the higher the Premium. This is a sound reason for insurers to have their customers’ risks assessed as accurately as possible. Achieving a model for classifying customers into different risk groups has always been considered the most fundamental and challenging issue in the insurance industry. In fact, insurance companies must be profitable and able to survive and continue in the insurance market, and on the other hand, the insurers must establish a fair balance between the level of risk of the insured and the paid premiums. In this context, risk classification means grouping customers with similar risk characteristics that are likely to cause similar losses and placing them in one group.
Blockchain adoptions in the maritime industry: a conceptual framework
Published in Maritime Policy & Management, 2021
Underwriting evaluates the risks of insuring a company, an asset, an activity or an individual; and it determines whether the insurers should take the risks, how much coverage the client can get and how much the client should pay. Efficient data sharing enables a faster and more accurate underwriting process. With blockchain, the underwriting process becomes simplified since the information in the system remains verified and integrated and the record of policy applicants can be easily traced (Nath 2016). Automatic adjustment of premium can also be achieved based on the behaviour of the insured (Püttgen and Kaulartz 2017). For instance, it is possible to use blockchain to automatically charge an additional premium for vessels entering the high-risk area of piracy if GPS data is fed in the system.