Types of underwriting depending on customer segmentation
Types of underwriting depending on customer segmentation
There are two main areas: retail underwriting and corporate client underwriting. Each of them has a number of features.
The retail underwriter assesses the bank’s risks associated with lending to individuals (consumer loans, home loans, auto loans, credit cards), in terms of minimizing default on borrowed funds. The client is identified, and the documents provided by the client are checked. The risk assessment is made on the basis of information about income, length of service, payment discipline (in the case of credit history), as well as other information necessary for a comprehensive assessment of the client. The totality of the received data and their detailed analysis are the basis for the underwriter to make a judgment on the applications of individuals in accordance with the methods developed by the bank.
A corporate underwriting specialist identifies and assesses the bank’s risks associated with lending to legal entities, and ranks the participants in the transaction. In corporate underwriting, there is also a division of underwriters depending on the segment to which the potential borrower’s business belongs: underwriting of small and medium-sized businesses and corporate underwriting. Some banks also have industry specialization when analyzing the business of a potential borrower (agriculture, transport, construction, etc.).
To conduct an objective assessment, the financial and economic activities of the client (accounting and financial statements), the structure of the transaction, industry, marketing, and legal and reputational features are analyzed. Underwriters use financial and investment analysis tools.
Underwriter in banking
An underwriter in the banking sector is a bank specialist who performs an independent examination of the risks associated with lending by analyzing and verifying information received from the client, data from open sources, and available to the bank. The underwriter conducts an independent risk assessment and forms a professional judgment containing information on the identification of risks and ways to minimize them. The risk assessment methods used by underwriters in their work are based on general approaches to risk management that meet the requirements of the regulator, as well as the requirements of the credit institution.
The role of an underwriter in the banking sector
The lending process involves underwriting
In some cases, the client may be offered an alternative solution: the provision of a loan on conditions other than those requested. Thus, through the implementation of the risk-taking function and their weighted assessment, banks significantly improve the quality of the loan portfolio. In addition, a comprehensive assessment of the client and the recommendations contained in the underwriter’s judgment reduce the risks not only to the bank but also to the client himself in terms of optimizing the debt burden.
Under the influence of a dynamically changing economic situation, the lending process is constantly being improved, responding to new market challenges. Along with a flexible credit policy, this significantly increases the attractiveness of credit products for all categories of customers.
Carrying out an objective and independent risk assessment, underwriting influences the capital adequacy ratio, bringing it to the standards of the Basel Committee, thereby stabilizing the stability of the financial and credit system.
Underwriting in insurance
Underwriting insurance is the process of analyzing the risks offered for insurance, making a decision on insuring a particular risk, and determining an adequate tariff rate and insurance conditions for the risk
An underwriter in insurance is a person authorized by an insurance company to analyze, accept insurance(reinsurance) and reject all types of risks, as well as classify selected risks to receive the optimal insurance premium for them. The underwriter is responsible for the formation of the insurance (reinsurance) portfolio. He must have the necessary knowledge and practice to determine the appropriate degree of risk, premium rates, and insurance conditions.
Underwriting policy in insurance – a set of rules, actions, decisions of the insurance company in the target market, selection of insurance objects , the amount of protection provided, requirements for the quality of risks accepted for insurance, for the examination of objects, the establishment of mandatory clauses and exceptions, the minimum amount of insurance premium aimed at the formation of an insurance portfolio and its management, ensuring the achievement of a given financial result.
Literature
- New Economic Dictionary / Edited by AN Azriliyan – M .: Institute of New Economics, 2006.
- Arkhipov AP Underwriting in insurance. Theoretical course and workshop. Textbook – Moscow: UNITI-DANA, 2007.- 240 p., ISSN: 978-5-238-01145-5
- Shinkarenko IE “Underwriting as a competitive advantage”, the magazine “Insurance Business” No. 3, 2004
- Shinkarenko IE Methodological manual “Underwriting in property insurance: methodology of practical work”, Moscow, Izd. regulation, 2008