Sunday Blog-Down the memory lane
I was heading Property Underwriting & Risk Management in a Direct insurer. By then, I had inspected thousands of risks, had conducted safety audits, risk management studies and Post Loss investigations. This sharpened my risk selection capabilities and were showing through excellent loss ratios year after year.
My colleagues from the Bancassurance team brought proposals for tie-up with two banks-to cover property risks of their bank loan portfolio given to small and medium industry. My team analyzed the entire loan book, researched on the share in loan book to various industry segments and we identified small number of segments like Cracker manufacturers, carpentry works, explosive factories, hazardous warehouses, etc, which we could not write and informed that we are OK to write 90% of the loan portfolio but cannot write around 10% of the loan book of either of the two banks.
These colleagues tried to reason out with me that we had to take a portfolio approach on such business and cannot pick and choose. It was an underwriter driven insurer and hence I had the final authority. Probably pride had set in me and when once the pride of success gets into the head, you stop listening to logic. I stuck to my stand.
This rigid stand of mine could have destroyed a golden business opportunity created by my colleagues. Fortunately, due to the strong relationship my colleagues had with the banks, both the banks agreed to our condition not to underwrite specific part of their loan book.
It was much later I understood the importance of risk selection in large commercial risks but the need to have a portfolio approach for bancassurance business.
When I was heading both Treaty and Facultative in a reinsurer branch, this learning from previous foolish decision helped me. For Treaty – you cannot do micro level underwriting by looking into risks in the portfolio and looking at how well they are risk managed. We need to take a macro view. For facultative, we need to take a micro view. Facultative underwriting mindset in Treaty underwriting can be disastrous. Similarly, a Treaty underwriting mindset in Facultative underwriting can be disastrous.
Mistakes made in one company and the learnings from such mistakes help the later company.
Blog by Atmaram Cheruvu
