Volume 15 Issue 05, May 2025
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6.995, 2024 7.75
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86
FUNCTIONS AND TASKS OF UNDERWRITING
Fayzullayev Asliddin Safarovich
Samarkand Institute of Economics and Service
Rafiyeva Zarina Xusanovna
Teacher
Abstract:
This paper examines the functions and objectives of underwriting as a key element of
the risk management system in insurance, banking and investment activities. The main areas of
the underwriter's activities are disclosed: risk assessment and classification, pricing, formation of
contract terms, decision-making on insurance, lending or placement of securities. The objectives
of underwriting aimed at minimizing losses, increasing profitability and ensuring the financial
stability of organizations are also analyzed. Particular attention is paid to modern trends and
technologies influencing the development of underwriting practice.
Keyword:
underwriting, underwriting functions, underwriting tasks, risk assessment, risk
management, insurance, pricing, lending, financial stability, investments.
Problems of organizing underwriting by insurance companies. Russian insurance companies do
not yet consider high-quality underwriting a competitive advantage, with the exception of top
insurance organizations, due to the emphasis on quantitative rather than qualitative indicators of
business activity.
Underwriting is the process of assessing and accepting the risks of insurance, lending or issuing
securities. It plays a key role in the banking, insurance and investment sectors. Below are the
main functions and tasks of underwriting.
The most common problems in implementing the underwriting business process include the lack
of strategic planning.
The philosophy of underwriting is the general concept of the development of an insurance
company, the formulation of its strategy, insurance principles, the establishment of the planned
share of the insurance market that the insurance company hopes to capture, the characteristics of
the reference insurance portfolio, channels for promoting insurance products, the definition of
preferred target focus groups of consumers and the desired level of profitability from insurance
operations. On its basis, an underwriting policy is developed, which consists of a systematic
unification of the insurance company's decisions on the market segment, consumer focus groups,
requirements for insurance objects, the volume of protection provided, the minimum amount of
insurance amounts and premiums.
The underwriting policy is a separate document, to which reinsurers pay great attention, since in
the absence of this document, some reinsurers refuse to accept certain risks for insurance.
Reinsurers also insist on adding a special clause "On changing the underwriting policy" to the
obligatory agreement, according to which the insurer does not have the right to change the
insurance policy without the consent of the reinsurer. This is due to the fact that the underwriting
file is a file containing all the decisions made on the insurance of each individual object, which
consists of an application, an inspection report of the object, a payslip, a signed quotation,
confirmation of reinsurance, correspondence with the client, a photo of the object, etc.
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This file is necessary when replacing employees, changing personnel, since without an idea of
the formation of the initial tariff, it is impossible to adequately update the object for a new
period or make changes to the current contract.
One of the mistakes is also the combination of the functions of a seller and an underwriter (in the
"insurance world" there is even a definition for this position - "selling underwriter"), which leads
to a conflict of interest. The seller-underwriter will be tempted to accept a bad insurance risk in
order to fulfill the plan or receive a commission, which will reduce the pace of his own sales due
to the need to be distracted by the work of the underwriter.
The purpose of the underwriting service in different insurance companies may vary depending
on the adopted policy of the insurance company. As a rule, this is to ensure the target level of the
technical result. Control function, main components:
1) formation of the annual underwriting policy — the insurance company's decision on the
selection of insurance objects (formed jointly by the underwriter and directors), the volume of
insurance coverage provided, the requirements for the quality of risks accepted for insurance, the
examination of objects, the minimum amount of insurance premium — ensures the development
of the portfolio in the target direction;
2) insurance portfolio management — one of the main functions of an underwriter with a
sufficiently large portfolio. It consists of regular analysis of the insurance portfolio in different
planes and making timely decisions on establishing competitive insurance conditions and tariffs
for them, ensuring, on the one hand, the required volumes of fees and occupation of key market
segments, and on the other — achieving the required planned indicators for the technical result;
3) reinsurance of the mass portfolio — determining the amount of insurance amounts at which
the risk under these contracts remains on its own retention; determining the insurance amounts at
which contracts fall under obligatory and facultative reinsurance.
Contractual function, main components:
1) risk selection and formation of adequate insurance conditions;
2) determination of the insurance value, insurance amount, size of deductibles, limitation of the
volume of payments per case, etc.;
3) collection of additional information about the object and assessment of risk factors when
insuring non-standard objects;
4) determination of the tariff. Insurance tariffs are calculated actuarially, the underwriter's task is
to select adequate increasing (decreasing) coefficients to the base tariff depending on the
specifics of a particular insurance contract;
5) establishment of the amount of commission or the amount of expenses for sale in another
form.
Underwriting functions
1.
Risk assessment. The probability of an insured event, loan repayment or successful
placement of securities is analyzed.
2.
Risk classification. Distribution of clients or objects by risk levels to establish adequate
conditions (rate, limit, franchise, etc.).
3.
Formation of contract terms. Individual terms of insurance, lending or placement of
securities are established taking into account the risk analysis.
4.
Pricing (tariffing). Calculation of insurance premiums, loan rates or share prices based on
the risk level.
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5.
Monitoring compliance with standards. Ensuring compliance of applications with the
company's internal policies and legislation.
6.
Making a decision on accepting for service. Decision on concluding or refusing to
conclude a contract.
7.
Monitoring and support. Monitoring changes in risks throughout the term of the contract,
especially in insurance and lending.
Underwriting Tasks
1.
Collection and analysis of information. Study of documents, reports, credit history,
medical data (in life insurance), business plan (in investments).
2.
Assessment of solvency (in lending). Identification of potential problems with debt
repayment and the level of borrower reliability.
3.
Minimization of losses. Reducing the likelihood of major losses due to the correct
assessment and distribution of risks.
4.
Increasing the profitability of the company. Due to the competent selection of clients and
objects that correspond to the company's strategy.
5.
Ensuring a balanced insurance/investment portfolio. To diversify risks and increase the
sustainability of activities.
If necessary, I can prepare a table or diagram on the functions and tasks of underwriting, or
separately disclose the features in the banking, insurance or investment sphere. Underwriting
plays a key role in risk management in insurance, banking and investment activities. Its main
functions are risk assessment and classification, establishing contract terms and pricing. The
main tasks of underwriting are aimed at minimizing financial losses, ensuring the profitability
and stability of the company, as well as making informed decisions when concluding contracts.
Effective underwriting contributes to the formation of a sustainable and balanced portfolio of
clients or projects.
References
1. Tulinov V.V., Gorin V.S. Insurance and Risk Management: Terminological Dictionary.
Moscow: Nauka, 2000. 115 p.
2. Nikulina N.N. Insurance Management: Textbook for University Students Majoring in Finance
and Credit, Accounting, Analysis and Audit, Commerce, Crisis Management [Text] / N.N.
Nikulina, N.D. Eriashvili. - Moscow: UNITY-DANA, 2011. - 703 p.
3. Zhuravlev Yu.M. Dictionary and Reference Book of Insurance and Reinsurance Terms.
Moscow: Ankil, 1994. 180 p.
4. Khudyakov A.I. Insurance Theory. M.: Statute, 2010. 656 p.
5. Shinkarenko I.E., Trishkina E.O. Features of underwriting in property insurance for
individuals: Material from the seminar “Wikipedia of Insurance” / Training Center “Business
Service”. M., 2013. 98 p.
