Underwriting is the fundamental first skill
that is needed for an insurer to succeed in the market.
This risk may
either arise from an inaccurate assessment of the risks entailed in writing an
insurance policy, or from those very factors wholly out of the underwriter’s
control. As a result, the policy may cost the insurer much more than it has
earned in premiums.
The main focus in Life
Insurance is proper skillful underwriting and any inappropriate action can
Liquidity is concerned with
the current and future maintenance of adequate levels of cash and liquid
assets. There is always a time Lag between receipt of premium and payment of
claims and hence there should be no liquidity problem. But there can always be
unanticipated claims or surrender of policies or claims on account of catastrophes.
Actuarial risk arises in
pricing (premium rate) due to variance in mortality rate, perils, hazards etc.
projected with actual position, (say early termination of the policies,
Liability Management Risk (ALM):
ALM does not imply that assets
should be matched as closely as possible to liabilities but the mismatch shall
be effectively managed to contain the damages if any arising there from.
Insurer need to regularly
perform its own risk and solvency assessment (ORSA). In the process of risk
assessment and management of solvency position, underwriting process, credit
risk, market risk, operational and liquidity risks should be reassessed.
In Insurance Industry the other area of risk
is catastrophe risk which relate to insurance claims arising out loss suffered
by the policy holders on account of natural calamities like, flood, cyclone,
earthquake, tsunami etc. In such cases the claim will be very large causing
stress on insurance companies.
In Pakistan Life Insurance
business also faces a threat If there’s an improper management in the insurance
industry; it will directly affect the reputation of the company. Here the
important aspect is customer satisfaction, so if there’s any delay in the
claims or late payments it is risky for that insurance company to survive in
The Digitalization /Cyber Era of
the globe increases in all Sectors including Insurance business .This
innovation is very useful to provide
better services to the customers. This innovative growth in I.T sector also
leads to increased operational risk, i.e. Cyber Risk .The same is a matter of
great concern as it may imply increasing Insurance Risk as a Cyber attack may
lead to lost customer data, damage to reputation, business interruption, etc.
This situation may also increase Insurers’ operational costs as they need to
increase their cyber security capabilities.
Bancassurance , rather a new opening , also
create another risk ,i.e Compliance Risk .In this system Insurer reach banks’
customers through their Nation-wide large branch system and their arose a
potential risk for mis-selling ,which may lead to Compliance risks. But SECP
& SBP have taken steps as SECP issues Bancassurance Regulations -2015,
whereas SBP issued a Circular on Sale of Third party products by Banks in 2012.
The operational risks in
insurance include human failure, fraud, technology failure, failed system and
procedure. Violation of environmental laws and regulations. The risks may be
systemic risk or un-systemic risk.