This documentation provides a basic explanation of the features and contents of Best's Underwriting Report. It is intended to help the user understand the types of information found in the product, the significance of its various sections – including Best's Hazard Index, Underwriting Comments, Related Reports, the Risk Description, Narrative Lines of Liability, and the Underwriter's Checklist – and the sources used in preparing the reports.
Best's Hazard Index was developed to identify the relative degree of exposure for each line of insurance coverage in a specific type of business, industry, or municipal service. The numbers given in the index indicate the hazard level (Low: 1-3; Medium: 4-6; High: 7-9; and Very High: 10) for each line of insurance. These numbers are based on a careful review of our collected research, the opinions of those who have read and commented on the reports' drafts, our technical consultants' opinions, and a review of similar or related reports. The Hazard Index numbers may be used to get a quick feel for the overall degree of exposure associated with a type of business, industry, or municipal service.
Because the degree of exposure can vary significantly for different lines of coverage in a given report, these index numbers cannot be validly combined. Each number applies only to its specific line of insurance. The index numbers typically reflect the severity of the exposures in each insurance line. The Underwriting Comments are then used to qualify this number or identify types of exposures to which they apply.
Underwriting Comments sometimes accompany the Hazard Index number to better clarify the reasoning behind assigning it. These comments also may call attention to major areas of potential loss or factors that may modify loss potential. For example, the "8" assigned to Workers' Compensation in Fireworks Manufacturing and Exhibiting carries the comment: "Severity rather than frequency." We felt it was important to alert the underwriter in this particular line because losses could be considerable, however, not due to the frequency that is typically associated with an "8." If we had balanced the line's high severity with its very low frequency, it would yield a lower number which would misrepresent the exposure. For the General Liability: Premises and Operations line of the same report, a "7" was assigned with the Underwriting Comment: "Much lower without displays." This indicates that the Hazard Index number is based on insureds that handle displays. Companies that simply manufacture fireworks but do not display them have a lesser exposure in this line and, consequently, the Hazard Index number would be lower.
In addition to its primary business, a number of subsidiary operations may be involved in the manufacture of a product or the performance of its service. These potential sources of loss should be considered as well. Such ancillary services are listed under Related Reports. In addition, when related reports are important to a line of exposure, the Narrative Line of Liability will specifically refer the underwriter to the related topics. Reviewing those additional reports will give the underwriter added insight into the hazards at hand.
These references to related reports also make Best's Underwriting Reports more efficient. For example, most museums, in addition to displaying artwork, also run cafeterias and gift shops. Rather than repeat some or all of the relevant information about these ancillary services within the Museums report, Best's Underwriting Reports simply refer the underwriter to the complete discussions that are available within the Gift or Souvenir Shops and the Fast Food Restaurants reports.
The Risk Description provides an overview of the industry to familiarize the underwriter with the nature of the business that is being evaluated. This section begins with a definition of the industry or the parameters used to define the industry in Best's Underwriting Reports.
The Risk Description then walks the underwriter through the operations or methods of production typically used by the type of business in the report. This step-by-step explanation can familiarize the underwriter with terminology and techniques that are later discussed and have a direct bearing on the exposures.
This section also discusses general industry characteristics, including the number of workers employed (along with their duties and training), the layout of the premises, and the hours of operation. Other information may be found in this section as well, such as recent trends impacting the industry and lawsuits and/or settlements that have cost related businesses a great deal of money.
These sections, each devoted to a separate, applicable line of insurance, analyze the various aspects of a business and how they affect loss potential. Lines of insurance typically covered include Automobile Liability, Automobile Physical Damage, General Liability: Premises and Operations, Product Liability and Completed Operations, Professional Liability, Environmental Impairment Liability, Workers' Compensation, Crime, Property, Business Interruption, Inland Marine, Equipment Breakdown, Cyber Insurance, and others. Not every line of insurance is relevant to all types of businesses.
Each Narrative Line of Coverage identifies the facts (e.g., vehicles and their use, typical building construction or layout, number of visitors to the premises) as they pertain to an industry's particular line of insurance. Each section also describes and evaluates typical and possible exposures, makes loss control recommendations, and notes positive and negative underwriting signs (i.e., indications of decreased or increased exposures based on advisable or unadvisable practices). Wherever possible, Best's Underwriting Reports will note industry loss patterns or histories, "typical" and/or most costly claims, and relevant case histories.
Some industries present so few or such insignificant hazards that an operation that appears to be relatively safe may nevertheless be a "bad" risk compared to others in the class because that particular operation may not utilize the loss controls that are common to the industry; on the other hand, if discussing an inherently dangerous industry, an excellent operation that employs state-of-the-art safety and loss control measures could be considered a "good" risk by comparison. This approach is important to provide the underwriter with a realistic context in which to evaluate an individual company's exposures.
Because each report is created separately with the assumption that it may be the first or only one consulted, a thorough discussion is offered. As a result, when reading through several reports, the user may sense some redundancy in the hazard analysis or underwriting and loss control recommendations (e.g., an evaluation of the number, type, age, and condition of all vehicles, or loss controls for tripping and falling hazards). The focus of each report, nonetheless, is on what is unique to the industry, rather than what is common to all underwriting.
The Underwriter's Checklist poses questions that the underwriter should be able answer before underwriting a company. The questions are designed to help the underwriter determine the principal hazards, as well as to assess the recommended loss control measures.
Finally, many times, outside experts in the particular field are consulted. These may be associations related to the industry, and/or business owners/managers. As a thank you for their valuable assistance, their names and contact information are provided in the Acknowledgements section at the end of each report.
Subject to Change.