Joint Underwriting and Exchange of Underwriting Information

• Pages: 87-101

87

CHAPTER VI

JOINT UNDERWRITING AND EXCHANGE OF

UNDERWRITING INFORMATION

Joint underwriting arrangements are an established feature of many

insurance markets. Joint underwriting may result from economic and

market forces (e.g., risks are so substantial that they cannot prudently be

insured by any one company) or from legal requirements (e.g.,

state-mandated insurer cooperation to underwrite risks in so-called

residual or involuntary markets).

A. General Description of Joint Underwriting Arrangements

Joint underwriting arrangements take many different forms. The four

most common structures are described below.

Pools. Pools are associations of insurers or reinsurers each of which

has an interest or share in the business written by the pool.401 Pools

typically provide insurance or reinsurance for high-risk, unusual, or

specialized lines that single companies could not underwrite because they

lack either the capacity or the underwriting expertise, for example, aviation

insurance. By spreading risk, pools may permit (1) introduction of an

insurance product that could not be offered by single companies, (2)

additional capacity from insurers that could not enter the market on an

individual basis, or (3) lower rates because the pool can accept a lower risk

premium than could any single company. Pools also may offer specialized

engineering, inspection, loss prevention, or claims adjustment services that

individual insurers could not economically provide on a unilateral basis.402

Pools may issue policies in the name of the pool itself, in the name of

the members of the pool, or in the name of designated members (who are

then reinsured by the pool or its individual members). By their nature,

pools are designed to provide insurance for more than one transaction.

Pools may have an indefinite life or be renewed periodically by agreement

401. NATIONAL ASS’N OF INS. COMMISSIONERS REGULATION OF VOLUNTARY

UNDERWRITING AND REINSURANCE POOLS WHITE PAPER (2003)

[hereinafter NAIC REPORT] available at http://naic.org/

store_pub_whitepapers.htm#voluntary_underwrite.

402. See generally NAIC REPORT, supra note 1, at 1-10.