How an Underwriter Assesses a Moving Company’s Financial Stability
Have you ever wondered why insurance companies require an annual financial statement? What are they looking for and how does this information fit?
The primary reasons that financials are an integral part of the underwriting process is to identify and red flag accounts with a poor financial outlook. Accounts with a poor financial outlook are more likely:
- To be a consistent late payment and overall collection issue.
- To not have enough funds to maintain equipment in safe working order leading to a greater chance for claims.
- To provide an unsafe working environment due to an inability to repair or improve building conditions.
- To provide inadequate salaries and not be able to hire the best available employees.
- To be unable to pay future claim deductibles.
- To have a higher potential for morale hazard; fraudulent claims.
An underwriter looks at two areas when evaluating a risk’s financial outlook:
- Dunn & Bradstreet (D&B) Rating. D&B, a privately held company, is the world’s leading source of commercial information providing insight on a business’s current financial position. D&B uses a 1-5 scoring system when evaluating risks. (The number 1 being the best score to the number 5 being the worst.) For more information go to http://www.dnb.com/
- Annual Business Financials provided by the Insured.
An underwriter evaluates this annual information using three standard financial ratios to determine an insured’s fiscal fitness:
- Liquidity Ratio: Current Assets divided by the Current Liabilities
- Equity Ratio: Total Assets divided by Total Equity
- Profitability Percentage: Net Income divided by Gross Income
The role of an underwriter is to review and determine the appropriate classification and coverage for your business. An underwriter must also ensure your operation meets the insurance company’s requirements.
Written By: Brandon Laam
Brandon has been an Underwriter in the Transportation industry for over 6 years. After having a hand in the creation of a start-up MGA, he ended up finding his niche within the Moving & Storage industry. Outside of the office Brandon likes to fish, hike, kayak, garden and read.