Key Characteristics of Insurance Contracts and Underwriting
Key Characteristics of Insurance Contracts
- Unilateral: A contract where only one party makes an enforceable promise, while the other party follows the established conditions.
- Conditional: The insurer's obligation is triggered only upon the occurrence of a specific insured event.
- Aleatory: Performance depends on an uncertain future event; payment is only made if the event occurs.
- Adhesion: The contract is drafted by the party with greater bargaining power; the other party must accept or reject the terms as-is, without negotiation.
The Underwriting Process
Underwriting is the process of evaluating future risks to determine appropriate pricing. Insurance companies generate revenue through underwriting (collecting premiums) and investing. Premiums must...