Judgmental Method System of Evaluating Risk
The Judgment Method: Under this method, the individual decisions of experienced persons, in the medical, actuarial, underwriting and other departments are combined. These persons are qualified and permitted to take a decision. Unlike the other method, no rigid rules and scales are prescribed and followed. Personal judgment, therefore, plays a vital part in the whole system of underwriting.
Under this system, the routine cases are processed with a minimum of consideration by assistants trained in the review of applications and doubtful or significant cases or borderline cases are resolved by experts who take the decision on their experience and general impressions. This method is still used in India by the Life Insurance Corporation.
The judgment method is generally used where a single factor is to be considered or where the decision for acceptance or rejection is to be taken. The second use of this method is that where numerical rating fails to decide, this method comes to much assistance because the merit of each and every factor is personally considered.
The personal decision of the officers and experts may be quick and significant. The various differences in the reports, thorough inquiries are made and personal judgment is substituted by the other method. Judgmental forecasting is used in cases where there is a lack of historical data or during completely new and unique market conditions.
The disadvantage of this method is that the personal direction may be biased by the whims and negligence of the Officers. An inexperienced decision may harm the insurance business. The second criticism is that it is not very much Scientific. There is no basis except the personal experience, for taking the correct decision.
To avoid the weakness of the judgment method, a method known as the numerical rating system was devised and is commonly used by the insurers.
