Life insurance Underwriting
Insurance underwriting is the process that is repeated every time when the new client wants to purchase an insurance cover. During this process the characteristics of the person is analyzed and using special underwriting methods that are unique in every insurance company the terms of the contract and the price of the premiums are calculated. Underwriting is especially important in life insurance market, because of two reasons. First of all, the information gathered during this process allows the company to offer fair rates of the premiums and terms of the contract. Secondly, if the underwriting process is performed badly, the dependents can have big problems while trying to make a successful claim.
The first step of underwriting process is information gathering. During this initial phase the individual is given a questionnaire with numerous questions and is asked to provide truthful answers. Most insurance providers ask the customer to fill the questionnaire by providing written answers. However, some insurance carriers hire professional underwriters that talk to the client, ask them various questions and write down the answers. This method takes longer but there is a higher chance that the underwriter will notice if the client is lying. Indeed, handwriting usually does not reveal if the person is saying the truth. On the other hand, the tremble in the voice, emotions and body language can betray him easily.
Questionnaires are needed in order to find out as much about the client as possible. Usually the factors that interest the insurance providers include: health condition, family history, height and weight, lifestyle, occupation, hobbies, place of residence, travelling habits, financial information and the amount of cover the individual wants to apply for.
In most cases the insurance companies perform underwriting using only the information provided in the questionnaire. However, if the underwriters have any doubts about the fairness of the information provided by the client and want assurance, additional methods can be used.
The most common supplement to the questionnaire is a General Practitioner Report (GPR). Insurance carriers usually contact GP when they need more technical information about the medical condition of the person or want to check whether the person told the truth about his health.
Sometimes the insurance company asks the person to undergo a medical examination. Insurance companies hire nurses and doctors that perform this examination on behalf of the insurance provider. Sometimes it is even possible that the nurses and doctors come to the home of the person. This is especially the case when the person is old or disabled. During the examination the health of the person is checked and some additional tests can be performed. These tests include cotinine, HIV, blood tests and other. An alternative to medical examination is medical telewriting. In this case a doctor or a nurse calls the patient and gathers more informational about his health condition through telephone.
Life insurance proposal from the carrier
After all the information is gathered and necessary medical tests are performed the insurance company uses this data in order to provide the client with an insurance proposal. The proposal includes the terms of the contract and the price of the premiums. An insurance company has 4 options to choose from.
First of all, the client can be accepted and offered a regular rate of the premiums. This happens when the insurance company believes that the customer falls into average risk category. For example, if a person is middle aged, has no overweight, goes to gym three times a week and leads a healthy lifestyle, the insurance company will attribute this person to low risk group and offer a standard rate of the premiums.
However, if the person has higher risk than average, the insurance company will most likely ask him to pay higher premiums or offer less favorable terms of the contract. For instance, if a person is involved in dangerous sports, the insurance company will ask him to pay premiums with loadings and offer life insurance with exclusion for death and injuries caused by dangerous activities. This means, that the dependents will get death benefit only if the death of the insured person was caused by other factors than the sports he is involved in.
On the other hand, insurance company can reject the application of the individual. This usually happens when the company believes that the individual presents a very high risk to the company. However, in reality when insurance carrier does not want to accept the customer, a postponement approach is chosen instead of straight rejection.
For example, if a person had his kidney transplanted recently, the company will not want to insure the person at the moment because there is a high risk that the transplantation will have some complications. As a result, the underwriter will ask the person to wait a couple of years and then try to get life insurance cover once again. Rejection is used very rarely and only in certain cases. For instance, if the person is too old and the insurance policy of the company does not allow the underwriter to accept the individual, an elderly person will simply be kindly asked to find another life insurance provider or even provided with a list of alternative life insurance carriers.
Which of the 4 options will be chosen depend from insurance policy that is used in the company. It is wrong to think that human factor has any influence in underwriting process. Even though life insurance workers perform underwriting process, they have to stick to the policy. As a result, despite personal attitude of the underwriter towards the client, the rates will depend only from personal characteristics of the person that wants to be insured.