insurance – underwriting guidelines

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INTRODUCTION OF UNDERWRITINGMeaningUnderwriting means to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). Various kinds of underwriting 1) Securities underwriting 2) Bank underwriting 3) Insurance underwriting 4) Real estate underwriting 5) Forensic underwriting 6) Sponsorship underwriting

Insurance underwritingy

Acceptance or rejection of proposals


Definition:Insurance underwriting is the process of choosing who and what the insurance company decides to insure. This is based on a risk assessment. It is pretty much the "behind the scenes" work in an insurance company where they determine who is insured and how much in insurance premiums they will charge the insured person. Insurance underwriting also involves choosing who the insurance company will not insure.


Mr. Adnan Sami who is 50 yrs old, his weight is 128 kg. and he also suffering from high blood pressure and also gone through by-pass surgery once. So he will be determined as a big risk by insurance company.

Aims & Objectives of insurance UnderwritingDifference of objective in Marketing and Underwriting. Marketing objectives in insurance. (in short) Aim of marketing is to advertise, promote the insurance company and its products. y Marketing works to attract the customers. y Basically marketing department works for to make money, to increase the customers.y

Underwriting objectives in insurancey y

y y y

Like marketing, underwriting department does not work to sell product, or to increase profit margins. But it works to prevent the insurance company from getting hit by financial losses. ( works for risk minimization ) Underwriter saves the insurer from high risk exposures. Underwriting aims at companies claim ratio is on lower side. underwriting doesnt work directly to increase profits but it works indirectly to increase profitability by using several risk minimization techniques. ( no bad risk acceptance, loadings, reinsurance etc.)

Sources of Information for underwritersThere are various documents from which the underwriter can pull out information. y Application form or proposal y Agents Report ( who is a first underwriter.) y Medical examiners report (build, illness, any hospitalization) y Attending Physicians Report ( doctor report) y Special Medical Reports (for high risk converges- report like ECG, reports of surgery) y Inspection Reports (proposals like fire insurance)

Importance of Underwritingy

y y y y y

Insurance underwriting important because it takes the basic decision whether to accept or reject. ( its like a firewall or antivirus) Insurance underwriting keeps insurance companies afloat by assessing risk accurately. after Assessing the underwriters decides whether to accept or not . If yes then, they will determine what should be correct premium payable. Underwriter takes decision about reinsurance as well. Underwriting works for loss minimization.

Insurance Underwriting Process1) Collecting the Necessary Information 2) Analyzation 3) Identifying options

Example : y Mr Salman. went to his insurance agent to get a car insurance policy. He had driven car without a license and insurance for 5 years and was in jail for reckless driving three times.y

1) Collecting the Necessary InformationUnderwriter collects information from various sources.( like agents report, medical reports etc.) y In this motor policy underwriters received information from agent. y Necessary information underwriter will look for driving license, previous insurance, driving record.y

2) Analyzationafter collecting information, underwriter can begin to analyze information. y The main purpose of analysis is to determine how much risk a particular customer will bring to the company. y Client with clean driving records preferable which MR Salman doesnt have.y

3)Identifying optionsOnce the analysis of the provided information is complete, the underwriter basically has three options: 1) Accept the application and approve a policy 2) Reject the application and deny coverage/refuse to write a policy 3) Approve an application with conditions attached (lower coverage limits, modification of loss control practices, higher premiums.)

Insurance Underwriting GuidelinesMEANINGUnderwriting guidelines are the benchmark or standards which underwriter follows. y u/w guidelines helps to classify the risk while accepting. y Standards which helps to determined (max. risk limit, premium rates, etc.) y Every company has its own u/w guidelines.(current e.g. .- H1N1 insurance)y

Risk ClassificationsThere are 4 categories which company classifies the risk. Preferred: better than avg. risk ( good health, no dangerous hobbies or history of health problems) y Standard: If you are considered an average or typical risk, you will be charged the standard rate. y Rated If you pose an above-average risk.(high blood , smoke cigarettes, or hobbies like skydiving .) If you are 50yand have a heart attack, actuarial statistics may show your life expectancy to be reduced by 10 years.Therefore, you will pay the premium of a 60-year-old.


Declined: If you are rated as uninsurable (perhaps due to a serious illness), you may be denied coverage entirely.

Height and Weight GuidelinesYour HeightHeight 4'10" 4'11" 5'0" 5'1" 5'2" 5'3" Preferred Plus 137 141 145 149 153 158

Maximum WeightPreferred 144 149 154 159 164 169 Standard 169 175 189 193 197 204

Medical GuidelinesCategory Super Preferred Preferred Standard

Blood Pressure

No current or history No current or history of blood pressure of blood pressure Currently controlled treatment (*) treatment (*)


210-240 (depending on 250-270 (depending on rest of health history) rest of health history)

Under 300

Cholesterol/ HDL Ratio

Cannot exceed 5.0

Cannot exceed 6.0

Cannot exceed 8.0

Alcohol/ Substance Abuse

No alcohol or No alcohol or substance abuse in past substance abuse history 10 years

No alcohol or substance abuse in past 7 years

Underwriting of Hazards-Physical& HazardsMoraly y


Hazards which increase the chance of loss arising out of given peril. 1) Physical Hazard- refers to the risk arising from material feature of the subject matter, tangible in nature. 2) Moral Hazard- arises from human weakness or from general economic and social conditions.

Underwriting of Physical Hazardy y y


Underwriter look for proposal involving bad physical hazard. Which can be ascertained by information given proposal form, survey etc. Underwriter recommend measures to improve the risk . ( reduce the possibility of loss arising from hazards.) E.g.- fire insurance installation of sprinklers, spray, fire alarm.

Underwriting of Moral Hazardy

y y y

Moral hazard arises from dishonesty, carelessness, difficult insured and economic conditions of human. It is very difficult to ascertained. Underwriter usually find moral hazard by past experience, enquiries, and general knowledge. usually nothing can be done to improve the risk like in case of physical hazard.

Methods to Deal with Hazards.1) Impositions of warrantiese.g. in burglary insurance it is warranted that the property is guarded by a watchman for 24 hours. 2)Incorporation of clausesReplacement clause- in marine insurance. 3)survey before acceptance 4)loading of premium. 5)Restriction on cover. 6) Impositions of excess / Franchise limits.(useful in moral hazard.)

Case Study


yQ:- One 40 years old lady applied for lifeinsurance, but refused of an elevated (raise) liver factor on her blood test and a record of a hemangioma (blood mass) on her liver that was noticed during an unrelated (ulcer) test in her past. y Her doctor said the hemangioma is harmless and quite commony

The insurance company still refused her


What will happen if she apply to another company? Will she have to tell them that she was refused for life insurance once? Can she will be refused again for the same reason even if a new blood test comes out normal?



Answer:Answer:Insurers differ in their application of objective underwriting standards y You can apply to another insurance company and the result may be different. But you must answer truthfully y underwriter wouldn't rely on information gathered by another insurer, and would want to look at your records and see current blood test results for himself or herself.y

You may have past diagnoses and past test results that are no longer relevant. Your current medical status is more important. y if you are in good health and your physician agrees with this, you will find a carrier to issue life insurance to you.y

Case Study No.2

Denied Health Care Coverage: "Your Baby Is Too Fat"


Four-month-old Alex Lange is described as a "happy, adorable, big baby." Yet he can't get health insurance. Rocky Mountain Health Plans the Insurance company refuses to cover little Alex because he's too large. His father says that, could understand if we could control what he's eating. But he's 4 months old. We can't put him on the Atkins (heavy) diet or on a treadmill. joked his frustrated father

Company explains, explains,y

Because we are a small company dedicated to


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