Underwriting to protect the interest of Policyholders

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In InsuranceSamadhan.com’s A-Z Blog series on Insurance topics, we try to provide all vital information related to the Insurance sector and demystify certain myths related to the sector. In today’s blog, we are sharing detailed information regarding – Insurance Underwriting– and everything that one needs to know.

Insurance contract is a Proposal and Accept contract where a proposal is made to the Insurer by insurance customer and insurer accept or reject the case by assessing the risk associated.

Insurance Underwriters Definition

Underwriters play an important role as they evaluate the case by checking material facts of the case. They evaluate the case on the basis of information in Proposal Form, supporting documents and report of intermediary. They do not meet the proposer and take the decision through algorithms of various variables. These algorithms have been made through experience in dealings with multiple cases.

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Insurance Underwriters work Process

Team of underwriters professionals always try to accept standard cases which has similar risks of the pool thus reducing the risks of inclusion of adverse risks. Moreover, underwriters evaluate the case to safeguard moral hazards like insurance on house wife, insurance where insurable interest is not there, or inappropriate sum assured. Underwriters also protect interest of policy holders by identifying cases where mis-selling or fraud is obvious.

Types of Insurance Underwriting

  1. Full underwriting
  2. Simplified Issue
  3. Conditional Guaranteed Issue
  4. Contingent Guaranteed Issue
  5. Guaranteed Issue
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Types of Insurance Cases where underwriters seek additional information

Underwriters ask questions and do not accept cases where they doubt malpractice. They seek additional information on the cases. Many times, they also use investigators before issuing the case. Some of the typical cases, where underwriters seek additional information, are given below:

  1. Cases of multiple policies in short span.
  2. Cases of multiple policies from multiple agents.
  3. Cases where client has lapsed policies.
  4. High value cases sold under distance marketing.
  5. Cases where insurance is proposed on housewives or on aged persons.
  6. Cases where premium is not in proportion to income
  7. Cases where senior citizen is taking insurance on earning family members.
  8. Portability cases in Health Insurance.
  9. In Health Insurance, proposals on senior citizens.
  10. In General Insurance, many cases of under insurance.

Underwriters play an important role in controlling adverse selection thus protecting interest of Policy holders.

Underwriting Risk Analysis

Underwriters do the risk analysis through 3 gate keeping checks:

  • Primary Information showing age of proposer and insured.
  • Primary Information on occupation, income and hobbies
  • Financial underwriting to check disproportionate sum assured to the income declared and to assess the premium paying capacity.
  • Financial underwriting to assess premium payment capacity during the full term of policy. How a proposer aged 60 would pay the premium for 10/15 years?
  • Medical underwriting to check the health conditions.
  • General Underwriting from the Moral Hazard perspective.
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Shailesh Kumar

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