Underwriting, the process that the Company uses to assess the eligibility of a customer for a life insurance policy.

What is Life Insurance
Underwriting?

Underwriting refers to the process that the Company uses to assess the eligibility of a customer for a life insurance policy. It involves the classification, selection and pricing of risks. It goes by the principle that every risk in the insurance pool should pay an equitable premium.

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Underwriting falls into the five categories as follows:

Medical Underwriting

This involves the assessment of the personal health factors of the life insured and family history. Medical screening may be performed to establish the health of the life insured.

The Underwriting Grid outlines the standard medicals based on the age of life insured and the sum assured. Further medicals may also be requested following any disclosures of medical conditions.

Occupational underwriting

The occupation of the life insured is material for underwriting purposes. Some occupations present greater than average risk of death or disability due to:

Higher risk of accidents
Higher risk of disease
Moral hazard

Therefore, details of the exact nature of the applicant’s work and their specific duties should be provided in the application form.

Residential underwriting

Involves the assessment of the following residence risks:

Climatic risk
Health risk
Communication and location risk
Political risk

Financial underwriting

The objectives of financial underwriting are to minimise the risk of:

Fraudulent claims
Adverse claims experience arising from anti-selection; and
High wastage rates from early lapses

To achieve these objectives, the underwriter must establish that:

An insurable interest exists;
There is a valid reason for the insurance;
The contract requested is reasonable in relation to the needs that have been established; and
There are sufficient resources available for the payment of future premiums (affordability)

Lifestyle underwriting

The underwriter will look out for any unusually hazardous sports or pastimes. Some of these exhibit a high risk of death or disability and have to be treated accordingly. An example is participation in the following extreme sports: parachuting, hang-gliding, mountaineering, diving and motor racing

Sources of Underwriting Information

Underwriters collect the information they need through the following sources:

The application form
Medical screening
Supplementary questionnaires

If an applicant is older or applying for a high amount of life insurance, the underwriter will collect more information.

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