Underwriting procedure in life insurance
Classical life insurance refers to medium-term and long-term types of personal insurance, which establishes high requirements for assessing the risk accepted for insurance.
Underwriting in life-saving life insurance includes activities conducted to determine the degree of deviation of the risk of death or any violation of the health of a potential insured person from the established criterion (for example, the average life expectancy, according to the tables of mortality and injuries), in order to ensure the possibility of offering insurance services on conditions that are adequate to the accepted risk.
Underwriting is conducted on the basis of the results of pre-insurance examination. Risk assessment is carried out in the following areas:
1) medical underwriting;
2) professional underwriting;
3) Underwriting of a way of life;
4) financial underwriting;
5) criminal underwriting.
The underwriting of the life insurance contract is carried out in a comprehensive manner and involves assessing the degree of risk simultaneously in all directions. However, as practice shows, it is possible to single out a certain sequence of underwriting the life insurance contract. In particular, the most important part of it is medical underwriting, since under unsatisfactory state of health of the insured person (the insured) other underwriting issues are no longer relevant. Most likely, the insurance contract for such an insurer will be directed to deeper underwriting (individual) or not to be concluded at all.
It should be noted that according to world statistics, more than 90% of applications for life insurance are considered positively. If the application is rejected or accepted at an increased tariff, it should be remembered that the insurance rate is not constant and may change over time. So, if you quit smoking, lose weight, lower your blood pressure, then the assessment of insurance risk may change in the direction of decreasing.
Underwriting is based on the results of the pre-insurance examination. Its task is to assess the deviation of individual risk factors of potential insured persons from the average (tariff) by identifying and studying the characteristics of their health status, working conditions and lifestyle. The insured (insured) must inform the insurer about the risk factors known to the insured (risky circumstances).
The data on the basis of which the pre-insurance examination is carried out can be obtained by interviewing the insured (insured), visually acquainted with it, by a special questionnaire, and also by studying documents containing the necessary information submitted by the insured or potential insured person. When interviewing and studying documents, one should not exclude the possibility of submitting false information about a potential insured person. Any doubt about the reliability of the information should be the reason for additional checks.
The nature and scope of the data to be studied is determined primarily on the basis of the specific conditions of the proposed insurance contract (insurance risks), the number of potential insured persons, and the insured amounts planned by the insured.
Application for insurance and application form (as part of the application) - the main tool of pre-insurance examination in life insurance. In some cases, during a pre-insurance examination, a medical examination of a potential insured person is carried out.
The application and questionnaire consists of several sections designed to determine the degree of risk. The first section of the application is intended to obtain information of a general nature necessary for processing the insurance contract. The policyholder specifies basic information about himself, the insured person and the beneficiary (personal data, registration and actual residence address, gender, date of birth, etc.).
Next, the main parameters of the proposed insurance contract are indicated in the insurance application: insurance amounts, insurance risks, the procedure for payment of insurance premiums, etc. In some cases, the insurance application should indicate the existence of already concluded life insurance contracts or insurance against accidents and diseases .
The following sections are for examination of the insured person . This is, firstly, a section containing questions about the state of health, age, weight, arterial pressure, tobacco and alcohol use, previous injuries and past illnesses (operations) or diseases that the potential client is currently suffering. It can also contain questions aimed at identifying predispositions to various diseases (questions concerning diseases of immediate relatives).
The next section of the application (questionnaire) determines the degree of risk associated with the profession and way of life of the insured (the policyholder). Here information is revealed about the profession of the insured or the insured person, its features, hobbies and sports, which the insured person enjoys, etc. When conducting financial underwriting, information is requested that proves the legality of the insured's income. In some cases, the underwriter must take into account the criminal component, especially with the insurance of loan borrowers, mortgage insurance.
The pre-insurance examination can not be called full-fledged if the judgment on the degree of risk is based only on data obtained from the insured's application. In direct conversation with the insured, the insurer's representative has the opportunity to verify the reliability of the information indicated by the insured and, moreover, to obtain additional information.
On the basis of information obtained as a result of pre-insurance examination, underwriting is conducted. Currently, life insurance allocates standard and individual underwriting.
Standard underwriting involves the analysis of the insurance application, the attached application form and other information provided by the insurer, and determining the compliance of the information provided by the insured with the standard criteria. If the data is consistent, the insurance application is recognized as standard, and the contract is concluded under the terms of standard underwriting. Criteria for the standard of risk - is a certain state of the set of risk factors that allow us to qualify the insurance application as standard and conclude an insurance contract without further analysis.
The insurer independently establishes the criteria for standardization, however, the conditions of reinsurance, the expected financial result from insurance activities by type and other indicators are usually taken into account.
According to the standard instructions for underwriting, an insurance application is recognized as standard if information about the person being insured meets certain criteria (Table 6.2).
Table 6.2. Criteria for the standard of life insurance risk
General physical indicators
• The weight and height of the insured person correspond to the norm: normal is the weight equal to growth, minus 100 -
105 (deviations that do not affect the estimate: plus or minus 15-20); while the weight of an adult person can not be less than 45-50 kg.
• The blood pressure value corresponds to the norm (in the range from 90/60 to 140/90).
• Consumption of tobacco and alcohol is moderate
The profession of the insured person is not associated with an increased risk (the insured person is not a serviceman and an employee of rescue services, special services, the oil and nuclear industry, a policeman, a collector, a worker engaged in underwater work, a person working with explosives, etc. , workers and employees, whose professional activities are associated with frequent and long trips to "hot spots", zones of natural disasters, etc.)
The insured person does not (have not had any) illnesses on the list determined by the insurer, did not transfer certain operations by the insurer
The insured person does not take a great interest in risky or dangerous sports (parachuting, scuba diving, motor sports, etc.)
The amount of the sum insured
The insurance amount corresponds (does not exceed) to the established underwriting policy values
The insured's income is legal and it is solvable. He does not have obvious connections with the criminal world
If any data declared by the client does not meet the standard criteria, the application is sent for individual underwriting.
Fig. 6.1. The relationship between standard and individual underwriting
In the process of underwriting with the insured, the order of payment of the insurance premium is also agreed: one-time or in installments. When paying by installments, the insurer usually takes into account the effect of inflation, which leads to the depreciation of premiums paid later, and introduces the discount factor or, as it is also called, the installment factor (see "Practice questions").
The installment factor is close in value to the number of payment periods for the duration of the insurance contract, but slightly less than it (for example, for a five-year contract it is 4.68, for a 10-year contract it is -8.63). The value of the installment factor depends on the level of annual inflation. With an annual payment of premiums, the amount of the insurance premium is divided by the installment factor. To find the size of monthly or quarterly contributions, the coefficient 1/12 or 1/4, respectively, is applied additionally.
Individual underwriting assumes that the insurer's representative collects all the information necessary for judging the degree of risk and passes it on to a professional underwriter. In turn, the underwriter performs a comprehensive risk assessment, if necessary, requests additional documents and decides on what terms the insurance contract will be concluded.
As a rule, the underwriter requests more complete information about the insured and the insured. In this case, the pre-insurance examination tool is usually a questionnaire with more detailed questions. Documents such as certificates from medical and preventive institutions, extracts from the hospital card, certificates from the place of work, income certificates, etc., can be requested as well, a medical examination of a potential client may be conducted.
Based on the information gathered in this way, the underwriter gives recommendations for setting the parameters of the insurance contract (with respect to risks, terms and order of payment of insurance premiums, etc.).
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