Underwriting

Underwriting risk factors for life Insurance

- age - gender - lifestyle - smoking - hobbies - hazardous occupations - medical history - family health history - aviation only one claim in life insurance

Underwriting

The process that insurance companies use to -Select - classify - Rate risk

Investigative reports

based on interviews with friends and neighbors, employers and coworkers and other individuals who know the insured - insured must be notified in writing

Inspection reports

performed by a credit reporting agency. insurers must abide by the rules of the Fair Credit Reporting Act (FCRA)

Application

primary source of insurability inforamtion used in underwriting - application is normally attached to and becomes part of the contract - if there are intentional misstatements it can be used as a legal document - insurance application has three basic parts 1. part I Gneral Information 2. Part II medical Information 3. Part III agents Report

Consumer Reports

provide information about the applicants - character - lifestyle Financial stability generally used for policies with large coverage amounts because the reports increase underwriting expenses two types: Inspection report Investigative reports

Sources of Underwriting information

- Application - Medical report - Attending physcian Statement - Investigative Consumer (inspection) report - Credit report - Medical Information Bureau - Medical examination and lab tests - special questions

Major risk factors for underwriting health insurance

- very important that policies are underwritten correctly and risks are classified accurately - most important factors in underwriting a health insurance policy are: -physical condition( most important factor) -moral hazards (lifestyle) -occupation ( classified into five classes: AAA,AA,A,B,C) multiple claims in health insurance

Underwriters main two big questions

-Is the applicant insurable ? - Does the applicant have an insurable interest in the insured ?

Underwriting process

After underwriter establishes that applicant is insurable 1. Evaluate information about the applicant 2. Select a risk classification and premium rate that matches the degree of risk undertaken 3. after the applicatn clears underwriter the insurer will issue the policy for delivery 4. the insurance producer will deliver the policy to the policy owner

Higher risk = Lower risk =

Higher premium

What do the insurance companies use underwriting for

Insurance companies use underwriting to prevent adverse selection, which could cause the insurance company to become insolvent - used to classify the risks and assign premium rates that accurately reflect the amount of risk undertaken by the insurance company - notification of risks is NOT part of the underwriting process

Third Party Ownership

When the person other than the insured applies for ownership ex: when a person applies for a family member - insurable interest

Medical Information Bureau (MIB)

a nonprofit organization that maintains medical information about individuals that is used y life and health insurers