Last Updated on April 26, 2024 by Tree of Wealth

The LIA recently released the latest LIA Guide to Medical Underwriting and its a good resource to unpack the information.

Referring to that, here is a thorough write up on a series of content we will be coming up with, titled “Understanding Underwriting”, to help educate and more people to understand what exactly is underwriting, why do insurers or your agent keeps coming back to you for more information and medical records or why do insurers ask for medical check ups.

Continue reading to find out more.

Utmost Good Faith

The principle of utmost good faith is a cornerstone in the realm of insurance contracts, requiring both insurers and applicants to engage with honesty and transparency. This principle is not just a courtesy; it’s a legal imperative that ensures the validity of the insurance contract.

Failure to provide truthful and complete information, whether it’s an intentional omission or a simple oversight, can have significant repercussions. Any misinformation or nondisclosure, such as not revealing previous or existing medical conditions like cancer or diabetes, may lead to the annulment of the insurance policy or the denial of claims.

It is your duty as the applicant to fully disclose all material facts. The guiding rule is to err on the side of disclosure – if there’s any uncertainty about the relevance of a piece of information, it’s always better to share it. By doing so, you help ensure that the underwriting process is conducted with all the necessary data, leading to a fair and accurate assessment of your insurance needs.

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Underwriting Principles and Practices

Underwriting involves the method by which insurance firms assess the risks of insuring an individual’s life and health, determining the appropriate premium to charge. This process adheres to several fundamental principles to ensure a uniform and equitable evaluation of risk:

• Equitable Conduct: Engage in actions that are just and reasonable.
• Individual Merit Assessment: Evaluate each proposal on its own merits, considering the specific risk profile of the individual.
• Holistic and Objective Analysis: Make assessments based on complete and unbiased information, including medical reports from attending physicians, various medical tests, and relevant statistical or actuarial data.
• Consistency Across Conditions: Apply the same principles and practices uniformly across all medical conditions and risk profiles.
• Risk-Adjusted Premiums: Set premiums that reflect the assessed level of risk.

These guidelines help maintain fairness in the underwriting process, ensuring that all applicants are assessed under the same criteria.

Factors Considered by Underwriters in Risk Assessment

When determining the risk profile of an individual, underwriters take into account a wide range of factors:

• Demographics: Age and gender are primary considerations.
• Physical Attributes: Body Mass Index (BMI), derived from height and weight measurements.
• Lifestyle Choices: Activities and hobbies that might influence risk levels.
• Health Records: Includes both current health status and past medical history.
• Genetic Factors: Family health history that may predispose an individual to certain conditions.
• Insurance History: Previous claims that might indicate the risk of future claims.
• Professional Risks: Occupation, as some jobs carry higher risks than others.
• Current Coverage: Existing insurance policies.
• Location: Country of residence, as risk can vary significantly from one region to another.

These components help underwriters create a comprehensive view of the risk associated with insuring an individual, guiding the decision on policy terms and pricing.

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The Underwriting Procedure

The underwriting process is a systematic approach that an insurer follows upon receipt of an application. Here’s a step-by-step written overview of the flow:

1. Receipt of Application: The journey begins when the insurer receives the application form for insurance.
2. Initial Review: The insurer then assesses if the information provided on the application form is adequate to classify the risk involved.
   • If No, the process leads to a request for additional information. This is a crucial step where the insurer needs more data to proceed with the risk assessment.
   • If Yes, the insurer moves forward to conduct an in-depth underwriting assessment.
3. Underwriting Assessment: This comprehensive evaluation examines the information at hand to determine the insurance risk.
4. Decision Classification: Upon completion of the assessment, the insurer arrives at a decision, which can result in several outcomes:
   • Offer Standard Terms: The applicant qualifies for insurance under the standard terms and conditions.
   • Offer with Modification: The insurer may decide to offer coverage with an increased premium and/or specific exclusions based on the evaluated risk.
   • Postpone Coverage: Sometimes, a decision is made to defer offering coverage, usually pending further information or the passage of a certain period.
   • Decline Coverage: In some instances, the insurer may choose not to provide coverage based on the assessed risk being too high.

Each of these outcomes reflects the insurer’s policy and the applicant’s individual risk profile, ensuring that the terms of coverage are aligned with the level of risk presented by the applicant.

Submission of Application Form and Underwriting Process

Upon receiving an application form, also commonly referred to as a proposal form, insurers embark on a meticulous underwriting assessment. This form is a critical tool for insurers to gather essential data to evaluate the risk profile, also known as material information, of the proposed insured entity or individual.

During the underwriting phase, underwriters may request additional details to gauge the severity of any disclosed conditions and to conduct a thorough risk analysis. The level of insurance coverage requested and the applicant’s age can necessitate a routine medical examination or tests, which are carried out by a medical professional from the insurer’s approved panel.

In instances where an applicant’s medical history or lifestyle activities—such as asthma or scuba diving—are disclosed, underwriters might ask for more data through specific questionnaires, like an “Asthma Questionnaire” or a “Diving Questionnaire.”

There might also be a need for further reports, both medical and otherwise, in cases where the provided information is insufficient for an accurate risk assessment. This could include reaching out to the applicant’s healthcare provider or other professionals for detailed reports, especially if there’s an ongoing medical condition or comorbidity.

For hospitalization coverage, applicants are typically required to supply these reports at their own expense. Conversely, for other insurance types outlined in Section 4, costs associated with medical examinations, tests by the insurer’s panel doctors, and acquiring medical reports are generally covered by the insurer. Notably, should the insurer extend an offer on standard terms which the applicant declines, the applicant may be responsible for these costs. However, if the insurer proposes amended terms, such as exclusions or additional premiums, and the applicant opts not to accept, the insurer bears the expense, as detailed in the above diagram regarding underwriting decisions (Decision Classification).

In the next article, we will discuss and talk about the different Outcomes Of Underwriting Evaluation.

Understanding the principles and practices, the careful considerations underwriters make, and the thorough procedure they follow can empower you as an applicant.

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Knowledge is power, and with the insights provided by resources like the LIA Guide to Medical Underwriting, individuals are better equipped to manage their applications and engage with the process.

With patience, clarity, and the right information, you can approach insurance underwriting with confidence, secure in the knowledge that the process is designed to protect your interests and provide peace of mind for the future.

Take control of your financial journey today by reaching out to our dedicated financial advisors. Completing the form below is the first step towards a future where you feel empowered and secure.

Whether you’re looking to navigate the underwriting process with ease or seeking strategies to maximize your investments, insurance, and savings plans, we’re here to illuminate the path. Embrace the opportunity to craft a financial strategy that resonates with your personal goals and risk profile.

Get in touch now, and let’s start building a brighter, more assured tomorrow together.