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Understanding Underwriting: An In Depth Guide Part 2 – The Different Outcomes of Underwriting Evaluation Explained

Understanding Underwriting: An In Depth Guide Part 2 - The Different Outcomes of Underwriting Evaluation Explained

Last Updated on by Tree of Wealth

Tailoring Premiums to Individual Risk Profiles

Insurance is all about risk taking and the underwriting process is all about taking in the risks, calculating them and ultimately deciding whether to take upon the client or not.

Insurance premiums are more than just a financial transaction; they’re a personalized reflection of your unique risk profile, carefully calculated to ensure fairness and sustainability within the collective insurance pool. As each application is evaluated on its own merits, factors like your build, gender, and health history are meticulously analyzed against a backdrop of actuarial data and medical research. This personalized assessment allows for the equitable distribution of financial responsibility among all policyholders.

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This process of risk pooling in insurance is essential, as it balances the collective risks and resources. The common fund created by policyholder premiums is managed prudently by insurers to assure that it can support the group’s needs over time. It is a delicate balance: premiums must align with the risks presented, acknowledging that as we age, the likelihood of health issues typically increases. For the younger policyholder with a lower risk profile, premiums are generally more affordable. Conversely, those with existing medical conditions might see higher premiums or, in certain cases, face declination of coverage.

It’s crucial to maintain this equilibrium to prevent the risk pool from becoming unsustainable, especially if the scale tips towards a higher ratio of policyholders with health conditions. An unbalanced pool could lead to increased costs for all members. Thus, thorough and fair risk assessment stands as a fundamental pillar in the insurance industry, ensuring all policyholders contribute appropriately and the pool remains robust, ready to support the claims of today and tomorrow.

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Outcomes of the Underwriting Evaluation

Simply put, there are usually 4 outcomes coming from the underwriting process and they are either: Yes, No, Maybe, Wait. 

Upon concluding the underwriting assessment, insurers arrive at a pivotal decision regarding an insurance application. The possible verdicts include:

Offer Standard Terms: This is the most favorable outcome for an applicant, where the underwriter deems the risk profile to align with the insurer’s norm. In this scenario, the application is approved at the quoted standard premium without any additional costs or restrictions. The majority of applicants find themselves in this category.

Offer with Loading (Extra Premium) and/or Exclusion: In instances where an applicant’s risk profile deviates from the standard due to factors like obesity or pre-existing health issues, the underwriter might still approve the application but with caveats. This could mean higher premiums or specific exclusions. For instance, an applicant with pre-existing hearing loss might face an exclusion related to any disabilities stemming from that condition. Insurers will then present a counteroffer outlining these modified terms for the applicant to consider.

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Postpone Cover: Sometimes, an insurer may choose to defer the application. This can occur if the applicant is scheduled for surgery, which introduces considerable risk and uncertainty. In such cases, the insurer will reassess the application once the risk associated with the surgery has passed.

Decline Cover: If the underwriter concludes that the risk profile is beyond the insurer’s acceptable limits—for severe conditions like unmanaged hypertension, for instance—the application will be declined. However, should the applicant’s health status improve, they are encouraged to reapply. Additionally, for existing policies with previous loadings or exclusions, if there is substantial improvement in the applicant’s health, they can present new medical evidence for a potential reassessment of their risk profile.

Evaluation during the Underwriting Process

The underwriting process conducted by an insurer entails an in-depth analysis of various elements, including the applicant’s medical conditions and the nature of the coverage sought. The insurer carefully weighs the gravity of any health issues presented and how they may impact the coverage terms.

Take, for example, an individual with a history of a slipped disc. While the insurer may extend life coverage under standard terms, they might introduce specific exclusions for the total and permanent disability benefit (TPD) and the hospitalisation benefit due to the increased likelihood of needing surgical intervention and subsequent hospitalisation.


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In cases where the risks are spread across multiple systems—such as with diabetes, which can affect the heart, eyes, nerves, skin, kidneys, and more—the insurer might opt not to provide certain benefits like TPD, critical illness, or hospitalisation coverage, particularly if the condition is not well-managed.

Conversely, if the medical issue is isolated and does not impact other organs or systems, the insurer could offer coverage but exclude the specific condition and its direct risks from the policy. Blindness is one such condition where, despite the coverage being provided, the direct risks associated with it might be specifically excluded.

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Building on our exploration of the underwriting landscape, our next article will delve into real-world case studies of underwriting. By examining diverse scenarios, we will shed light on how insurers navigate complex risk assessments, revealing the intricate decisions behind premium calculations and policy terms.

These case studies will provide tangible insights into the nuanced process that tailors insurance coverage to individual needs. Through this lens, we’ll explore how underwriters balance risk with compassion, ensuring that each client is given consideration befitting their unique situation. Stay tuned to unravel the art and science of underwriting through stories that resonate with real life.

Take the first step towards securing your financial future by connecting with our expert financial advisors.

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