2.4 - Individual Underwriting by the Insurer

Question 1

Individual Underwriting by the Insurer

Answer 1

Underwriting is the process of selection, classification, and rating: determining if someone is insurable, classifying the risk, and determining the rate or premium to be charged. The sources of underwriting include the application, medical exams, an Attending Physicians Statement (APS), the Medical Information Bureau (MIB), an inspection report, and the agent’s report.

Question 2

Information Sources and Regulation

Answer 2

A. The Application

B. Medical Examinations

C. Attending Physician Statements (APS)

Question 3

The Application consists of two parts - (Information Sources and Regulation):

Answer 3

Part I contains general questions about the applicant, such as sex/gender, marital status, residence, date of birth, occupation, and past and present life insurance.

Part II contains questions pertaining to medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, and the medical status of immediate family members, including their ages and causes of death.

Question 4

Medical Examinations - (Information Sources and Regulation):

Answer 4

Are conducted by physicians or nurses who provide the results of an examination and information regarding the applicant’s present health. It is usually requested by the insurer after determining if the amount of coverage, age of applicant, or health history warrant the examination. It is more frequently requested due to the higher amounts of insurance applied for, coupled with the high degree of cardiovascular concerns, high cholesterol and enzyme levels, as well as the prevalence of the HIV virus. Medical exams are at the insurer’s expense.

The result of the Medical Examination is the only report that may be copied and made part of the policy.

Question 5

Attending Physician Statement (APS)

Answer 5

Is used in cases in which the individual application and/or medical reports reveal conditions of which more information is required. The applicant’s treating physician will complete this as part of the applicant’s medical history. An applicant must sign a written release to enable a release of the APS. The insurer pays for this.

Question 6

Medical Information Bureau (MIB)

Answer 6

The primary purpose of the Medical Information Bureau (MIB) is to collect adverse medical information about an applicant’s health, supported by insurance companies, and act as an information exchange. MIB is a member-owned corporation that operates on a not-for-profit basis in the United States and Canada. MIB’s Underwriting Services are used exclusively by MIB’s member life and health insurance companies to assess an individual’s risk and eligibility during the underwriting of life, health, disability , income, critical illness, and long-term care insurance policies. These services “alert” underwriters to fraud, errors, omissions, or misrepresentations made on insurance applications, and the MIB may help lower the cost of life and health insurance for consumers.

MIB’s coded reports represent general medical information and other conditions, typically hazardous hobbies and adverse driving records, affecting the insurability of the applicant. If the coded reports are inconsistent with the information provided by the applicant, underwriters are required to conduct a further investigation to obtain more information about the reported medical histories or conditions prior to making an underwriting decision. Because the MIB information is general, the MIB cannot solely be used to deny an applicant for insurance.

Question 7

Inspection Report

Answer 7

An Inspection Report is a general report of the applicant’s finances, character, morals, work, hobbies, and other habits. This is sometimes referred to as a Consumer Investigative Report. This can be completed by the insurer or a third-party provider. The applicant must be made aware of any information-gathering and has rights provided under the FCRA.

These reports have only one purpose: to provide information in order for the insurer to determine insurability.

Question 8

An Agent’s Report

Answer 8

An Agent’s Report is a personal statement submitted by the producer, to the insurer, regarding the applicant’s financial condition, any personal knowledge of the applicant, etc. This information remains confidential between the producer and the insurer, and it does not become part of the entire contract.

These reports have only one purpose: to provide information in order for the insurer to determine insurability.

Question 9

Individual Selection Criteria

Answer 9

The insurer uses information collected by the field underwriter and other sources to determine the insurability of an individual. It is ultimately the home office underwriter’s responsibility to determine if an individual meets the underwriting requirements of the insurer.

Question 10

Nonmedical Application

Answer 10

An application used when a requested policy does not require a medical examination for underwriting. Health questions on the application are asked by the producer and are the only medical information required.

Question 11

Classification of Risks

Answer 11

A. Rating Applicants

B. Classifications
.1 - Standard Risks 
.2 - Preferred Risks 
.3 - Substandard Risks (Higher Risk Exposure)
a. Graded (Lien) Plan
b. Rated-up Age
c. Flat Rate
d. The Tabular Rate

C. Declined

Question 12

Rating Applicants -

Answer 12

Upon receipt of the information, such as the application, medical exam, blood and urine test results, underwriters analyze the information and determine if the applicant is an acceptable risk. If they are acceptable, underwriters then determine the classification to be used in the calculation of the premium.

Question 13

Standard Risks - (Classifications)

Answer 13

Individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table. Individuals in this category have an average life expectancy.

Question 14

Preferred Risks - (Classifications)

Answer 14

Individuals who meet certain requirements and qualify for lower premiums because of ideal health, height, and weight. Individuals in this category have a longer than average life expectancy.

Question 15

Substandard Risks (Higher Risk Exposure) - (Classifications)

Answer 15

Individuals who are not acceptable at standard rates because of poor health, bad habits or occupational hazards. Individuals in this category are issued “rated policies,” known as surcharges, as follows:

• Graded (Lien) Plan: Initially, only the premium will be refunded in case of death. The death benefit increases over time with the full face amount eventually becoming payable. This is generally used with Senior Life Insurance plans to provide minimal benefits without a medical examination.
• Rated-up Age: Rates an insured at older than their actual age
• Flat Rate: A constant dollar amount added to the standard rate per $1,000 of coverage. If the standard premium is $25 annually for $1,000 of insurance, with a flat rate of $5/$1,000 added to the standard premium the new total premium per $1,000 is now $30. A student pilot or someone who has a hazardous hobby would be flat rated.
• The Tabular Rate: A surcharge is calculated using a table showing past claims history of individuals with similar impairments

Question 16

Declined

Answer 16

This is not a rating classification, but a decision that the risk is one for which the insurer refuses to issue insurance. In this case the applicant is deemed uninsurable. The applicant must seek insurance from another insurer or a state guaranty association.