6. Introduction to Underwriting

Question 1

What are the 3 needs of underwriting in life insurance?

Answer 1

1. Determine the risk an applicant presents.
2. Determine the risk an insurer can take on.
3. Making sure the rate table used is accurate.

Question 2

What are the 6 factors that influence assessment of risk for life insurance policies?

Answer 2

1. Age & gender
2. Physical health
3. Medical history
4. Family medical history
5. Occupation
6. Hobbies

Question 3

Risk are assessed mainly on the basis of:

(1) … in life insurance
(2) … in disability insurance
(3) … in personal accident insurance
(4) … in hospital and major medical expenses

Answer 3

(1) mortality
(2) morbidity
(3) occupation & medical condition
(4) medical condition & medical history

Question 4

The objectives of an underwriter is to approve and issue a policy that is?

Answer 4

1. Equitable to the client
2. Deliverable by the intermediary
3. Profitable to the company

Question 5

What is a risk class?

Answer 5

Group of insureds who present an equivalent mortality risk to the insurance company.

Question 6

Name 4 different risk classes that underwriters use?

Answer 6

1. Standard
2. Sub-standard
3. Preferred
4. Non-smoker

Question 7

What is the standard risk class?

Answer 7

Individuals who’s mortality expectation is regarded as average.

Question 8

What are some of the substandard risk classes?

Answer 8

1. Impairments
2. Occupation
3. Avocation
4. Lifestyle

Question 9

What is the non-smoker risk class?

Answer 9

This risk class only uses one factor and that is whether a applicant smokes or not.

Question 10

What is the preferred risk class?

Answer 10

This risk class uses multiple factors in addition to whether the applicant smokes.

Question 11

Why is risk selection so important when it comes to underwriting?

Answer 11

Because if you want to adhere to the principle of every life insured should contribute his fair share in the risk pool, then selection becomes very important.

Question 12

What is anti-selection?

Answer 12

It is when underwriters need to guard the insurer against individuals with a higher than average likelihood of loss applying for greater amounts of cover than the average applicant.

Question 13

What is the most important prerequisite to sound underwriting?

Answer 13

Consistency

Question 14

What are the 4 underwriting guideline an underwriter needs to follow?

Answer 14

1. Numerical rating systems
2. Underwriting manual
3. Underwriting policy and company objectives
4. ASISA HIV testing protocol

Question 15

What is the numerical rating system all about?

Answer 15

It is a method that underwriters use that assigns numerical values to individual applicants based on the degree of risk the present to the insurer.

The numerical values help sort applicants in their appropriate risk classes and help determine premiums.

Question 16

What is the underwriting manual all about?

Answer 16

Mainly used as a guide book that provides background information on impairments and helps the underwriter with suggested action.

Question 17

What is the underwriting policy and company objectives all about?

Answer 17

This is mainly used that the underwriting procedures helps the company achieve the companies objectives. Each company might have a different objective and would therefore require a different policy.

Question 18

What four factors determine the length of a persons life?

Answer 18

1. Past illnesses
2. State of nutrition
3. Mode of living
4. General state of health

Question 19

What is one vital skill of an underwriter?

Answer 19

Medical knowledge

Question 20

Terms underwriters need to understand:

… : increasing importance of new kinds of medical treatment and advances in
operative techniques, for example, hip replacement prostheses;

Answer 20

Medicine

Question 21

Terms underwriters need to understand:

… : the diminishing importance of communicable diseases such as diphtheria and increasing importance of new diseases;

Answer 21

Epidemiology

Question 22

Terms underwriters need to understand:

… : dangers to atomic energy, new technologies in racing and diving;

Answer 22

Technological advances

Question 23

Terms underwriters need to understand:

… : the ever growing number of aviation and road traffic accidents;

Answer 23

Travel

Question 24

Terms underwriters need to understand:

… : changes in taxation laws may increase or decrease the demand for life insurance
or make certain types of cover more attractive;

Answer 24

Legislation

Question 25

Terms underwriters need to understand:

… : during times of recession, care should be taken in the underwriting of disability benefits. The insured population may be more tempted to claim on their benefits when they
are feeling the economic squeeze;

Answer 25

Economics

Question 26

Terms underwriters need to understand:

… : crime has a direct impact on claims experience for traumatic deaths and on disability claims for, post-traumatic stress disorder. The underwriter must bear this in mind when underwriting certain occupations, such as policemen and taxi drivers who are exposed to violence;

Answer 26

Political situation

Question 27

Terms underwriters need to understand:

… : new types of policies and benefits may be developed and these may be
developed and these may in turn involve new underwriting criteria and considerations.

Answer 27

Marketing situation

Question 28

(1) … - inflammation within the heart
(2) … - inflammation of the skin
(3) … - removal of the kidney
(4) … - tumour of a gland
(5) … - muscle pain

Answer 28

(1) endocarditis
(2) dermatitis
(3) nephrectomy
(4) adenoma
(5) myalgia