CH 31 (Underwriting)

Question 1

Benefits of Underwriting

Answer 1

-protects provider from Anti-selection
(integrity of pools)
-Fair rating and pricing of risks
-greater Access to insurance for poorer risks
(+info about risk factors)
-reduces Moral hazards from overinsurance
-helps align claims Experience with assumptions

Question 2

Types of Underwriting

Answer 2

- Financial 
(done before rest)
- Medical
- Lifestyle
"- claims underwriting"

Bonus types:

• Occupational
• Territorial

Question 3

Methods of Medical Underwriting

Answer 3

• Proposal form
• Past medical reports
• Medical examination
• Specialist medical tests

Question 4

Purpose of Financial Underwriting

Answer 4

• Ensures premiums are affordable
  (controls persistency risk)
• Prevent fraud

Question 5

Outcomes from Underwriting

Answer 5

-Premium rate
-Accepted at standard rates
-cover is Deferred until more info is known
-cover is Declined
-policy is Loaded
(premiums increased/benefit decreased)
-Exclusions

Question 6

Underwriting Considerations

Answer 6

PRE PRE DMC

• Prospective anti-selection risk
• Regulatory constraints
• Exposure size (sum at risk)
• Product and channel requirements
• Reinsurer requirement
• Effectiveness of proposed underwriting
• Desire for reinsurance (risk uncertainty)
• impact on Marketability
• Cost of underwriting

Question 7

Common Exclusion

Answer 7

• Alcohol and Drug Abuse
• Self-inflicted injury/attempted suicide
• War/Civil Commotion
• Failure to follow medical advice

Question 8

Group Scheme Aspects

Answer 8

FAMBECL

• Free cover limits
  (no u/w below certain level)
• Actively at work requirement
• Min number of members
• Benefit levels = function of salary
• Exclusions
• Compulsory vs Voluntary
• Lay down take-over terms (where insurer accepts a scheme previously insured elsewhere)

Question 9

Steps in Underwriting

Answer 9

• Decide on…
  1. Type of underwriting
  2. Level of underwriting
• Collect adequate evidence
• Specify terms to be offered
• At claim, check that terms of contract have been met

Question 10

Benefits + Costs of Reduced/Relaxed Underwriting

Answer 10

RA MEP

Costs:

• increased costs of Anti-selection
• increased costs of obtaining Reinsurance

Benefits:

• reduced underwriting Expenses
• increased attractiveness (Marketability) of product to channels and customers
• increased Profits from additional volumes of business undertaken