Chapter 26 Underwriting Flashcards
What is the main purpose of underwriting? (1)
How does underwriting help insurer to achieve this main purpose? (13)
Main purpose of underwriting is to help insurer manage risk
Underwriting helps insurer to achieve this main purpose (managing risk) as follows:
Protects life insurer from anti-selection.
Insurer is exposed to 2 key premium rate risks
premiums not appropriate for lives insured
premiums permit anti-selection against insurer, particularly anti-selection from unhealthy PHs
Being slightly different from market standards may lead to increased anti-selection
But also needs to ensure this doesn’t discourage new buss or cost more than what is saved
Enables company to indentify lives with substandard health risk, for whom special terms would need too be quoted
For substandard risks, it identifies most suitable approach and level for special terms to be offered
Adequate risk classification within underwriting process will help to ensure all risks are rated fairly ie better categorisation and grouping similar lives together=> more effectively prevent anti-selection
Helps ensure that actual mortality experience does not depart too far from that assumed in pricing
Financial underwriting will help reduce risk from over-insurance
