Study six Flashcards
What does an underwriter do?
- assesses the risk and decided whether to:
i) accept the risk
ii) decline it
iii) accept with modifications - they assess individuals risk potential and classify them based on common characteristics according to predetermined underwriting standards
- trys to meet profit goals by effectively underwriting and rating
- to qualify for coverage, proposed life insured must meet certain minimum standards or be classified as special or substandard
What information does the underwriter look at to assess the risk?
1) insureds personal and family medical history
2) occupation
3) extensive travel plans
4) participation in hazardous activities
5) use of tobacco, drugs, alcohol
6) applicants income and net worth
7) purpose of insurance
8) other applications to other insurers
9) may be required to provide samples of blood or urine, and have medical tech record heart rate, BP, height and weight
What does financial underwriting do?
- considers if the amount of insurance applied for is appropriate considering persons ability to pay
- protects against fraud such as:
- husband gets life insurance for wife and she “has an accident”
- business owner get life insurance for key person at a time when the business is on the verge of insolvency
- someone insures themself, naming spouse as a beneficiary and dies in a single car accident
What is the MIB?
- medical information bureau
- used by underwriters to determine whether an applicant has applied for insurance before and has been refused, whether additional medical data is available
- objective is to prevent fraud and encourage applicants to report risk factors accurately
What circumstances about the applicant/request for coverage would trigger an underwriter to conduct a more detailed application?
1) requested high limits of insurance
2) older applicant
3) other info that would suggest application was a higher risk
What actions might an underwriter take if there were concerns about applicants health or insurance requested was very high?
1) medical exam
2) request an attending physicians statement (APS)
3) hire paramedic to visit applicant and conduct medical review
4) ask applicant to submit to specfic medical testing such as stress test, ECG, additional blood or urine test
What are the two things financial underwriting could verify for the underwriter?
1) appropriateness of the limit of insurance requested
2) ability of applicant to pay for coverage
What is rating/loading and what must an agent do if this occurs?
- the practive of charging higher standard rates for substandard risks
- when agent learns risk will be rated, they must notify the applicant and determine whether or not policy is still wanted
Explain 5 rating techniques used by underwriters.
1) increase the rate or use standard rate but reduce benefit fore entire term of policy or a certain period
2) assess a flat extra charge per thousand dollars of coverage
3) assess a percentage charge per thousand dollars
4) add an exclusion for a risky activity
5) table rate the policy
What is table rating?
- when the underwriter applies a standard rate for an age category that is higher than the one the applicant is actually in
- can be due to
What is a standard life?
- refers to an individual whose characteristics match those of the lives upon which the insurers mortality tables are based
What are 3 important elements used by actuaries to price life insurance?
1) claims cost
2) operating expenses
3) less investment income
What considerations affect pricing of life insurance?
1) type of policy
2) the face amount of policy
3) gender
4) afe
5) smoking status
6) premium would be affected by hazardous activites
What must an agent do when he/she first receives a policy?
- must be checked carefully to ensure that it is accurate and embodies what the applicant asked for
What must an agent do if he/she notices there has been a material change in the risk when delivering the premium?
- must not deliver the policy and return it to the underwriter
