Underwriting

Question 0

Underwriting Policy Pricing Considerations

Answer 0

Mortality costs: based on the mortality table
+ Insurer expenses: e.g. commissions, underwriting costs, admin costs
- Investment return: offset expenses by crediting back investment income
Reinsurance: Insurance Co transferring a portion of liability to offset catastrophic loss

Question 1

Underwriting

Answer 1

Risk classification

Question 2

Insurer’s Rate of Retention

Answer 2

Percentage of policies that have not lapsed

Question 3

HIPAA

Answer 3

Health Insurance Portability and Accountability Act
individual that terminate employment but was insured for at least 18 months on a group plan, must be offered in individual policy w/o pre-existing condition exclusions.
Must go on COBRA until it runs out (18 months)

Question 4

Duties for payment of claims
Insurer
Insured
Agent

Answer 4

Insurer - pay claims promptly which are according to its agreement
Insured - comply with the claims conditions in the contract
Agent - prompt send claim to insurer

Question 5

Underwriters information sources

Answer 5

MIB - Medical Information Bureau - Health history of applicants for individual life, health and disability insurance companies
Doctor’s reports, consumer reports, MIB reports

Question 6

Risk Classifications

Answer 6

To avoid adverse selection
Preferred Risks - Above average insurability (does not smoke, keeps fit) offer low rates for this category
Standard Risk - average (no special health problems, no dangerous hobbies or occupation)
Sub-standard Risk - below average insurability. Base the premium on the following
1) Rated-up age: assumes the applicant is older than they really are
2) Flat Additional Premium: additional premium added to the standard rate
3) Tabular Rating: Company actuary determines what the surcharge should be

Question 7

Loss Ratio

Answer 7

Dividing losses by total premiums received

Question 8

Underwriter choices

Answer 8

Issue the policy
Issue with a surcharge
Issue with an exclusion
reject the application

Question 9

Morbidity

Answer 9

Frequency of sickness - measure the relationship between the number of individuals exposed to the risk of illness, sickness and disssssssease at each age, and actual number who incurred an illness at each age.

Life Insurance UW’s use Mortality Tables, Health Insurance UWs use Morbidity Rates.

Question 10

Insurer expenses

Answer 10

UW expenses
Agent commissions
Administrative (staff payroll, office expenses)