Chapter II Basic Elements of Underwriting

Aim The aim of this chapter is to: y understand the importance of underwriting. y explain the process of underwriting y explain the duties of the underwriter
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Objectives The objectives of this chapter are to: y y y understand the different classification of risks involved in underwriting. explain the role of an insurance agent as an underwriter explain health insurance underwriting in detail

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Learning outcome At the end of this chapter, you will be able to: y y y understand the steps in underwriting distinguish between group and individual underwriting understand the responsibilities of agent as an underwriter

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y2.1 Introduction A proposal is an application for an insurance cover. When a proposal is received, the insurer will not grant the cover immediately. That is why it is called a proposal. The proposal, for being accepted by the insurer, certain terms and conditions will have to be fulfilled. Only on satisfactory fulfilment of the terms and conditions will the proposal be accepted and risk commence. Then the insurance contract gets its teeth. The process that results in the insurer assessing the risk inherent in the proposal, and giving its decision is referred to as Underwriting. In this unit, we discuss the concept, need and significance of Life Insurance Underwriting, the process of underwriting, functions of underwriters, classification of risk and lives, medical and financial underwriting, and the various underwriting decisions made after risk assessment. Meaning and Concept It has been said that responsible people buy life insurance for one of two reasons; they either love someone or they owe someone. However, purchasing life insurance is not as easy as buying any other type of financial product. Just because someone wants life insurance and is willing to pay for it, does not automatically mean that an insurance company will offer to insure them. Once someone applies for life insurance coverage, the application must go through a strict underwriting process by the insurance company before an individual is eligible to even purchase the policy. Today, in the 21st century, the underwriting process of a life insurance policy is still a mystery to most in the financial professionals and especially to their clients. In essence the underwriting process includes the following three steps: Examination of the application (proposal) Decision as to whether to insure Determination of the premium 2.4.1 It is as true today as it was when Albert Einstein said make everything as simple as possible, but not simpler. Underwriting refers to the process that a large financial service provider (bank, insurer, investment house) uses to assess the eligibility of a customer to receive their products (equity capital, insurance, mortgage or credit). The name is derivesd from the Lloyd's of London insurance market. Financial bankers, who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium, would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose. In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report; and the lender's evaluation of the borrower's credit needs and ability to pay. y y y

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Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them. Underwriting involves measuring risk exposure and determining the premium that needs to be charged to insure that risk. The function of the underwriter is to acquire or to "write"" business that will make the insurance company money, and to protect the company's book of business from risks that they feel will make a loss. In simple terms, it is the process of issuing insurance policies. Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not the company should accept the risk. The information used to evaluate the risk of an applicant for insurance will depend on the type of coverage involved. For example, in underwriting automobile coverage, an individual's driving record is critical. As part of the underwriting process for life or health insurance, medical underwriting may be used to examine the applicant's health status (other factors may be considered as well, such as age and occupation). The factors that insurers use to classify risks should be objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance program. The underwriters may either decline the risk or may provide a quotation in which the premiums have been loaded or in which various exclusions have been stipulated, which restrict the circumstances under which a claim would be paid. Depending on the type of insurance product (line of business), insurance companies use automated underwriting systems to encode these rules, and reduce the amount of manual work in processing quotations and policy issuance. y2.2 Underwriting actionAction Once a life insurance application is reviewed, it is then assessed in terms of the risk posed by the applicant. The proposed insured is classified into one of four risk groups: Standard risk- This is the 'normal' rating. Substandard risk- Can be accepted but at a higher premium rate. Declined risk- This is a risk that it too high for the insurer to accept Preferred risk- One that is granted a premium lower than the standard rate.
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Fig. 2.1 Classifications of Risk Group The result of life insurance underwriting is that an application is declined, deferred or accepted. With a deferral, the underwriter temporarily refuses to accept the policy until a particular condition is addressed. The applicant is free to reapply once the condition of concern is addressed. Once a policy is accepted, it can be accepted at a higher rate, standard rate or preferred rate. Life insurance underwriting is about safeguarding the insurer against anti-selection (the tendency of high risk groups to actively seek insurance). It also allows the insurer to select suitable risks in order to prevent guaranteed underwriting losses. Underwriting also serves to ensure that the insurer charges a premium that is related to the level of risk presented. Although some persons view the underwriting process cynically, it ensures that the risk that insurers accept is insurable. Life insurance underwriting is about risk assessment just as life insurance is about risk management. The premise for underwriting does not arise from the mere existence of risk, but from the reality that all risks are not equivalent. Since the premium level is associated with the risk level, life insurance underwriting is necessary to review each risk so that the insurer could apply a commensurate premium. Underwriting in a general sense is concerned with the insurer's risk selection. Insurers employ life underwriters to review life insurance applications. However, insurance agents or sales representatives often do the initial underwriting- , hence, they are referred to a 'field underwriters'. The insurer trains 'field underwriters' to ensure that only suitable risks are referred to the insurer's underwriting department for consideration. Life insurance underwriting is based on the hazards presented by an applicant. Physical hazards, moral hazards and occupational hazards are just some of the risk areas examined. Physical hazard refers to conditions of the body that increase likelihood of the insured's death. Moral hazard refers to the likelihood that the applicant may be seeking to gain unlawfully, speculate on the life of another or otherwise act dishonestly in applying for the policy. 2.3 Types of Underwriting Based on the hazards present, underwriting can be subdivided into following groups.

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1.2.3.1

Medical underwritingUnderwriting

This type of underwriting can take place with or without medical examinations. Sometimes, the underwriter requires a combination of warranties and representations from the applicant and medical tests. This depends of the applicant's age and coverage sought typically. Information such as family history and personal medical history will be sought in this phase. 2.2.3.2 Occupation/ Llifestyle underwritingUnderwriting

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The underwriter also requires basic information about activities undertaken for employment or enjoyment. Risky jobs include the armed services, pilots and construction. Activities that are considered hazards include racing and skydiving for instance. Lifestyle considerations may also include sexual orientation and drug use. Non-disclosure of such activities may constitute misrepresentation that can lead to an insurance contract being modified or cancelled. 3.2.3.3 Financial underwritingUnderwriting

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Financial underwriting involves the policy owner and insured (if the two are different persons). It is used to detect moral hazard and also to ensure that persons don't speculate on their own lives by taking out far more insurance than they deserve. y2.3.4 Medical Underwriting

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It is an insurance term referring to the use of medical or health status information in the evaluation of an applicant for coverage (typically for life or health insurance). As part of the underwriting process, health information may be used in making two related decisions: whether to offer or deny coverage; and what premium rate to set for the policy. The use of medical underwriting may be restricted by law in certain insurance markets. Where allowed, the criteria used should be objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect the long-term viability of the insurance system. The use of medical underwriting in the individual health insurance market has met with some controversy. While medical underwriting is designed to keep premiums as low as possible, critics say that the practice prevents some people with relatively minor and treatable preexisting conditions from obtaining health insurance. y Medical Underwriting in Health iInsurance underwriting

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Health insurance underwriting is the process that a health insurer uses to balance potential health risks in its pool of insured people against potential costs of providing coverage. To conduct medical underwriting, an insurer asks people who apply for coverage (typically people applying for individual or family coverage) about of pre-existing medical conditions. In India, insurance companies are allowed to ask questions about a person's medical history

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in order to decide whom to offer coverage, whom to deny and if additional charges should apply to individually purchased coverage. y Purpose Of Medical Underwriting

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From the insurers' point of view, medical underwriting is necessary to prevent people from purchasing health insurance coverage only when they are sick, pregnant or need medical care. This tendency is called "adverse selection," i. e, a system which attracts high utilization utilisation users while discouraging low utilizers utilisers from participating. Proponents of underwriting believe that, if given the ability to purchase coverage without regard for preexisting medical conditions (i.e., no underwriting), people would wait to purchase health insurance until they got sick or needed medical care. Waiting to obtain health insurance coverage until one needs coverage then creates a pool of insureds with "high utilizationutilisation," which then increases the premiums that insurance companies must charge in order to pay for the claims incurred. In turn, high premiums further discourage healthy people from obtaining coverage - particularly when they realize realise that they will be able to obtain coverage when they need medical care. y Significance of Medical Underwriting Medical underwriting is a critical part of the underwriting process for health and life insurance, because it helps assess the risk involved in insuring each candidate. Medical underwriters are responsible for evaluating each application to determine the effects of any pre-existing medical conditions that may interfere with the insured's coverage. Medical underwriters are trained to look for specific details before offering insurance rates or denying insurance coverage. y Functions of Medical Underwriters Insurance underwriters review and evaluate insurance applications to determine insurance risks, premiums, and extent of coverage according to company policies. They approve sales of insurance policies and ensure compliance with government regulations. Underwriters also provide recommendations on plan designs, provide underwriting advice, and answer inquiries from clients and from insurance agents, consultants, and other personnel. They use medical reports, rate tables and other reference materials to calculate risks, and evaluate new applications and renewals to work out the amount of premiums, the extent of coverage and other conditions of the insurance contract. . Other responsibilities include preparing underwriting reports and updating insurance forms. y Types Of Medical Underwriters Medical underwriters are typically involved in evaluating, reporting and analyzing risk factors of applicants and providing authorization for insurance policies and premiums. Career paths and job positions available to people who have completed a degree or certification in the field include: dental insurance underwriter; corporate insurance underwriter; medical case manager; insurance sales representative; and insurance recruiter. y Features Of Medical Underwriters Medical underwriters are responsible for calculating the risk involved in providing health insurance to individuals and establishing the rate for coverage. It is their responsibility to

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provide objective evaluations and fair coverage options, to make sure the insurance company will not be losing money by providing coverage for the individual, and that the insured will receive fair and appropriate coverage for the term of his contract. Underwriters are required to make sound decisions, communicate with insurance agents and applicants, explain underwriting policies, and authorize insurance policies.
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y Considerations in Medical Underwriting Medical underwriters typically complete a bachelor's degree in a health -related or business field and obtain work experience working for an insurance company. They may be involved in developing and implementing contractual underwriting guidelines and processes for insurance companies, consulting with physicians and doctors to review medical cases, resolving cases or lawsuits that require insurance coverage, and working with vendors in the industry. Supervisory and managerial positions may involve training a team of underwriters, setting company policies and providing professional expertise for certain cases and applications. 2.12.4 Underwriting Process

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The process of underwriting consists of following steps. y2.4.1 Evaluation of Documents The proposal papers will be complete when the proposal forms; medical examiners report, agents confidential report and personal statement are attached. In some cases medical examination may not be required. The questions in the proposal form must be answered with full honesty and no material fact should be concealed. The following particulars are generally required by the insurer y y Age, Sexgender, Height height and weightweight. Occupation: The detailed information can be asked about the occupation if considered hazardous like aviation, electrical and chemical industry. y Other Policies: The number and amount of other policies of the proposer.
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y Premium to be paid and income of the proposer should be consistent, i.e., ensuring that proposer will not have any problem paying the premium of the policy. y y y Proof of Date of Birth Risky habits of the proposer (Car racing etc) Alcohol intake (Excessive intake of alcohol may affect the death probability of the proposer) y y y Frequency of foreign travel Marital status and number of children of proposer Medical examiners report y

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y2.4.2 Classification and Review of Risk Once all of the information is available, underwriter from insurance company evaluates the data. At this evaluation, the underwriter wants to classify the risk attached to the proposal. If the risk is more than what the insurance company is willing to bear for that proposal, the application is rejected by the underwriter. If the risk attached to the proposal is within the limits acceptable to the company, the proposal is accepted. Then the underwriter decides the category in which the risk falls and premium to be paid is calculated accordingly. y2.4.3 Entering the Proposal in Proposal Register When the proposal is consistent with the rules and the company decides to accept the proposal it is serially numbered and entered in the Proposal Register and Review Slip is made. For every proposal a different file is made containing review slip and other particulars related to the proposal. y2.4.4 Sending Acceptance Letter The acceptance letter is sent by the insurance company to the proposer. The reminder of the payment of the premium due is also sent to the insured from time to time by the insurance company. 2.4.22.4.5 Issue of First Premium Receipt After the acceptance of proposal and payment of premium by the proposer, the insurance company will send First Premium Receipt to the proposer. 2.4.32.4.6 Policy Writing The policy is usually written in a special department whose main task is to issue written contracts in accordance with the instructions from the underwriting department. They also keep a register of policies for future reference. These days, insurance companies are using computers to keep records of clients, the payment of premium and other particulars. 2.22.5 Classification of Lives

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Let us assume that the underwriter receives 100 life insurance proposals for different products offered by the insurer. Out of these 100 proposals, 60 are such that the underwriter, during the assessment process; finds the individual proposed to be insured has no adverse features affecting mortality and other factors relating to insurability. In such cases, the risk is considered to be normal or standard or first class life. The premium charged would be as per tabular table for the age/ age group and term. However, if the proposal does not belong to the standard category; the terms of acceptance of the proposal would be different. The insurer in such cases, may decide to either decline the proposal (i f risk is considered too high); or he may accept the proposal with certain terms and modifications. The decisions discussed in the next section throw light on all possible actions the underwriter may take while assessing the risk. In our above mentioned example; if 25 proposals are categorised as sub-standard but acceptable either by loading premiums, or through modifications in terms and conditions, or any other decision (except decline); these proposals would be accepted if only the revised terms are accepted by the proposer. Thus, if due to extra weight, the premium is loaded by 20% (of tabular premium); and the same is conveyed to the proposer; if the proposer accepts the loading; the proposal will be deemed to be accepted by the insurer on the revised terms.

However, if the extra loading is not accepted, then the proposal is deemed to be declined as per the original terms and the proposer will get refund of the premium. Further, the 15 applications received out of 100; may be found to be very risky and almost sure of claim; and is rejected or declined by the underwriter. Thus, if the proposal itself contains declarations of major diseases such as cancer, AIDS, heart attack, stroke, etc; present or past; the risk is high and there is high chance of such proposals resulting in death claims in a short period of time. Such proposals are declined and premium paid refunded. The risk may either be declared through proposal or revealed through medical underwriting; where health, family history and habits may influence the underwriters decision. y2.6 Assessment of Risk and Underwriting Decisions After examining the data available, the Underwriter will make a decision about the level of risk in the particular case. If more that one adverse factor co-exists, the cumulative effect needs to be assessed. The underwriter need not be an actuary, but should be capable of interpreting data in the proposal papers in terms of risk. He may avail the assistance of the doctors, who have been associated with life insurance companies and have specialized knowledge about the effects of medical conditions on mortality. Insurers normally have such doctors called medical referees, on their panel. All medical examiners are not medical referees. In the case of very high SAs, the insurer may even refer the case to the specialists in the panel of reinsurers. The assessment of risk is mainly a matter of individual judgement. The assessment of risk is made looking at personal habits, family history and medical history. Family history may suggest the possibility of hereditary ailments. Surgeries and hospitalization will be looked into for possible recurrences or side effects. Experienced underwriters will be able to make judgements on the strength of such information and decide on the level of premium to be charged. On the basis of assessment of risk, the underwriter will decide on the acceptance of the proposal. The decision may be one of the following. y Accept as proposed at OR or (ordinary rates), which means that the life is assessed as Standard and the tabular rates can be offered. y Accept with Extra of (amount to be specified) per thousand SA. This means that the premium to be charged is increased by the amount of extra specified y Accept with the lien of (to be specified). This means that the life is not assessed as standard, but the risk is expected to wear off and does not justify an increase in premium. Instead the SA would be reduced in extent of the lien, if the death happens within the next few years. The lien operates only for a few years, not for a full term. It could be constant or could be decreasing (50% in the first year, 40% in the second year and so on becoming 0% in the sixth year). In childrens plan, the lien period operates upto age 7 of the child (100%), and thereafter becomes nil. Thus, effectively even if the child is insured, the insurance benefit begins only after the age of 7. y Accept with modified terms. This means the insurance would not be given for the plan and term proposed. A different plan or different term or a reduced SA or a combination of
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these, would be suggested as an alternative (the risk of insurance varies from plan to plan. The risk is more in a whole life plan than in the Endowment plan. The risk in an ordinary Endowment plan is more than in a Double Endowment plan or an Endowment plan with limited payments. A shorter term has less risk than a longer one) y Accept with specified clause which would be a clause excluding specific risks. Examples are first pregnancy or Flight as a Pilot. y Postpone for a specified period. In such cases, the proposal will be reconsidered after the specified period is over with a fresh medical report. This is done when some adverse factors are noticed which, is judged to be temporary and likely to wear off after some time; or which could become more serious after some time. y y Decline, which means that the risk is too heavy to be insured. The regulations issued by the IRDA require that the decision on a proposal must be conveyed to the proposer within 15 days. y2.7 Agent: Primary Underwriter Since it is the agent who first gets in touch with the prospective client, and it is the agent who has the first opportunity to assess the risk, he is referred to as field underwriter or primary underwriter. The agent is the person who brings the two main parties to the insurance contract together namely; the proposed life insured and the insurer. The agent, being an authorised representative of the life insurer, has a moral and legal obligation of true and correct disclosure of all the terms and conditions affecting the proposal. The agents role may come into play anytime during the underwriting process or even after the policy is issued; and especially during claims. The underwriting process is not over until the Agents confidential report is appended together with other requirements. The agents confidential report includes questions relating to the proposed life to be insured, his physical external health status, and other disease mentioned to the agent during the course of the meetings; or where the agent knows the proposed life insured, he needs to declare the number of years from when he knows the proposed life insured. Where, however, the agent is suspicious of some shortcomings and can assess the risk to be on higher side, he has a positive duty of reporting the same in the ACR. The responsibilities the agent has regarding the application include collecting information accurately and completely, educating the client on consequences of incorrect information and witnessing the clients signature on application. Agent is a person who has maximum information about proposer. He can collect more related information about perspective client. Therefore, he is required to pursue proposer to elaborate detail information in proposal form. It is the duty of agent to assess more and more information about client and note it in Agents confidential report. It is bounded duty of agent to inform insurer about any adverse information about client. Agent is supposed to inquire in close family and friend circle of client about the present health conditions, habits, financial stability and occupation, etc. and inform to the insurer accordingly. Thus, the role of agent is of prime importance. He should assess maximum information by various means. He should try to avoid adverse cases at his level. Agent practically acts as agent of client but in principle he is the agent appointed by insurer. Every agent should practice his role more accurately and in a professional way. It will help the insurer in generating business and reducing death claims.
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y2.8

Individual and Group Underwriting: Comparison

Individual underwriting refers to assessment of risk for the particular proposed life assured. However, group underwriting refers to risk assessment for the group as a whole. While individual insurance is a contract between the individual and an insurer, group insurance is a contract covering a number of lives. In Individual insurance, the individual chooses the plan, term and sum assured according to his needs and capacity to pay; in the group mostly uniform cover is granted depending on so many factors such as group size, occupation, profile including the death strain in the group, etc. The master policy is held by the employer, association, trust or other entity. Medical underwriting of individual lives is not necessary in group insurance. This kind of mass administration and simple underwriting practices lead to the low costs of group insurance. Group insurance is done on the basis of group profile, age groupings, professions, designations, grade, seniority, etc. Also, there is an element of experience rating in group underwriting where the premium rates are adjusted periodically on the basis of experience of the insurer towards losses. If the actual claim experience is better than expected, then the insurer makes an underwriting profit, and the same may be shared with the company by reduction in premiums or offering better benefits. This is called profit sharing. Thus experience rating is a vital means of adding flexibility to group underwriting.

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Group Lives Underwriting Group underwriting is normally done on a year to year basis. When the group scheme is renewed next year, the insurer gets a fresh data of additions and deletions of members in the group, and on that basis the group underwriting is done for that year. Since group underwriting is done on the basis of group profile and in each group there is a likelihood of a few substandard lives, the underwriter may go for a few safeguards such as the following: y The group should be reasonably homogenous by nature of occupation or profession or association of the members y Insurance should be incidental i.e the group should not have been formed solely for the purpose of insurance. It should already exist at the time of proposal. y The group should be dynamic, whereby the old members go out and new members come in periodically so that a proper age profile is maintained. y There should be a minimum size of the group to maintain proper financial viability.
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The insurer always has a right to call for medical examination if the sum assured exceeds the free cover limit or a particular life warrants a medical test. However, where an individual has been refused individual insurance cover, he may be included in the group insurance scheme

even if he is earlier rejected. Thus, group insurance is a means of financial compensation even for substandard lives. y2.9 Data Required For for Underwriting Assessment of risk cannot be done by just looking at the proposed life assured. Even a face reader or astrologer will not be able to say for sure if there is something missing. The process of risk assessment can be done only if there is sufficient data in the form of proposers own admission of facts, medical records or information available about his past and present health status, information relating to family history, occupation risks, habits and hobbies that significantly augment risk. Most of the material information that is required for the underwriting process is obtained through the proposal form that is filled by the proposed life assured. It is an application that states the medical and financial terms under which the insurer will have to decide on whether the proposal could be accepted or not. Since life insurance is based on the fundamental principle of utmost good faith, it becomes necessary that the proposer state true and correct facts and does not conceal or offer false information to the questions that are considered material to the insurance contract itself. The duty of disclosure applies to both the parties. Where the risk is apparently greater than normal, or where the proposer discloses a past or present disease or impairment or habit or hobby or adverse family history, the underwriter may want to assess the additional risk that arises out of the disclosure. In some cases, where the insurer randomly picks up proposals and subjects them to medical underwriting, or in cases where the underwriting guidelines make medical underwriting compulsory, the proposed life assured is requested to take a medical examination as per the underwriting guidelines. The medical report is confidential and sent to the underwriter. In case the underwriter needs more clarifications, he may refer the report to an independent medical examination and obtain special medical reports. The Insurance Act states that an applicant for life insurance is obligated to report all relevant information about their health and financials that will allow an insurance company to properly evaluate a potential insureds suitability for coverage. The applicant is required to provide 4 types of personal information on their application for insurance coverage: Details on income and lifestyle. Medical history of applicant. Medical history of applicants family. Hazardous occupation/activities.
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Fig. 2.2 Types of personal information required for Insurance coverage

A life insurance policy is referred to as a contract of uberrima fides. This term means in utmost good faith. The insurer depends on the applicant for complete disclosure. The range of negative consequences that can result from making misrepresentations on a life insurance application may range from a delay in approval or the voiding of the policy. Financial underwriting documents include salary statements, income tax returns, chartered accountants certificate, certificate of service/ employment if working. Other documents include Moral hazard report (MHR); Agents confidential report (ACR), Proof of residence and age, etc. All or some of these documents are required to be submitted along with the proposal form. Along with the required documents, the proposal has to be accompanied by the first premium either in cash, cheque or any other mode as approved by the insurer. Documents without consideration in the form of first premium will not be enough for underwriting. y2.10 Occupational Ratings
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The risk varies depending on the nature of occupation/ profession. The risk of a proposed life assured working in a mine is always considered higher than that of a salaried teacher working in a school. Since premium depends on mortality risk, in the former case the premiums will be loaded as compared to the latter case. Also risky hobbies and habits also qualify for extra loadings on base premiums. Some occupations that require extra premium loadings over the base tabular rates are as follows: y Amusement and Sports

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y The risk involved in the occupation is very high . Some of the examples can be listed as follows : 1. horse racing jockeys 1. jockeys (hurdles) 2. riding boys 3. gentlemen riders 4. trainers of horses 5. cinema stunt actors and coachers 6. polo players and instructors 7. professional athletes 8. theatre and circus artists 9. explorers

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y . Construction The risk involved in the occupation is relatively high . Some of the examples can be listed as follows : y 1. Steel erector 2. Painter 3. Tunnelling 4. Air compressor operator, civil engineer, structural engineer 5. Dumper, shovel driver 6. Conveyor operator 7. Power loader operator 8. Roof bolter 9. Timber man 10. 11. Borer Driller

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1. Tunnel miner 2. Tunneller using explosions y Climbing and Mountaineering
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1. These activities are usually hobbies undertaken by people and Iincludes all forms of mountaineering, rock climbing, and caving 2. Hill climbing trekking  3. y Drivers y Transport companies who have their goods transported from one place to another need to make sure that the carrier and passengers are insured as risk involved in transportation is high. 4. Public carriers (passenger or goods with national permit) All climbers and guides

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y Manufacturer y Manufacturing companies need to have their staff insured as they deal with explosive materials increases their risks. 5. Acid 6. Explosive and ammunition 7. Salvage operations 8. Handling explosives

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y Marine Industry y The industry comprises of officers in Navy and Seamen . 9. Persons employed in submarines, including war risk, commissioned officers and other ranks 10. 11. Drivers Merchant marine-employed in ships carrying oil and other inflammable

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products

y Oil and Natural Gas y These jobs are usually offshore jobs offered by oil and natural gas companies 12. Drilling assistance, fire fighters, mechanics, crane operators

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y Sewers and Sewage disposersDisposers

This type of occupation is undertaken by Muncipality workers which involves risks .Examples are as follows :

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y  13. 1. y Aviation This could be sports activities , occupation oe hobbies undertaken .Some of the examples are as under: Labourers and cleaners and inspectors of underground duties
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2. 3. Includes private and club aviation 1. Pilots with licence 2. Aerobatic flying, air facing 3. Ballooning, gliding 4. Paragliding 5. Parachuting 6. Sky diving 7. Bungee jumping 8. All motor sports 9. Motor cycle racing 10. 11. 12. 13. Sprint events Motor sports car racing Power boat racing and yachting Army, navy and air force personnel
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These are all typical groupings or occupations. Many new professions that are considered risky are also taken into account while underwriting the risk. Underwriters usually have standard loadings for each category of risky occupations and in some cases the risk is excluded. Thus, if the proposer states that his profession/ hobby is car racing, or bungee jumping; then the underwriter may charge extra loadings on the base tabular premium, and also include special exclusion stating that in case death happens as a result of the above

mentioned actions; the benefit will be excluded. In some cases, death benefit may be allowed, however the double accident death benefit may be disallowed as it falls within the exclusions.

Summary y y y y Underwriting is the process of selecting and classifying exposures. The agent being the most important part of the Insurance contract gets in touch with the prospective client first called as field underwriter or primary underwriter. The agent is the person who brings the two main parties to the insurance contract together namely; the proposed life insured and the insurance company. The agent, being an authorised representative of the life insurance company. He has a moral and legal duty of true and correct disclosure of all the terms and conditions affecting the proposal. The agents role may come into play anytime during the underwriting process or even after the policy is issued; and especially during claims. The Insurance Act states that an applicant for life insurance is required to report all relevant information about their health and financials that will allow an insurance company to properly. The applicant is required to provide 4 types of personal information on their application for insurance coverage which are medical history of the applicant, medical history of the applicants family, hazardous occupation and income and lifestyle details References Andrew G. Gordon, Inc. Insurance and Risk Management,Gordon G. Life Insurance Underwriting,2010,Available at <http://www.youtube.com/watch?v=tED0fkhTeY>>#_>[Accessed 24 June 2011] Blue Shield of California, 2006. Application and Underwriting Process Guide [online] available at http://www.consumerwatchdog.org/resources/BlueShieldUnderwriting.pdf [Accessed 21 June 2011 ] Dua, N., Life Insurance Unit 6, [online] available at <http://www.du.ac.in/fileadmin/DU/Academics/course_material/BI_03.pdf>[Accessed 21 June 2011 ] Mishra, K., Fundamentals Of Life Insurance: Theories And Applications,2010, [Book online],Available at <http://books.google.co.in/books?id=QNyL6eClk7kC&pg=PA204&dq=case+studies+on +underwriting+by+kaninika%2Bpdf&hl=en&ei=LUMHTtakFoTSrQed3bHIDA&sa=X& oi=book_result&ct=result&resnum=1&ved=0CDQQ6AEwAA#v=onepage&q&f=false, >[Accessed 21 June 2011] Principal Financial Group,Quinn, K.,Understanding Underwriting, 2010,[Video online ]Available at <http://www.youtube.com/watch?v=8vEjrgOD_40>#_>[Accessed 24 June 2011] Rohatgi, N., Insurance SYBFM,[online] available at <http://www.scribd.com/doc/36590750/108/The-Objectives-and-Principles-ofUnderwriting>[Accessed 21 June 2011]
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14. y

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Sadhak, H., Life Insurance In India: Opportunities, Challenges and Strategic Perspective, 2009, <http://www.amazon.com/Life-Insurance-India-OpportunitiesPerspective/dp/8178298465/ref=sr_1_1?ie=UTF8&s=books&qid=1309099821&sr=11#_>[Accessed 22 June 2011]

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Streissguth, T., How Do Underwriters Approve Life Insurance? [online] available at http://www.ehow.com/how-does_5727611_do-underwriters-approve-life-insurance_.html [Accessed 21 June 2011] Dua, N., Life Insurance Unit 6, [online] available at <http://www.du.ac.in/fileadmin/DU/Academics/course_material/BI_03.pdf>[Accessed 21 June 2011 ] Rohatgi, N., Insurance SYBFM,[online] available at <http://www.scribd.com/doc/36590750/108/The-Objectives-and-Principles-ofUnderwriting>[Accessed 21 June 2011] Blue Shield of California, 2006. Application and Underwriting Process Guide [online] available at http://www.consumerwatchdog.org/resources/BlueShieldUnderwriting.pdf [Accessed 21 June 2011 ] y Streissguth, T., How Do Underwriters Approve Life Insurance? [online] available at http://www.ehow.com/how-does_5727611_do-underwriters-approve-life-insurance_.html [Accessed 21 June 2011] Recommended Reading y Cummins, J. D., Smith. , B. D., Vance Vance, R. N., Vanderhel J.L., 2010.Risk Classification in Life Insurance (Huebner International Series on Risk, Insurance and Economic Security), Springer y George, H., Kilbo D.,Underwriting: What Every Producer Must Know,2009,,HGI Press y Trueh, .E. T., 2006 Approved: Untangling the Web of Life Insurance Underwriting - A Guide for Agents and Consumers. Outskirts Press y Trueh, .E. T., 2006 Approved: Untangling the Web of Life Insurance Underwriting - A Guide for Agents and Consumers. Outskirts Press y Cummins, J. D., Smith. , B. D., Vance Vance, R. N., Vanderhel J.L., 2010.Risk Classification in Life Insurance (Huebner International Series on Risk, Insurance and Economic Security), Springer

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y Self assessment Assessment 1. Which of the following statements is correct? a) Underwriter is a trustee of group of policyholders b) Underwriting is based on views and opinions of the underwriter c) Both statements are correct. d) Both statements are wrong. 2. Insurance works on the principles of___________. a) Mutual help b) Charity c) Mortality tables d) None of the above
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3. . Which of the following statements is correct? a) Underwriting is done only on medical cases. b) Medical examination is necessary in every proposal. c) Both statements are correct. d) Both statements are wrong. 4. . Insurance reduces burden on________________. a) Societysociety b) Individual individual family c) Business business houses d) All the above 5. . Which of the following risks can be met through life insurance? a) Providing for the family in the event of death b) To lead a comfortable life in old age c) Completing ones investment plans d) All the above y6. Special reports are called for by underwriters because of____________. a) Abnormality abnormality in health b) Risk risk in occupation c) In respect of both d) Neither of both y7. The primary underwriters who assess the clients risks first are___________. a) Nominee b) Insurance Agent c) Policy holder d) Insurance company

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Questions

What is Underwriting ? Explain the concept Of Underwriting? What is medical Underwriting? What is Health Insurance underwriting? What is the purpose of Health Insurance underwriting? What is the significance of Health Insurance underwriting? Bring out a comparision between Individual underwriting and Group Underwriting . What role does an Agent play as an underwriter ? Explain in detail the steps of Underwriting ?

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