Health Insurance Underwriting

HEALTH INSURANCE
UNDERWRITING
CHARAK RAY
libra.charak@gmail.com
AGENDA
 UNDERWRITING IN HEALTH INSURANCE

 INDIVIDUAL UNDERWRITING
 GROUP UNDERWRITING
 UNDERWRITING SUPPORTED BY IT- SYSTEM
 PRACTICAL EXAMPLES FROM INDIA
UNDERWRITING IN HEALTH INSURANCE
 Underwriting refers to evaluation of risk & exposures of clients.
 They decide how much coverage the client should receive, how much they should pay for it, or
whether to accept the risk & insure them or not.
ADVERSE SELECTION & MORAL HAZARD
 Adverse Selection & Moral Hazard is more likely than in other classes of Insurance because here what
happens one cannot know, anyone health status by just observing until he had undergone some
medical tests. So, people do some kind of moral hazard or take policy because they know that they are
suffering from some kind of diseases.
 Moral Hazard can be done in different ways like over cautious behavior & treatment, non- disclosure of
pre-existing conditions, submission of invoices for uninsured persons, attempts to influence doctors,
hospitals, etc.
WHY IS UNDERWRITING ESSENTIAL?
IT IS ESSENTIAL IN HEALTH INSURANCE BECAUSE
 To arrive at risk commensurate premiums based on Equivalence Principle (= Congruence of

Performance & Counter Performance). [ i.e. to calculate the premiums according to the risks. Example:
{HIGH RISK => HIGH PREMIUM, LOW RISK=> LOW PREMIUM}]
 To develop a Profitable Portfolio which supports competitiveness of standard Insurance Premium. [ i.e.
to provide profit to the insurer by scrutinizing the proposals. {Example: ACCEPTANCE, DENIAL OR
ACCEPT WITH EXCLUSIONS}]
HUMAN PSYCHOLOGY
 “People tend to palliate their health status at the point of application.”
 “People are more likely to know when they will get sick than when they will die.”
 “People can easily influence the time & scope of treatment.”
NOTE:- From the above statements, we can conclude that people are nervous at the point of application
of treatment, eager to know about their sickness than death, & they can also influence the doctors &
scope of treatment.
INDIVIDUAL UNDERWRITING
 Individual Underwriting refers to Retail Medi-Claim Products.

 So, Individual Underwriting is necessary for standard Premium Calculation, i.e. only the General
(Statistical) Risk circumstances are taken into account, which as a result represents the “Average Sick
or Healthy Person”.
 Therefore, each individual risk has to be evaluated separately by considering the following:-
(a) Adverse Selection
(b) Possibility of Moral Hazard
(c) Excess- Morbidity Risk & Additional
RISK IS ASSESSED ON DIFFERENT FACTORS
1. AGE- It can be categorized into 2 groups i.e. Below 45 years & Above 45 years.
In Below 45 years; risks are less, so no need of Medical Check- Up. In Above 45 years; risks are more,
so, Medical Check- Up is mandatory.
2. SEX- In Sex-Category; ailments, types & intensity differ in both genders.
3. PROFESSION- Here risks differ such as People working in Cotton Industries, Sports Personalities, Top
Management (Stress & Tensions) & Labours in Production department.
4. HEALTH STATUS- Here risks depends on past & present health of an Individual.
5. FAMILY HISTORY- It provides a rough idea about the health status of an individual & in some products, it
helps in providing basis for loading.
ADVANTAGE OF QUALIFIED MEDICAL-UNDERWRITING
(A) FOR THE POLICY HOLDER

1. Fair Underwriting Process
2. Full Protection
3. Prompter Payment in the event of claims: (reduces Point of Claims Underwriting to non- Disclosure
cases)
(B) FOR THE INSURER
4. Less Administrative work in the event of a Claim
5. Risk- Adequate Premium
6. Better Portfolio Performance
7. Less “Negative Press”
GROUP UNDERWRITING
 Group Underwriting is a Customized-Based benefits designed as per the requirements & coverages needed by the
Corporate/ Business Organizations, where there is a Employer- Employee Relationship.
 RELEVANT ITEMS FOR GROUP UNDERWRITING
1. Size of the Group
2. Type of the Group
3. Geographic Distribution of Employees
4. Type of Industry
5. Sex & Age Distribution
6. No. of Dependents, including Spouse & Children
7. Salaries of Insured Group
8. (Policy Holder/Employer)‘s Administrative facilities
INDIVIDUAL UNDERWRITING V/S GROUP UNDERWRITING
1. Individual Underwriting is underwritten according to the Individual risk of the Insured Person
WHEREAS,
Group Underwriting is underwritten according to the structure & needs of the Insured Group
2. Individual Underwriting is Analytical, based on Medical Tests

WHEREAS,
Group Underwriting is virtual, based on an Average & last year’s data.
DETECTING AN OBJECTIVE RISK...
CLAIM FREQUENCY
3.5
2.5
1.5
0.5
0
00-35 36-45 46-55 56-65 66-70
Metro Non-Metro
EFFECTS OF INSUFFICIENT UNDERWRITING…
BURNING COST
9
0
00-35 36-45 46-55 56-65 66-70
INDIVIDUAL GROUP
DETECTING AN OBJECTIVE RISK…
BURNING COST
10
0
00-35 36-45 46-55 56-65 66-70
Male Female
UNDERWRITING SUPPORTED BY IT- SYSTEMS
 A consistent underwriting approach at point of application is in our point of view one important key to
create profitable health insurance business.
 Only an IT- Based Assessment System can “Guarantee” a Consistent Approach, so that we can access
& check the previous data at any point of time.
 Our preference is clearly a Rule Based System. We can deviate our rules for maintaining consistent
underwriting profit.
1. For a Centralised Underwriting (integration as ‘BLACK BOX’ into an existing IT-Environment or as
simple as a PC stand alone solution)
2. At the Point of Sale (PC-Solution) or at Branches (Client- Server) or for Direct Selling via Internet.
UNDERWRITING SUPPORTED BY IT- SYSTEMS
Knowledge Creating Systems (Actuarial Approach)

 Lack of data & often too small database for reliable results.
Rule Based Expert Systems (Knowledge Based Systems)

 High Flexibility: Good Controlling & transparency of Data.
 Self Learning Systems

 There is a high risk of : Garbage In -> Garbage Out.
 Lack of Transparency on decisions.
THANK YOU…

Health Insurance Underwriting

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What are the different types of underwriting discussed in the document?

What are some factors considered during individual underwriting?

HEALTH INSURANCE

 UNDERWRITING IN HEALTH INSURANCE

 Underwriting refers to evaluation of risk & exposures of clients.

IT IS ESSENTIAL IN HEALTH INSURANCE BECAUSE

 To arrive at risk commensurate premiums based on Equivalence Principle (= Congruence of

 “People tend to palliate their health status at the point of application.”

 “People can easily influence the time & scope of treatment.”

 Individual Underwriting refers to Retail Medi-Claim Products.

(A) FOR THE POLICY HOLDER

2. Individual Underwriting is Analytical, based on Medical Tests

Knowledge Creating Systems (Actuarial Approach)

Rule Based Expert Systems (Knowledge Based Systems)

 Self Learning Systems

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