Ch31: Underwriting

Question 1

Purpose of underwriting

Answer 1

SAFARI
1. suitable special terms
2. avoid anti-selection
3. financial underwriting
4. actual in line with expected
5. adequate risk classification to ensure all risks are rated fairly
6. identify substandard risks

Question 2

4 types of underwriting

Answer 2

1. medical
2. lifestyle
3. financial
4. claims

Question 3

Medical evidence sources

Answer 3

• questions on the proposal form completed by the applicant
• reports from medical doctors the applicant has consulted
• a medical examination carried out on the applicant
• specialist tests on the applicant

Question 4

Factors to consider when deciding on the appropriate level of underwriting

Answer 4

• the expenses associated with the level of underwriting
• the extent and financial significance of any potential anti-selection
• the interaction between the level of underwriting and the potential level of sales
• claims underwriting may deter people from taking up a contract
• the effectiveness of the proposed underwriting
• the more detailed the underwriting, the greater the homogenisation of the risk that may be achieved
• the impact of regulation
• interaction between underwriting level and terms offered by company’s reinsurers
• how to vary underwriting criteria

Question 5

How to limit risk of anti-selection on a group contract

Answer 5

• applying exclusions
• setting free cover limits
• ensuring members are actively at work when cover begins
• setting take-up rates on voluntary schemes
• laying down take-over terms where the insurer accepts a scheme previously insured elsewhere