Underwriting
The underwriting process
Underwriting assesses risk and decides whether to accept, decline, or accept on special terms. Candidates must know the application form, medical examination, attending physician's statement, financial underwriting, and attitude to risk factors. Understand standard, substandard, rated, and declined outcomes, and the use of exclusions, loading, and waiver of premium.
Risk classification
Know the main rating factors: age, sex (where permitted), health history, family history, occupation, hobbies, smoking, alcohol, and residence. Understand moral hazard and adverse selection, and the role of reinsurance in accepting large risks.
Traps
Questions often confuse declinature with postponement. Another trap is assuming a medical test is always required; underwriting is proportionate to the sum assured and risk. Watch for questions that treat an agent's knowledge as the insurer's knowledge.
Worked example
A proposer with controlled diabetes applies for 200,000 of term cover. The underwriter may apply a 50% extra mortality loading, so the premium becomes 1.5 times standard. If the sum assured were 1,000,000, the insurer might also seek reinsurance. Rule of thumb: load for the extra risk, then consider reinsurance for the size of the risk.
Key rule
Underwriting is evidence-based and proportionate: the higher the sum assured or the poorer the risk, the more evidence required.