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You could be forgiven for
asking, “what is underwriting and why does it matter to me?”
After all, most of us have no idea what happens to our
application form when it goes to a life insurer for assessment.
And yet, this is a crucially important
element of buying an insurance policy like Life Cover or
Critical Illness Cover.
Because the answers you
give on your application form allow the insurer to assess
whether you are a higher than average risk to them.
The terms of your insurance cover and the
price you pay will be based on the answers you give them.
Forgetting to include
information or leaving out information that you think isn’t
important could mean that your policy won’t pay out when you
make a claim. If, for example, your GP has told you that your
blood pressure is a bit high but you don’t mention it on your
application form, this could be treated as non-disclosure when
you come to make a claim. The
implications of this could be catastrophic.
The insurer could refuse to pay your claim
and that could mean unexpected financial hardship, especially if
the insurance was there to pay off the mortgage on the family
home.
On the surface,
underwriting seems quite a simple process.
Insurers ask you to complete an application
form. The form asks lots of questions
that are designed to capture the information they need to build
a clearer picture of you, and the factors which might increase
the likelihood of you making a claim.
They will consider factors such as health, occupation, family
health history, interests and lifestyle.
How long an insurer takes to process the
application will depend on whether the underwriter can make a
decision based on the answers in your application form, or
whether they need to ask for more information.
Depending on your answers
to the questions the insurer asks and the amount of cover you
want to buy, the insurer may ask for a report from your GP .
In some cases they may ask you to have a
medical or undergo some tests. Once
they have all the information they need, the insurer will make a
decision on how much your plan will cost. For example, if you’re
a fit and healthy 30 year old and you don’t smoke, you can
expect to pay less than a 50 year old smoker with health
problems. This risk assessment happens
in all insurances. A teenage driver with little road
experience, should expect to pay much more for their car
insurance than a 40 year old who’s been driving for years.
The Disability
Discrimination Act was introduced in the UK in December 1996.
This Act makes sure that the underwriting process is fair and
equitable. Insurers can’t refuse or
limit cover based solely on physical or mental impairments.
Underwriting decisions must be based on sound
actuarial principles or actual or reasonable anticipated
experience.
Problems arise because
most of us don’t understand the underwriting process.
We know very little about the many factors
that make one person a higher risk than another.
This means that we don’t understand why
underwriters need to ask us so many seemingly, intrusive
questions. We also don’t understand
the relevance of the questions and the importance of the answers
we’re being asked to give.
Both insurers and advisers
have a significant role to play in reducing the risk of
non-disclosure to an absolute minimum.
Insurers need to make sure that their application forms are
totally clear and easy to understand so that consumers do not
inadvertently non-disclose. Whereas
advisers need to make sure that you, our clients, understand
that withholding information or even just forgetting to include
it, could ultimately lead to a situation where a claim on
a policy is refused.
We want to arrange your cover as quickly and
as easily as possible and at the best possible terms, but please
bear in mind that completing the application form as accurately
as possible is crucial to the process.
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