Ask Dalene Underwriting understanding the process

Why are clients with seemingly similar applications charged different premiums? Dalene Allen,
underwriting expert and co-founder of specialist long-term risk cover provider, Altrisk, answers this underwriting question brokers often grapple with.

It is common knowledge that the premium offered to a life insurance applicant depends on his or her risk profile and that this is influenced by his or her age, gender, health, occupation and avocation pursuits or hobbies. What many people do not understand is the process used to assess the risks applicable to individuals and I am often asked why clients with seemingly similar applications are offered different premiums. To answer this question one needs to understand the underwriting process.

Risk assessment

In its broadest sense, underwriting is a form of risk assessment aimed at ensuring that applicants are charged the correct premium in relation to their effect on a pool of lives. It involves collecting and analysing information particular to each applicant to assess his or her life expectancy compared with the standard expected by actuaries.

Initial screening

The first screening is of the application. Underwriters use the details provided to make initial assessments based on medical information, financial evidence, legality of reason, ethical motivation, occupation and avocation pursuits.

They are then in a position to identify what (if any) additional information is required. For example, applicants with identified health problems are often requested to provide more detail, including date of diagnosis; fist symptoms; last symptoms; treatment; hospitalisation; time off work; etc, and to undergo specialist medical tests.

Relation to the norm

This input is used to assess the individual's position in relation to the norm. For example, the profile of an individual diabetic of a particular age and gender will be compared with the profile of a standard diabetic of the same age and gender to determine how far off the average he or she is.

Premium calculations

The premium is then set based on the individual case.

Premiums are not set arbitrarily. There is a clear objectivity to the process which is based on actuarial projections, medical evidence and anticipated claims experience. In the end, applicants with seemingly similar applications are charged different premiums, because their risk profiles have been assessed as different.

Without insight into the specific risks within a client's medical profile, brokers are in the dark. One way of addressing this is for brokers to obtain permission from their clients prior to discussing the underwriting decisions with the underwriter concerned.