Three Stages of Underwriting
Stage 1 – Information Gathering
Various sources of information will be used to gather relevant information about the applicant; the common ones are listed
below:
| Source | Type |
|---|---|
| Applicant | Application form |
| Applicant Questionnaire; e.g. medical, occupations, sports, financial | |
| Little T (Formerly known as Tele Medical Interview [TMI]) | |
| Medical Professional | General Practitioner’s Report (GPR) |
| Nurse Screening Examination (NSE) – previously known as Paramedical Examination (PME) | |
| Medical Examination Report (MER) | |
| Specialist medical test; e.g. Electrocardiograph (ECG), Human Immunodeficiency Virus (HIV) test, cotinine test | |
| Accountant | Financial Questionnaires – personal or business |
| Specialist information; e.g. reports and accounts, Loan Offer Letters (LOL) |
Stage 2
The Underwriter assesses the presence of additional risk factors to arrive at the underwriting decision.
| Source | Type (where examples are given, they are not an exhaustive list) |
|---|---|
| Medical | Previous medical history |
| Current state of health; e.g. build, blood pressure | |
| Lifestyle and habits; e.g. smoking, alcohol consumption, drug abuse | |
| Family medical history | |
| Occupational | Type of work performed |
| Any special risks; e.g. working at heights or with explosives | |
| Hazardous Pursuits | Participation in dangerous pursuits; e.g. diving, mountaineering |
| Residence and Travel | Risk from current, future or past country of residence |
| Travel to dangerous places; e.g. war zones | |
| Consideration of current legislation | |
| Financial | Risk of fraudulent intent |
| Higher risk of claim or early lapse due to over insurance | |
| Affordability | |
| Combination Risks | Some risk factors are inter-related and the combination must be considered; e.g. smoking 20 cigarettes per day, slight obesity and family history of heart disease may be accepted at ordinary rates in isolation, but where all three risk factors are present simultaneously we may need to rate or even decline some types of cover |
Stage 3 - Decision
An underwriter is able to classify the additional risk as either increasing, decreasing or constant:
| Risk | Explanation |
|---|---|
| Increasing |
Risk tends to increase with increasing age
|
|
Example: overweight, high blood pressure, raised cholesterol
|
|
| Decreasing | Risk decreases over a period of time |
| Example: recurrence of a malignant tumour is high in the early years following initial diagnosis and treatment, whereas as time passes this extra risk decreases | |
| Constant | Risk remains constant throughout |
| Example: an aviation risk is standard irrespective of age and remains the same risk throughout the policy term |
The following types of decision are possible:
| Decision | Type |
|---|---|
| Ordinary Rates (OR) | No special terms applied; i.e. the applicant pays the quoted premium. The majority of applications are given ordinary rates |
| Mortality Extra | A percentage extra mortality is calculated; e.g. +100% extra mortality is double the standard risk |
| Monetary Extra | Some risks are priced according to the monetary extra premium. The extra premium is expressed as so much per £1000 of sum assured per month |
| Such extras may be charged for the duration of the policy or if the risk is likely to reduce, it may be applied for a limited period only | |
| Exclusion | If part of the risk is unacceptable, that element may be excluded |
| Combination | A combination of extra mortality, monetary extra and exclusion is possible for applicants with multiple risk factors or multiple types of cover |
| Postpone and decline | Risks that cannot be accepted at the moment are postponed; e.g. under investigation, awaiting operation or high short-term risk; e.g. very recent heart attack or cancer |
| Risks that are never likely to be accepted are declined; e.g. heart failure, permanent residency abroad. Only a very small proportion of applications are declined |
