What Is Insurance Underwriting, and How Does It Work?

Whether you’re applying for private medical insurance or life insurance, you will need to fill out a medical questionnaire detailing your medical history and lifestyle habits as part of the application procedure. After you submit this information, your insurance company will evaluate it in a process known as underwriting.

In this article, you will learn what underwriting is, when underwriting is necessary, what happens during the underwriting process, what details underwriters review, and the different kinds of underwriting decisions and outcomes.

What is underwriting?

Underwriting is the process through which an insurance company evaluates your medical history, assesses the risk you present as a potential client, and determines your insurance eligibility and the cost and extent of that cover. Basically, underwriting helps the insurer make a risk assessment based on how likely you are to make a claim.

In the context of health insurance, underwriting allows the insurance company to assess the risk of illness or injury. For life insurance, underwriting helps assess the risk of early death.

When is underwriting necessary?

Underwriting is usually required in the following scenarios:

• When you apply for a new insurance policy
• When you apply to reinstate a lapsed policy
• When you wish to make changes to an existing policy (e.g., upgrading, adding a family member, adding an optional benefit, lowering your deductible)

When you apply for medical insurance, the underwriting process helps the insurer ascertain how to manage any pre-existing medical conditions you might have (such as cancer, asthma or hypertension); they can determine whether to exclude them from cover altogether or include them at a higher premium.

Steps in the underwriting process

The following section will outline and explain the steps of the underwriting process.

Step 1: Apply for insurance

When you apply for individual or family medical insurance, you’ll be asked to fill out an underwriting questionnaire about your medical history and general health habits.

If you’re applying for life insurance, you’ll need to disclose your medical details and also provide information for a financial needs analysis. Note that if your coverage exceeds a certain amount, for example, US$500,000, some life insurance companies may require you to complete a full medical examination and speak to a nurse. In this case, if you didn’t qualify for insurance or you didn’t take it, then you would pay for the medical examination yourself. If you did take the life insurance, then the insurance company would pay for the exam.)

Because insurance is based on the principle of utmost good faith, it is critical to provide information as truthfully and accurately as possible. During your application, you must fully disclose your medical history. Failing to do so amounts to non-disclosure, which may result in your insurer rejecting your claims or terminating your policy. If you’re not sure if a piece of information is material, it’s better to disclose it than to leave it out.

See the section below, “What do underwriters look at?”, to find out what kinds of details you will need to disclose.

Step 2: The underwriter reviews your information

The task of underwriting is done by the underwriter, who works for the insurance company. Once the underwriter has received your information, they will analyze it using their company’s underwriting guidelines, which are set by actuaries. Thanks to data analytics tools and software, the underwriting review process has become more and more efficient over time.

Sometimes the underwriter might follow up with you to request further information or ask you to undergo a medical examination.

Step 3: The underwriter makes an underwriting decision

After analyzing your health data and risk factors, the underwriter will decide whether or not their company will offer you cover, along with the associated premiums, loadings or exclusions.

What do underwriters look at?

Here are some of the details underwriters will look at in your medical history. Some insurers will want to know your full history, while others may want information stretching back several years. Typically, this history goes back a fixed span of time, for example, five or ten years.

Medical details and history

Your insurer will want to know about any diagnosis you have had, so you will need to specify if you have had any of the following conditions:

• Cancer, tumors, growths
• Lung or respiratory disorders (e.g., asthma)
• Heart conditions, circulatory disorders, raised blood pressure
• Immunodeficiency disorders (e.g., HIV/AIDS)
• Diabetes or glandular disorders
• Arthritis
• Epilepsy, seizures, nervous system disorders
• Skin conditions (e.g., eczema)
• Congenital conditions
• Pregnancy
• Family medical history (including any diagnosis and age of onset, as well as the age of death of any close blood relation like a parent or sibling, especially due to a medical condition)

Your insurer will also want to know about the treatment and care you have received, such as:

• Prescriptions and treatments
• Hospital admissions
• Regular or ongoing consultations with a medical professional
• Ongoing medical investigations (e.g., diagnostic tests)

Age, height and weight, lifestyle

In addition to your medical history, your age, build and lifestyle are all considered risk factors to the insurance company. They will want to know details regarding the following:

• Age
• Height and weight (this determines your body mass index, or BMI, which indicates whether you are obese, overweight or underweight)
• Smoking habits
• Alcohol consumption habits
• Use of drugs not prescribed by doctors
• Participation or plan to participate in hazardous sports or activities (e.g., skydiving, rock climbing)
• Occupation (e.g., healthcare workers have a heightened risk of contracting tuberculosis)
• Future travel plans (risk factors include political instability, health risks and access to medical facilities)

The older you are, the higher your premiums will be. If you are obese, you have a heightened risk of heart disease, high blood pressure and cancer, for which you will need regular medical care; this will also be factored into the insurer’s decision, likely driving up your insurance premiums. And if you’re a smoker, you can be sure that you will have to pay higher premiums than a non-smoker.

The Standardized Underwriting Questionnaire from the Hong Kong Federation of Insurers (HKFI) will give you a good idea of the information you might need to provide for medical insurance.

Financial needs analysis

If you are applying for life insurance, you’ll be asked to fill out a financial needs analysis (FNA) form. The insurer is required to obtain enough information from you so that they can conduct the FNA, assess if you are over- or under-insuring yourself, and recommend the most suitable insurance products to you.

The FNA may ask for the following details:

• Your objective(s) for buying insurance (e.g., financial protection, preparation for healthcare needs, investment, retirement income, education fund, etc.)
• Your desired protection period
• Your monthly disposable income
• Your liquid assets
• What percentage of your monthly disposable income you would be willing to use towards paying for insurance premiums
• The amount of time you would be able and willing to pay insurance premiums
• Source of funds for paying for insurance premiums, before and after retirement (e.g., income, salary, savings, pension, investments, rental income, etc.)

What are the possible outcomes of the underwriting process?

After analyzing your medical history, the underwriter will arrive at the underwriting decision. They will either approve, decline or postpone their decision about your application for insurance.

Approve your application

If your application is approved, the insurance company will offer you the standard policy, a policy with exclusions or a policy with premium loading, depending on your health declarations.

• Standard: The insurer offers your coverage at a standard rate.
• Exclusions: The insurer offers you coverage, but with exclusions for certain medical conditions, such as any pre-existing conditions.
• Premium-loading: The insurer offers you coverage that includes pre-existing conditions in exchange for a higher premium.

Decline your application

If, during the underwriting review, your insurer determines the risk of providing you with coverage is too high for them to bear, then they will decline to offer you cover.

Decision postponed

An insurer might postpone their underwriting decision if you are scheduled to undergo a medical investigation or surgery, or if the results of a medical investigation have not come back yet.

Another reason for postponement might be that the underwriter deems the risk too high at the moment but thinks it might improve after a specific period of time.

How can I get a lower insurance rate?

If you’re still young and healthy, now is the best time to get health insurance. By getting medical cover early on, you can lock into the right cover at a lower premium. That’s because the older you are, the likelier you will have health conditions that would expose you to a higher risk of exclusions or pricier premiums.

Although risk factors like age and family medical history are impossible to control, you can control your behaviors, which can improve your health and may even help bring down your insurance premiums.

Here are some things you might like to try to achieve a healthier lifestyle.

• If you are a smoker, quit.
• If you consume large amounts of alcohol, drink in moderation.
• Eat nutritious foods and get regular exercise.
• Refrain from engaging in dangerous activities like skydiving and rock climbing.

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