Ihi Chpt 6 Underwriting Individual Health Ins.

Front 1

HI / DI Underwriting is Harder Than LI Underwriting, because (of):

Back 1

 multiple claims from various causes
 aggregate claims costs over a time period
 claim amount not known at issue
 higher frequency
 more variables to consider:
 Length of disability
 Ph’s Income
 Malingering
 Unemployment rates
 overinsurance
 Def’n of Disability is subjective
 Health Care is elective  antiselection
 Health costs vary geographically
 fewer statistics/actuarial studies available
 b/c large variety of health products
 changes in Medical technology

Front 2

THE COMPLETE HI / DI UNDERWRITING PROCESS

Back 2

Choose the Underwriting Method
Preliminary Screening:
Gather Information
Decide How to Issue the Policy
Consider Underwriting Factors
Consider the Type of Product
Use Reinsurance, if

Front 3

Choose the Underwriting Method

Back 3

 Guaranteed Issue
 Nonmedical Underwriting
 Paramedical Underwriting
 Medical Underwriting

 The Underwriting Method depends on the Marketing Strategy:
 Large Ers, and direct mail recipients, require guaranteed issue

Front 4

Preliminary Screening:

Back 4

 data-enter application info
 compile statistics (% never issued, % never paid for)

Front 5

Gather Information
(may be tested as “Sources of Information Available to the Underwriter”):

Back 5

 Ph’s application form, medical questionnaires, and doctor’s reports
 age, sex, medical history, occupation, location, smoking status, and hobbies
 Ph’s salary (for DI)
 Ph’s other income sources and other insurance covg.
 “Inspection report”
 APS
 Company’s internal files on this ph
 evaluate the agent

Front 6

Decide How to Issue the Policy

Back 6

 as applied for
 Refuse to issue unless...
 e.g. ph drops existing covg
 Decline
 NIAAF
 charge extra premium
 increase the elimination period
 increase the cost sharing
 Exclusion Rider

Advantages of an Exclusion Rider (as compared to Extra Premium)
 extra premium hard to compute
 Insured can lapse after a large claim, or WoP  extra premiums insufficient
 Exclusion Rider makes price lower

Disadvantage of the Exclusion Rider:
 Reduces the value to the insured  policy less marketable.

Front 7

Consider Underwriting Factors

Back 7

 Quote the entire General-Rating Factors list here

(But only include the ASHFILE OAF part; not the FEZ POT part. That’s for group insurance)

Front 8

Consider the Type of Product

Back 8

 The Underwriting Allowance for the product
 The Antiselection vulnerability

Underwriting MI
 Elective
 Especially Dental  most antiselective
 Many ph’s are overinsured
 older people have higher need


Underwriting DI
 The need for DI decreases with age.
 Def’n of Disability (own, any)
 Careful UW’ing large amounts (b/c of long payout period and COLA)
 (soon-to-be) unemployed ph’s have more claims


Underwriting Special Types of DI policies:
Business Overhead Expense (BOE) pays overhead if the insured gets disabled.
Disability Buy-Out pays other partners money to buy out the insured’s share.

Difficulties:
 Underwriting BOE policies
 portion attributable to the insured?
 accounting methods (overhead, depreciation)

 Underwriting Disability Buy-Out policies
 portion attributable to the insured?
 Face Amount can’t be greater than partners’ buy/sell agreement
 and must have same def’n of disability

 Underwriting Key-Man Disability policies
 what is the key man’s worth to the business? (look at salary)

 Underwriting Accident-Only Disability policies
 premiums are low  can’t do extensive UW
 focus on dangerous hobbies.

Front 9

RENEWAL UNDERWRITING FOR INDIVIDUAL HEALTH POLICIES
Renewal Underwriting of an individual policyholder occurs when:

Back 9

 Ph requests to improve his policy
 Ph lapses, then wants a reinstatement –
 < 3 months: just a questionnaire. >6 months: reunderwrite.
 Ph claims improvement in health
 sensitive situation: Balance safety with competitivity
 May have to drop exclusions/riders to prevent a lapse.
 Replacements


Done.