The Dangers Of 'Over Underwriting'

Although not the norm, some underwriters do “over underwrite.” One of the meanings of “over underwriting” is to place undue emphasis on a risk. It usually translates into asking for more than the necessary requirements to evaluate a risk in proportion to the amount of insurance requested for the proposed insureds age and medical history.

Here’s an example: A 65-year-old man, retired from the army for years of service (not medical reasons) who only suffers from treated hypertension. The underwriter has blood and urine results, the paramedical exam with blood pressure readings within normal limits for age and gender, and no family history of cardiac disease. Lets say this client wants $50,000 of life coverage. For this amount all the information at hand should be enough to make a decision, yet some underwriters would ask for an attending physicians statement (APS).

It would be unprofitable to ask for an APS on every small case when we can get a questionnaire to obtain the main medical information regarding diabetes, high blood pressure, hypothyroidism, and asthma among other impairments. Costs need to be contained.

There are cases where due to medical history or lab results, additional tests or even an APS will be required, but if the age and amount requirements are in hand, and are all normal, why go for more?

To be most effective an underwriter must be able to adapt to quick changes in his environment. Too many clients with a history of “coronary bypass” from one agent should raise a flag to consider asking for more information: APS, stress EKG, inspection. Non-medical applications from clients, who were charged an extra premium on prior policies due to medical history, call for a more detailed investigation.

Good judgment makes the difference.

Underwriting manuals are guides, not laws to be followed to a “T.” Some information in these manuals hasnt been updated for ages, and some of the rates suggested may be too extreme. Junior underwriters tend to apply ratings straight from the manual without taking into consideration other favorable factors. Thats why junior underwriters must refer all rated cases to a senior underwriter for review.

Sometimes its not the underwriters fault because he may just be following company guidelines and these differ from company to company.

While many use the same reinsurance manuals, its their internal experience, volume of business, target market and corporate culture that dictate the fine-tuning of their underwriting. One life insurer alone has 8 different classifications for life insurance on one of its products.

Some insurers are too conservative. Too many claims in a relatively short period of time will affect underwriting overnight. Underwriting meetings become frequent and sudden; poorly thought-out changes are made.

Sometimes it just generates a “heads up” call to be more careful when evaluating certain risks, other times it creates a tsunami of modifications (here’s where confusion sets in). Requirement tables get redone, older age applicants are considered more conservatively, and new sets of rules are added.