15 November 2022 2 min read

πŸ”Ž πŸ”΄ Medical Underwriting | The single risk

Reinsurance Tutorials #17 - Season 2

Hi everybody πŸ‘‹

 

In life and health insurance, medical underwriting is the process of assessing the applicant’s medical history.

 

Its aim is to increase the Reinsured and Reinsurer’s knowledge of the risk portfolio.

 

Let’s start! β¬

Definition

Applied to credit life, individual or group life and critical illness coverage, medical underwriting consists of analyzing an individual risk profile, determining whether the profile complies with the conditions of coverage, if it may be accepted into the portfolio or not, and if so, under which conditions.

 

If accepted, the insured will pay the premium aligned with its risk profile and in consideration of the overall portfolio profile.

 

The nature of the coverage is also considered whether it be death, permanent or temporary disability.

 

Then, the applicant is invited to disclose its medical history to the insurer.

3 levels in this process 

There are three levels in this process:

  1. In a simplified medical underwriting process, the policy is issued on the basis of a good health statement. This simplified process is convenient when coverage is low.
  2. For higher coverage, the applicant must answer a medical questionnaire. He or she must answer all questions truthfully and completely. If not, he or she risks being refused compensation for claims and the health or life policy may be cancelled.
  3. A full medical underwriting process will be required if the applicant has a β€œrisky profile” due to his or her:
  • Pre-existing medical conditions (comorbid conditions such as diabetes, cancer, etc.). A pre-existing medical condition is a medical condition that the applicant had before issuance of the policy.
  • Occupation (a firefighter for example, a worker that needs to be expatriated to a country at risk).
  • Hobbies (such as skydiving).
  • Sum insured.

The company collecting the personal data and medical information must comply with data protection regulations.

 

The underwriting team

Medial selection requires a company to have a dedicated team of medical underwriters and doctors. Not all insurance companies have or wish to have such a team. Therefore, they may request the services of the Medical Underwriting Team of their Reinsurer. Moreover, even if the Reinsured has an in-house Medical Underwriting Team, the Reinsurer may want to be part of the medical selection process for certain pre-specified risks described in the terms and conditions of the reinsurance contract.

 

How does medical selection work? The Reinsurer:

  • Checks that the provided information and supporting documentation complies with the required checklist specified in the reinsurance treaty (called a medical grid). Most of the time, this medical grid defines the medical documentation required according to the sum insured and the age of the applicant;
  • Analyzes the information provided in this file. Further documentation may be requested if needed.

According to this information, the Reinsurer can:

  1. Accept the risk at the standard rate
  2. Accept the risk with an extra-premium. This means that a rate higher than the standard premium rate for someone in good health will be applied to the risk profile
  3. Delay the quotation
  4. Deny the risk

Pre-existing conditions are not usually covered.

Conclusion

Medical selection prevents a moral hazard from occurring. Medical selection prevents an applicant from purchasing insurance coverage only when he or she is ill or when he or she already benefits from medical care for a severe disease.

 

As such, medical selection protects the mutual coverage of individuals with life insurance. This is because it enables health and life policies to be used to cover only new and unexpected medical conditions!

 

Now you are an expert on medical underwriting process.

 

I hope you’ve found this video interesting! In the next video, Patrick will introduce our last topic, which focuses on the specialty lines.

 

Thanks for your attention!

 

Bye for now πŸ‘‹

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