1. Introduction:
1.1. The life insurance industry in India has been progressing at a rapid growth since opening up of private sector. The size of country, a diverse set of people combined with problems of connectivity in rural areas, makes insurance selling in India a very difficult task, so life insurance companies require good distribution strength and large manpower to reach out to such a huge customer base. Every risk involves a possibility of loss, which may be monetary or physical.
Even the physical loss may cause a monetary loss. Thus a person subject to a particular risk could incur a loss. If it is small, he can bear it. But if it is big and unforeseen, he may not be able to bear the loss himself. Therefore the function of insurance is to spread loss over a large number of persons who are also likely to face the risk. If all such persons, who are exposed to a particular risk, co-operate to share the cost of loss caused by that risk, the person who actually suffers the loss will get relief.
Therefore when the insurers cooperate and devise a way to spread the loss that occurs to a particular person, we call it as an insurance device. So insurance is a cooperative device to spread the loss caused by a particular risk over a number of persons who are exposed to it, and who agree to insure themselves against that risk.
1.2. Life Insurance Underwriting is the process of accepting the proposal of the customer based on the guidelines formulated by the insurance company. The insurance companies codify a set of procedures which must be followed before accepting any new business. When a new proposal comes to the insurance company its underwriting department scrutinizes the proposal whether or not it fulfills the criteria laid down by the company. If they find any lacunae they ask the agent to get it corrected. It is not that one can get whatever cover one wants.
The issue of policy depends on income of the insured and whether he has the capacity to pay the premium over the years. Once the underwriters are satisfied that all the conditions have been fulfilled they go ahead to accept the premium and issue the policy. Thus the Life Insurance Underwriting can be defined as the decision making process during which the Life Insurance Company decides whether to insure or not and if yes at what rate – whether applying discount or loading on the normal & existing premium rate of the proposer / assured.
2. Underwriting of Insurance Policy:
2.1. Commonly insurance is known as a social device in which a group of individuals (i.e. insured) transfer risk to another party (i.e. insurers) in order to combine loss experience, which permits statistical prediction of losses and provides for payment of losses from funds contributed (i.e. premiums) by all members who transferred the risk. The insurers resort to underwriting which is the process of classifying the potential insured into the appropriate risk classification in order to charge the appropriate rate. Since insurance involves –
i) A large group of people or organizations who are exposed to similar risks;
ii) Each person or the organization that becomes an insured to transfer risk to the whole group (i.e. pooling of risk), as evidenced by an insurance contract issued by an insurer;
iii) The systematic accumulation of funds through the statistical prediction of losses and calculation of premiums;
iv) Payment of losses in accordance with the terms of insurance as a legal contract.
Insurers, therefore, need to discriminate (i.e. classify) exposures according to expected loss. This gives the importance to underwriting of any risk. An underwriter decides whether or not to insure exposures on which applications for insurance are submitted. Again to insure the risk – under what terms and conditions and whether loadings or discounts are to be applied.
2.2. Distinct procedures of underwriting – There are two separate procedures –
(i) Group underwriting and (ii) Individual underwriting. For group underwriting – the group characteristics, demographics, and past losses are judged. Because individual insurability is not examined, even very sick people such as AIDS patients can obtain health insurance through a group policy in India and even in international parlance.
Whereas for individual underwriting, the insured has to provide evidence of insurability in areas of health insurance or specific details about the property and automobiles in for property/casualty lines of business. An individual applicant for the health insurance must be approved by the health insurance company underwriter, a process that is specific to recognise the hazards associated with a person. Even for a person entering in health insurance after attaining the age of 50 years (& above) pre-acceptance Medical check-up (at their own cost) for blood/urine sugar, blood pressure, echo-cardiograph and eye-check including retinoscopy – all has now become mandatory.
2.3. Adverse selection – The most common risk of Indian Life Insurance underwriting is adverse selection. If the two groups of dissimilar risk exposures were charged the same rate, problems would arise. Basically the rates should always reflect average loss costs. If we cover more number of perils (i.e. causes of losses) or more hazardous life assured – the rate should increase. The insured even knowing that they represent higher risk but always want to enjoy lower rates.
This phenomenon of selecting an insurer that charges lower rates for a specific risk exposure is known as ‘Adverse Selection’ because the insured know they represent higher risk, but want to enjoy lower rates. Adverse selection occurs when insurance is purchased more often by people/organizations with higher than average expected losses than by people/ organizations with average or lower than average expected losses.
That is, insurance is of greater use to insured whose losses are expected to be high. So it is desired in underwriting that insurers may simply charge higher premiums to the insured with higher expected losses. Here comes the problem of intense competition in this free market underwriting. Often, however, the insurer simply does not have enough information to be able to distinguish completely among insured. Furthermore, the insurer wants to aggregate in order to use the law of large numbers. Thus, some tension exists between limiting adverse selection and employing the law of large numbers.
Adverse selection, then, can result in greater losses than expected. Insurers try to prevent this by learning enough about applicants for insurance to identify such people so they can either be rejected or put in the appropriate rating class of similar insureds with similar loss probability. In this fierce competition in Indian General Insurance market, underwriters have practically very limited scope in this direction where the demand is to match the market or to quote for becoming L1.
Some insurance policy provisions are designed to reduce adverse selection. The pre-existing condition provision in health insurance policies is designed to avoid paying benefits to people who buy insurance because they are aware, or should be aware, of an ailment that will require medical attention or disable them in the near future.
It is, therefore, desired by the underwriters that the insurance device should be suitable to all pure risks but ironically as a practical matter, many risks that are insured meet these requirements for insurability only partially or, with reference to a particular requirement, not at all.
Thus, in a sense, these requirements to be listed & be described the ideal requisites for insurability which would be met by the ideal risk. No insurer can safely disregard them completely. Any risk that is perfectly suited for insurance in Indian market would basically need to meet the following requirements:
1. The number of similar exposure units would be large.
2. Losses that occurred would be accidental.
3. A catastrophe needs to be a remote possibility.
4. Losses would be definite and the probability distribution of losses would be determinable.
5. Insurance coverage cost would be economically feasible.
Point number 5 influences the consumer demand for insurance and looks at what is economically feasible & viable from the perspective of potential insured. Other requirements (i.e. 1 to 4) influence the willingness of insurers to supply desired insurance cover.
2.4. Large Base – Insurance organization prefers to have a large number of similar units while insuring a possible loss exposure. The concepts of mass and similarity are thus considered in underwriting (i.e. before an insurer accepts a loss exposure). Some insurance is sold on exposures that do not possess the requirements of mass and similarity, but such coverage is the exception, not the rule. The major requirement for insurability is mass; that is, there must be large numbers of exposure units involved. More is the base more safe is the insurer – the impact of larger number of exposures are always preferable.
2.5. Similarity – The loss exposures to be insured and those observed for calculating the probability distributions must have similarity. The exposures assumed by insurers are not identical in reality, no matter how carefully they may be selected. No two persons are identical, even though physically they may appear to be same. They cannot have identical diseases, and perhaps more importantly they are occupation-wise different. Nevertheless, the units in a group must be reasonably similar in characteristics if predictions concerning them are to be accurate. For example, persons in a same factory should have same exposure hazards.
Moreover, probability distributions calculated on the basis of observed experience must also involve units similar to one another. Observing the occupational injuries and illnesses of a group of people whose age, health, and occupancies were all different would not provide a basis for calculating the life insurance premium rates. For example, clerical work typically involves much lower probabilities of work related loss than do occupations such as logging timber or climbing utility poles. Estimates based on experience requires that the exposure units observed be similar to one another. Moreover, such estimates are useful only in predicting losses for comparable exposures.
2.6. Measurement of possibility – The risks assumed by an insurer must involve only the possibility, not the certainty, of loss to the insured. Losses must be accidental or fortuitous; that is, they must be a matter of chance. Ideally, the insured should have no control or influence over the event to be insured. In fact, this situation prevails only with respect to limited situations. Tangible/physical and also the intangible hazards influence the probability of loss. Prediction of potential losses is based on a probability distribution that has been estimated by observing past experiences. The use of such estimates for predicting future
losses is based on the assumption that future losses will also be a matter of chance. If this is not the case in reality in line with the basic assumption – predictions cannot be accurate. In India where there is tremendous political & social turmoil – there is a possibility of some adverse variation.
2.7. Catastrophic Loss exposures – The possibility of catastrophic loss may make a loss exposure uninsurable. A catastrophic potential to an insurer is one that could imperil the insurer’s solvency. When an insurer assumes a group of risks, it expects the group as a whole to experience some losses – but only a small percentage of the group members to suffer loss at any point of time.
Given this assumption, a relatively small contribution by each member of the group will be sufficient to pay all the losses. It is possible for a large percentage of all insureds to suffer a loss simultaneously; however, the “relatively small contributions” would not provide sufficient funds. Similarly, a single very large loss would also require large contributions.
Thus, a requisite for insurability is that there must be no excessive possibility of catastrophe for the group as a whole. There must be limits that insurers can be reasonably sure that their losses will not exceed. Insurers build up surpluses (net worth) and contingency reserves (i.e. funds for future claims) to take care of deviations of experience from the average, but such deviations must have practical limits. If losses cannot be predicted with reasonable accuracy and confidence, it is impossible to determine either insurance premium rates or the size of surpluses required.
Catastrophe losses may occur in two circumstances. First, all or many units of the group are exposed to the same loss-causing event, such as Mumbai flood, terrorist attack, or earthquake. For example, if one insurer had assumed the risk of damage by wind (cyclones) for all persons of Andhra Pradesh area, it would have suffered a catastrophic loss in 1986 where many people died simultaneously (and in fact several insurers had to withstand collosial losses). This is an example of dependent exposure units. Exposure units are dependent if loss to one affects the probability of loss to another.
A second type of catastrophe exposure arises when a single large value may be exposed to loss. September 11, 2001, represents the ultimate catastrophic loss. Tremendous value was concentrated in the towers of the World Trade Center. The possibility of a man-made catastrophe of such magnitude was not anticipated. Private insurers stopped short of calling the terrorist attacks as “acts of war” – which would have been excluded from coverage-and had to honour paying for the dead, injured & assured ones under their issued Life Policies covering the people working in the World Trade Center and paying for all the lives of the victims finally.
However, one consequence was the industry’s action to immediately exclude terrorism coverage from new policies. The National Underwriter article “Check Rearview Mirror on Terrorism Risks” pointed out that one of the immediate reactions to mega-catastrophes has been retrenchment in the policies provisions provided by primary insurers and re-insurers. When insurers and re-insurers (the insurers of life insurance companies) see the peril as having a far higher probability than previously perceived, they know that they can no longer accurately predict future losses, and their immediate reaction was to exclude the peril/ risk.
However, because of regulation and oversight, the industry cannot make policy changes instantaneously. When insurers can no longer provide coverage, a solution is the creation of governmental pools, such as federal flood insurance created in USA. After September 11, 2001 many solutions using pools were proposed and accepted in America and finally on November 26, 2002, President George W. Bush signed a Terrorism Insurance bill in USA – as an effort to come out of it.
2.8. Determinable Probability Distribution: For any exposure to loss to be insurable, the expected loss must be calculable. Ideally, this means that there is a determinable probability distribution for losses within a reasonable degree of accuracy. Insurance premium rates are based on predictions of the future which are expressed quantitatively as expected losses. Calculation of expected losses requires the use of estimated probability distributions.
These probability distributions based on experience are useful for prediction, however, only when it is safe to assume that factors shaping events in the future will be similar to those of the past. For this reason, mortality (death) rates during times of peace are inappropriate for estimating the number of insured deaths during times of war. Similarly, the introduction of new technologies such as foam blanketing makes past experience of fire damage a poor indicator of future experience.
Yet because the technology is new and no theory exists as to what the losses ought to be, the actuary has little information on which to base lower rates. The actuary must use subjective estimates as well as engineering information to develop proper rates. Here comes the greater role of the underwriter – first to collect data in this direction and then to pass on the same to the appointed actuary of his company.
When probability distribution of losses for the exposure to be insured against cannot be calculated with reasonable accuracy, the risk is uninsurable. An example of purported un-insurability due to inability to predict losses is the nuclear power industry. In West Bengal, when a chemical hub is being constructed (even involving American Company “DOW”- famous for preparing poisonous gel during Vietnam war) without any pollution control measure – situation may further deteriorate.
3. What is a ‘Life Insurance Underwriter’?
3.1. Life Insurance underwriters are employed by life insurance companies to help price various types of life insurance and also considering the health insurance cover, accident benefits, even incapability to earn and loss of income, etc. among others. Underwriters use computer programs and actuarial data to determine the likelihood and magnitude of a claims payout over the life of the policy. Evaluating an insurer’s risk prior to the policy period and at renewal is a vital function of an underwriter.
Now-a-days Indian Insurance Companies walk a tightrope between being too aggressive or too conservative in their underwriting duties. If they are too aggressive, greater-than-expected claims could cut into company earnings; if they are too conservative, they will be out priced by the competition and lose business. Underwriters must analyze numerous rating factors while developing premium rates. Not every risk can be measured objectively. Life Insurance Pricing is subject to underwriting discretion that typically accompanies systematic rating methodologies.
3.2. Medical stop loss underwriters assess risk based on the individual health conditions of self-insured employer groups. Stop loss insurance is placed to protect groups that pay their own health insurance claims for employees, rather than paying premiums to transfer all risk to the insurance carrier.
3.3. Self-insured entities pay medical and prescription drug claims plus administration fees out of company reserves and assume risk posed by the potential for large or catastrophic losses such as organ transplants or cancer treatments. As such, these underwriters must assess individual medical profiles of employees who have emerging or pre-existing medical conditions. Underwriters also assess the risk of a group as a whole and calculate an appropriate premium level and aggregate claims limit which, if exceeded, may cause irreparable financial harm to the employer.
3.4. If you’ve ever filled out an application for any sort of insurance, you’ve faced questions that the insurance company uses to determine the level of risk you pose, your premiums and the extent of coverage for which you are eligible. The person who reviews and evaluates your responses is an insurance underwriter. This job requires a thorough, decisive person with excellent analytical skills. If you have a background in finance and an eye for detail, you may want to consider insurance underwriting as a career.
3.5. To “underwrite” means to accept liability for possible losses by clients. As such, underwriters view new proposal or renewal cases for insurance coverage, both for individuals and/or group policies issued to various corporate / companies. With the help of computer programs, life underwriters determine the risk involved in insuring a particular person or members of a group policy issued to a company and calculate the appropriate premium for the amount of coverage requested.
These are important decisions, as insurance companies assume billions of rupees of risk each year – if the life insurance underwriter is too conservative, concerned life insurance company may lose business. If as an underwriter, he or she is too generous, the company may have to pay excessive claims.
3.6. Underwriters work for insurance companies and are typically located at the company’s headquarters or a Regional Office or in a Divisional or Branch Office. Underwriting is usually a desk job with a standard 40-hour work per week, although overstay sometimes may be required as determined by each underwriting project. Computer software systems are used to analyze and rate insurance applications, make recommendations based on the life or health risk and adjust premium rates according to this risk exposure.
3.7. Underwriting Opportunities: There are many lines of insurance for life insurance underwriters to work in, but the main categories are:
1. Life insurance – mainly;
2. Health insurance – as a rider to the basic cover;
3. Mortgage insurance – whenever the life insurance policy is sought as the collateral security against a house-building or similar other loans.
3.8. Working as an underwriter differs depending on the type of insurance because of the types of clients the underwriter will work with and the risks that are assessed always & obviously differ from case to case. Most life insurers (as the employers for the underwriters) prefer candidates with a college degree or professional designation and some insurance-related experiences/exposures.
A bachelor’s degree in almost any field may be sufficient to qualify a person to begin a career as an underwriter, but Life Insurance Company – i.e. the employers here, will probably prefer applicants with completed coursework in business, law and accounting or work experience in the insurance and related underwriting fields.
3.9. The most important underwriting skills are learned on the job. As such, many underwriters begin their careers as trainees or assistant underwriters. During this time, they help collecting and evaluating pertinent information on clients, but are supervised by an experienced underwriter in his/her own organization/firm. Some large life insurance companies offer comprehensive training programs for their selected trainees (i.e. for the ‘would be Underwriters’).
These training program / schedule typically include study and the gradual assignment of more complex tasks. Strong computer skills are essential to a career in underwriting. As such, on-the-job computer training tends to continue through an underwriter’s career as the programs that these professionals use are continuously & consistently require updated and data analysis / synthesis at the actuarial end needs to reach the underwriters.
4. Certifications that are required for the Underwriters:
4.1. As with other careers, certifications can improve earning power for insurance underwriters and open up new opportunities for advancement. Underwriters with experience and additional designations may advance to senior underwriter and managerial positions, although some employers require a master’s degree to achieve this level.
Field Certification Organization
Life Insurance Registered Life Underwriter
Health Insurance Registered Health Underwriter
Commercial Associate in Insurance Commercial Underwriting
4.2. The average annual earnings for life insurance underwriters is Life Insurance Companies are good and the insurer may also provide above-average benefits such as retirement plans and, of course, excellent group life and health insurance. Salary, incentives and coverage of the costs of tuition for courses that as a trainee the person (i.e. the Underwriter) requires to complete may also be offered. The underwriter is selected finding where the concerned person is fit in his/her working world that can involve considering a number of variables, but as the underwriter he / she must be a detail-oriented, obviously an analytical person who likes to put the pieces together to solve a problem – then only, insurance underwriting may be a career for him/her.
5. Requirement for the Underwriting Process:
5.1. Since life insurance is a financial contract, and a long-term contract and that a contract which may come to be executed when one of the parties to the contract may not exist and may be called up to a court of law in case of dispute in future, it is essential that all the terms and conditions of the contract must be clearly understood and put in writing legibly. Looking at the importance of the contract combined with the raised expectation of a benefit which is still in the womb of a promise, unstinted trust should be created in the mind of the insured so that he remains confident of its benefit and continues to perform his part of the duty during the continuance of the contract.
5.2. The proposal form, as prescribed by the insurer for the type of insurance that the prospect has agreed to buy, must be appropriately selected. The proposer, must go through the proposal column by column, appreciate the meaning and importance of information sought and fill it up legibly and completely. Hyphens and oblique, dittos and blanks should be avoided as they are likely to be misunderstood or can be misused. An incomplete proposal leads to further queries and in the process a lot of valuable time and effort is wasted. While different insurance companies will have different formats for the Proposal Form the points on which information is sought, are substantially the same.
Wherever medical report is required, the medical examiner is required to endorse the answers to the questions relating to personal history and personal health as stated in this form. If no medical report is required, the life proposed has to give additional information about his physical measurements as required. However, most insurers insist upon medical reports only in cases where either the sum assured is very high, or the life proposed is beyond certain age limit or the plan of insurance carries a lot of risk element.
However it is sufficient to state here that a medical report has to be given by a company approved medical examiner. Medical examination has to be conducted at a well-equipped clinic. A lady life has to be examined by a lady doctor only. The medical examiner should not be related to the life proposed and the report should be submitted confidentially to the insurer who pays for the medical examination. However, if the prospect decides ultimately not to go ahead with the completion of the proposal, he bears the cost of the medical examination and the initial deposit is refunded less this cost.
5.3. Every insurance company has its own policy as to the need for the medical report and therefore company rules must be consulted before taking the life proposed to the doctor. The insurer may also ask for special reports like X-ray, ECG, and Blood Sugar Test etc. after examining the proposal. There are also standard rules for obtaining these reports depending upon age at entry, sum under consideration or personal history of illness etc.
These circumstances are provided in the company manual. The cost of these special reports is initially paid by the prospect but it is reimbursable by the insurer, after the proposal is completed. The rates of payment for these reports are fixed by the insurers in advance and these reports are confidential and are the property of the insurer irrespective of who ultimately pays for those reports.
A host of other documents are required depending upon special need. While the prospect has the obligation to disclose all information about him relating to his health, habit and occupation, the agent has the responsibility of being circumspect, see the overall posture of the prospect, to note any obvious physical deformity, appearance and physical environment of his residence or work place to know about his financial standing.
5.4. The amount of Insurance should commensurate with the income. Too much of insurance may mean a propensity to die early either due to an undisclosed disease or suicide, due to financial problem or family circumstances. Technically this is called moral hazards, which can be uncovered by diligent enquiries made about the prospect by the agent.
‘Personal statement regarding health declaration’ This statement is required at the time of revival of a policy either with or without a medical report depending upon the duration of policy-lapses and physical condition of the life assured.
However if there is a delay in completing the proposal say 3 months to one year, the insurer may ask for a statement in the prescribed form.
Queries regarding occupation – This statement gives a complete picture regarding the extent of hazard, if the life to be assured is engaged in any hazardous occupation like electrical industry or mining or chemical industry etc. If a policy is to be taken under Married Women’s Property Act 1874, to secure the policy money against all other claimants to the estate, prescribed forms are used depending upon the number of beneficiaries and trustees. For the revival of a children’s policy, a separate health declaration is required.
5.5. Classification of risks:-
The Life Insurance underwriting involves classification of risks affecting the policyholders. The factors that affect risk on the life of an individual is known as hazard. The hazard may be classified as:
1) Physical
2) Occupational
3) Moral
6. Selection of Plan and Term:-
6.1. The plan should be carefully selected taking into consideration the special need of the life to be insured. A plan well selected generates lot of goodwill for the company which means a lot more business, a lot more income.
6.2. Term of course means the period of the plan after which it matures for payment. Here again the need of the proposer alone is to be considered. Term also determines the rate of commission to the agent, but this is of no consideration while canvassing insurance plan and term.
7. Objects of Insurance:-
7.1. Objects of insurance can be family provision or old age provision etc. Irrespective of what is stated here, the payment of claim money is decided by the nature of the plan of insurance purchased. There are plans specially designed to provide for the marriage of the female child, maintenance of a handicapped child, a child’s insurance to give him the benefits of lower premium etc. Therefore the object stated must match the plan selected.
7.2. An endowment plan benefits the family in case of early death of the insured, when the claim money is paid in a lump sum. In case of maturity also, the money is paid in lump sum. However, it is also possible to opt for installment payment of the lump sum money, in the shape of a pension if option is so exercised in good time, say one year in advance. It is called “settlement option”.
A danger inherented in lump sum settlements is that it is most flexible in the hands of the receiver, but that the money may be mismanaged, poorly invested or spent foolishly. The surviving beneficiaries of the family need a guaranteed income rather than cash. Of course it is possible to purchase an annuity policy with the cash amount available, even if no such advance arrangement has been made.
8. Sum Proposed:-
8.1. This is the amount insured and is paid as claim money either on death or maturity along with bonus or guaranteed addition etc. as per the conditions of the policy. As stated earlier, life insurance is not a contract of indemnity and therefore, the claim amount is not related to the financial status of the life assured.
In case, the prospect finds it difficult to pay the required premium for a certain sum assured, who is proper, the agent can select a plan, which permits high sum assured with a low premium like a convertible whole life policy. Alternatively he may keep in continuous contact with the life insured to sell him additional insurance, whenever, his financial situation improves.
8.2. In any case, everybody needs a review of his insurance cover from time to time at least for two reasons – Firstly the income goes up along with the liability in course of time and secondly the continuous inflation in the market, reduces the money value of the insurance over time and therefore additional insurance has to be purchased, at least every five years, to maintain the value of sum assured, at the original rate planned for.
For example, the sum assured of one lakh taken today may find it worth only if compared in terms of its purchasing power ten years from now. The problem is, that as people pay more for goods and services and as their income and wages rise, they often do not increase the life insurance protection to compensate for the other changes. An
agent would do well to appreciate this for continuous business.
9. Accident Benefit:-
9.1. This part refers to the double accident and permanent disability benefit and for this a small extra premium is charged. There is a normal provision for disability benefit allowed in all policies for free and the benefit relates to the waiving of all future premium after the total permanent disability has been caused due to an accident as defined hereafter within stipulated period of the accident and provided the policy is in force.
9.2. The Double Accident and Permanent Disability benefit has two parts – one relating to death due to accident and second, permanent disability suffered due to such accident. The benefit payable on the death of the life assured is an additional sum equal to the sum assured, provided the policy was in force at the time of accident and the bodily injury has been sustained directly due to an accident caused by an outward, violent and visible means and the death has been caused solely, directly and independent of all other intervening causes, within the stipulated period, due to the bodily injury.
Thus the definition of accident excludes self injury, attempted suicide, insanity, immorality or when the life assured is under the influence of any liquor, drug etc. The injury suffered by a person while flying in any capacity other than as a passenger without any duty on board is also excluded. So also injury caused during riots, civil commotion, war, mountaineering etc. or while the life assured is committing any breach of law or while in the employment of the armed forces or navigation.
9.3. As a general rule, whenever an extra premium is charged due to the hazardous nature of occupation this benefit is excluded, in case the death or disability occurs due to such occupation. So also life assured with physical impairment.
The children, male or female are not granted such benefit. Normally an exclusion clause is inserted in the policy document in all such cases. The permanent disability benefit is the payment of a sum equal to the sum assured, in monthly installments spread over a period of years. However, if the policy becomes a claim either due to death or maturity, before the expiry of specified years, the balance installments are paid with the claim.
9.4. The second benefit in case of permanent disability in the way of waiving the payment of future premium to the extent of a sum assured specified. To be eligible for the aforesaid benefit the disability must be the consequence of an accident as defined above and must be total and permanent.
In other words the disability must completely disable the life assured from following any occupation or profession in order to earn his livelihood. The insurer must be informed about the happening of this disability with such proof as required and the insurer has a right to examine the disabled person through a medical examiner. However any wrong payment on this count is recoverable by the insurer.
10. Mode of Payment of Premium:-
10.1. This is an important aspect of selling life insurance because the immediate sacrifice of cost burden to the policyholder can be regulated by selecting carefully the mode of installment payment. In the prospectus, the insurer prints only annual premiums and if the mode of payment is chosen yearly, a rebate in premium is allowed.
10.2. In case the mode selected is half-yearly lesser rebate is allowed. Quarterly rate is exactly one fourth of the published annual rate. Monthly installments invite 5 % extra. The reason is the higher administrative cost to account for more frequent payments. Many prospects may find it difficult to pay annual premium in one go.
Resistance to sale becomes less, if payment amount can be divided in a number of installments. However, there is a danger of forgetting such frequent payment causing policy to lapse. It is in the interest of the agent and of the policyholder to ensure that the policy does not lapse due to non-payment of premium.
10.3. Modes of payment like payment by bank on a scheduled date or loan from P.F. A/C is other alternatives. For those who are in secured jobs with reputed companies including government, payment of premium through salary savings scheme is possible. In such a case the insurer and the employer enter into an agreement whereby the employer agrees to deduct the premium from the salary of the insured employee who accordingly authorizes the employer for the deduction and the employer remits a consolidated amount with a demand note to the insurer.
10.4. However this mode of premium payment is not free of its complications. The employer as a third party is involved in payment of premium and thereby keeping the policy in force.
If for some reason which may be anything from non-payment of salary to negligence or misappropriation or financial problem of the employer the instalment of premium does not reach the insurer and the claim arises there is a real problem leading to misery and litigation.
In Salary Savings Scheme for keeping the policy in force utmost vigilance on the part of the agent and policyholder is the price to be paid for. From time to time, it has to be assured that premium is being deducted from salary regularly and it is sent to the insurer with clear identification of each policyholder with policy number and salary number.
10.5. Every employer is given a Paying Authority Code at the time of entering into the contract. Similarly each employee has a salary roll number or a badge number by which he is identified by his employer and the department must have a code number for immediate identification.
At the time of the proposal a special form in the form of a letter addressed to the employer is signed by the insured employee authorizing the employer to deduct the premium from his salary and remitting to the insurer every month. He undertakes not to revoke this authority to the employer.
This authority should be irrevocable just to ensure that insurance premium must get paid regularly without any interruption, which may mean lapse of risk. This scheme has the greatest advantage of being uninfluenced by the temptation to spend the money if the money comes in hand.
11. Declarations:-
11.1. At the end of the proposal, the proposer makes three declarations which make the answers in the proposal the basis of the insurance contract:
1. The proposer guarantees as to the truthfulness of the information so far it is within his knowledge. Thus the foundation of the basic principle of “utmost good faith” is laid and the breach of it makes the contract void.
2. The proposer authorises the doctor to divulge all information known to him about the health and habit to the insurer whenever necessary. Thus a doctor giving such information to the insurer at any time, either at the time of proposal or at the time of claim, cannot be held guilty of divulging any confidential information.
3. The third declaration relates to a period between the date of signing the proposal and acceptance of the risk by the insurer. This is a period during which the underwriter has not yet seen the proposal and has, therefore, not undertaken any risk. Any un-favourable incident during this period shall, therefore, materially affect the decision. The proposal is to be signed in the presence of a witness because that is the legal requirement to enter into a contract.
12. Basic Qualities / Acumen Required for an Underwriter:-
12.1. As an underwriter we all yearn to be a winner and crave for success but yet it may often seem to evade us. So the underwriter must thrive on the following perspectives:-
1. Always be confident about yourself- Look at yourself positively and evaluate yourself realistically and always up-date yourself with the recent changes brought in / circulated by your employer.
2. Be willing to perform better & work on your strength – Your burning desire to know the tricks of underwriting and your strength that you assimilate and positivity in your approach would definitely help you throughout your life as the underwriter.
3. Learn from each loss – Losses are a part of life of the insurers. So instead of just be careful & thinking about how wrong things may crop up, it is important to try and determine what went wrong and what could have been done to avert it. Learning from each setback is very important as that one can avoid similar difficulties in future.
4. Be a problem solver – Problems in underwriting will be kept coming up. However, just pondering over them would serve no purpose. Instead the underwriter needs to look at solving those problems with innovative strategies that works for him/her.
5. Be keen to take guidance of underwriting from the seniors (as it is a must) – Taking help from the Seniors / more experienced underwriting personnel does not make the underwriter less than anyone but it serves to gather more knowledge, experience and exposures for him/her.
6. Don’t avoid responsibility – Not wanting to take more risk in the underwriting process would not help the underwriter to be a winner – rather he /she must go for as much as he/she may proceed.
7. Be a team thespian – The underwriter must work in tandem with the advisors / marketing people to accept and grab the life proposal when received from the assured as this will invariably help him/her to learn more and obviously will help to increase the productivity of the Life Insurance Company -if the underwriting process goes smoothly. Working as the underwriter for your employer, you need to achieve the best ever possible to generate underwriting profit.
8. As an underwriter always have a vision for your own blooming – Work towards realizing your ideas and try & achieve your goals which will boost you high moral and also provide you the greatest sense of accomplishment in your role thus played.
13. Conclusion:-
13.1. The proposal form is the first document filled in and signed by the proposer with all relevant information. The insurer considers this information and accepts the risk, with suitable conditions. The proposer replies to all the questions honestly and truthfully lest the claim when it arises is not paid. This information relates to his own personal health and family history. Age proof is important. He must nominate somebody to receive the claim when he is no more.
Accident benefit is a rider which is available on payment of a small extra premium. While accepting proposal of insurance from a female life that is not self-earning, the insurer is more circumspect. Agents’ confidential report helps the insurer to select a good life for insurance.
Advance payment of premium is a must for the insurer to even consider an insurance proposal. The agent plays important role from the time of canvassing a proposal to the date of payment of claim whenever it arises.
Reference:
From various contemporary text materials available on-line & also in hard copies.
