1. Arun is recently appointment as an underwriter in an insurance firm.

His manager asks

him to prepare a short note on the steps he would follow in the process of underwriting.
Help Arun to prepare his notes.

Answer: Underwriting is the foundation of an insurance process. The success of an insurance

plan is assured only if the insured admitted in the pool pay a fair premium and the spread
between the best and the worst risks in a particular group is not very large so as to result in
inequity. An insurance company looks at various factors while underwriting insurance
applications. The information provided by the individual in the application form helps the
underwriter in deciding whether to provide coverage or not. Besides individual factors, there are
other personal, medical and financial factors that play an important role in evaluating a risk. No
insurance company would like to cover a risk which is a confirmed loss and, as such, all
prudence is exercised at this stage of underwriting to select and classify the proposed risk and
weed out undesirable risks. The role of an underwriter in any insurance company is thus to
closely examine the application for insurance and decide on the acceptance or rejection of risk.
He also needs to determine the extent of the coverage to be offered and the terms of coverage
that would be applicable to the life, thereby avoiding any adverse selection.

Underwriting is a process of accepting a risk, analyzing the risks, framing terms and conditions
and deciding the chargeable premium rate. It needs to know the risk features and factors of every
risk offered for the acceptance of the insurance proposal. Risk analysis determines the physical
hazards and inherent moral hazards attacked to the cover of the products. Steps of risk
management are adopted for underwriting purposes. Safety audit, staff drills, investigations and
remedial steps are taken to prevent recurrence of risk. Moral hazard is minimized by staff-
relations, compliance with legal enactments and effectiveness of corporate governance.

Underwriting process which should be followed by Arun

Field Underwriting
Field underwriting is the process of screening applicants and gathering initial information about
a proposed insured. It refers to information-gathering activities used by an agent or a telephone
representative to determine an applicant’s suitability for insurance coverage. This is either done
by the appointed advisor or the agent procuring the business or when a proposer for insurance
himself calls an advisor after reading through the promotional material and being satisfied with
the product offered. Both the situations can be understood with the following examples. An
insurance agent learns of a prospective purchaser of life insurance and arranges a meeting
wherein they determine the need for insurance. If during the discussions, there is any contrary
indication that a person or group represents an inappropriate risk, the agent may discourage the
prospect from applying for the coverage, thus saving the insurer the expense of evaluating that
risk.

Reviewing the Application (Proposal Form) for Insurance

After field underwriting is complete and the agent sends the application (proposal form) to the
insurer, the underwriting staff assigns the case a number or code for identification and tracking
purposes. The application form is by no means uniform in its content, but it is primarily divided
into two parts wherein Part I contains questions regarding name, address, occupation, sex, date of
birth, name and relationship with beneficiary, amount of insurance required, riders required,
financials, etc. Part II of the application involves answers to questions on medical history, past
and present state of health, surgical operation, use of tobacco and alcohol, family history
regarding illness, etc. This form is then scrutinized manually or through an automated checking
process to verify that the application form is in order and also to make a preliminary scrutiny to
check the identity of the client as well as to know the customer better. The factors such as the
place of residence, the amount and type of coverage applied for, the income as to the proportion
of existing cover, personal and family history, occupation, etc., are scrutinized to check if any
moral hazard is posed in the insurance cover.

Gathering Additional Information

To assess some cases, the underwriter needs more additional information. The additional
information required could be as small as the response to a single question that was left blank on
the application or as extensive as the results of a complete medical examination. As the amount
of requested information increases, so does the cost and the time required to obtain and assess
the information. For each insurance product, most insurers develop a table of underwriting
requirements to specify the kinds of information needed by the underwriter to assess the
insurability of a proposed insured. Generally, applications that represent a greater degree of risk
require greater amounts of information for underwriting.

Making an Underwriting Decision

Underwriting in life insurance is subjective to each application or proposal. The principle of
utmost good faith assumes all the more importance in this area as the insurer has absolutely no
opportunity to know the past history and in some cases even the present condition, unless the
proposer voluntarily discloses several traits. As such it is important that the proposer presents a
totally comprehensive and realistic picture of his or her health status and the other relevant areas
so that the risk projected by him or her is commensurate with the premium that he or she is going
to pay.

Underwriting guidelines provide direction to underwriters on the various issues that have to be
evaluated with respect to each type of insurance. While continually assessing risks, the
underwriter becomes familiar with business related information, special risk evaluation and
medical information. Depending on the type and amount of coverage and the underwriter’s
experience, the line underwriter’s decision may be subject to review by a more experienced
underwriter, an underwriting manager, or in some cases, the insurer’s medical director. The
extent of autonomy granted to underwriters to take decisions will differ with the position, level,
grade and experience of the underwriter. The chief underwriter is the overall in-charge who
oversees an insurer’s underwriting activities. He is considered an expert in risk selection, and is
also quite knowledgeable about claim handling and customer service. The chief underwriter is
responsible for monitoring the cost and quality of underwriting, including making decisions on
vendors and services the insurer uses to obtain medical information and inspection reports. He
also serves as a liaison officer with the insurer’s reinsurance arrangements.

2. The global market for private health insurance is being disrupted at the same time
growing rapidly. Keeping in view with the current scenario of health insurance in India.
Discuss the future aspects of Health Insurance market in India.
Answer: The health insurance industry would provide protection to social development. The
insurance industry should come forward to provide health to the masses like life insurance and
property insurance. The Government provisions for health have not succeeded for want of
initiative on the part of government officers and beneficiaries. It is hoped that commercial bases
of health insurance will be more suitable for betterment of people’s health. There is a need of
products, designs, structural facilities and sustainability of insurance products. Adequate
environment is to be developed for the introduction and development of health insurance.

Health insurance is a form of protection that lessens the risk of financial problems by dividing
losses among many individuals. It includes both medical expense insurance and disability
income insurance. It works in the same way as life insurance, homeowner’s insurance and
automobile insurance. You pay the insurance company a specified premium and the company
guarantees you some degree of financial protection.

Health is wealth, they say. With hectic schedules, late hours, rising pollution, food contamination
and fast-paced lifestyles among others, health has become a major concern like never before in
this country. It is common knowledge that while the overall life expectancy has increased in
India courtesy advanced medical facilities, the number of diseases affecting the young populace
have also been on the rise in the past decade or so. While the causes for a decline in the overall
standard of health may be varied and debatable, there’s no denying the need for health insurance
across various age groups. With medical inflation, many citizens are increasingly turning to
health insurance policies to avoid huge medical bills during emergencies. Time and tide wait for
no one, goes the old adage. The right time to buy a health insurance policy is the moment you
realise that your health costs may only escalate in the future owing to the overall rise in the cost
of living among other factors. The sooner you realize the truth, the better it is for you. In other
words, you should buy a health insurance policy at a young age to avail of many benefits.

The different types of health insurance coverage are:

Group health insurance - : Group plans comprise more than 85 per cent of all the health
insurance issued by health and life insurance companies. Most of these plans are employer
sponsored and the employer often pays part or most of their cost. Group insurance will cover you
and your immediate family. Group insurance seldom requires evidence that you are insurable if
you enroll when you first become eligible for coverage.
Individual health insurance - Individual health insurance covers either one person or a family.
If the kind of health insurance you need is not available through a group or if you need coverage
in addition to the coverage a group provides, you should obtain an individual policy- a policy
tailored to your particular needs – from the company of your choice. This requires careful
shopping, because coverage and cost vary up to 50 per cent for the same person.

Health insurance has changed quite a bit in the last 10 years. Today you have products for
different customers, different segments, different geographies and different income levels. From
a few 100 crores of premium we are now talking of about 40,000 crores of health insurance
premiums from private health insurance, in terms of coverage it was very minimum 10 years
ago, today we have coverage from a few lakhs upto even a crore, from coverage within cities in
India you have coverage worldwide. Having seen a compounded growth rate of about 20-25%
year on year over the last 5 years we should admit that there is a lot more to do in the health
insurance sector in India.

One of the biggest challenges in India in getting health insurance off the ground in terms of
people buying, as India is a very young country. For the young people in India, health insurance
is not very much high in the priority of things to buy. One is how do you make it interesting for
people to buy, second is that India is a savings linked country and health insurance is deemed as
a payout annually and if you don't get anything back it is money down the drain. So somewhere
we need to bring in the concept of health insurance is protection and you also get something back
in return. In India there is a lack of awareness regarding tools called health insurance.

With data explosion, digitalisation and the emergence of the Internet of things (IoT), primarily
the connected human, nowhere in the world are the prospects of integrating technology and data
higher than in the Indian health insurance sector, with a large transformation opportunity
presented by a largely underinsured population, increasing health consciousness, and the
availability of data and digital advancements. Among all the changes, the most important change
for the consumer will be the availability of a wider range of health insurance products. There is
increasing demand from consumers for specific products to cover certain specific illnesses or for
certain specific features depending on the experience and what they have seen around. Digital
solutions and more data will enable health insurers to be more innovative in product design and
be able to provide customized products to meet customer needs. The last few years have seen
insurance companies going beyond traditional indemnity-based products and coming out with
new products such as critical illness, wellness management, cancer care, overseas travel etc. to
meet customer needs.

3. Sujit is working in a private investment firm. Unlike his parents who were in
government job and had retirement benefit, Sujit lacks on that front being in a private
firm. Now he is worried about his retirement years.
a. As an insurance agent discuss the various Risk which will you consider while planning
his retirement plan.
b. Also explain the various steps which will be involved in framing the retirement plan.

Answer: a) One of the most important events in our life is retirement. From both personal and
financial perspectives, realising a relaxed and comfortable retirement life is an extensive process
and this process takes years of sensible and persistent planning. Once this planning process is
done; managing your retirement expenses is an on-going process. Though all of us like to retire
comfortably, the complexity involved and time utilised for building a successful retirement plan
makes the whole process complex. Managing your savings is important in early retirements.

Retirement can be a rewarding phase of your life. Thinking about retirement in advance will help
you to anticipate your future changes and gain a sense of control over the future. The retirement
planning rules are changing rapidly. Proper retirement planning is essential for the following
reasons:
 Retirement expenses do not decrease after retirement.
 Post retirement phase of life can last for many years.
  Personal provident fund and pension may not be sufficient to pay for basic living
expenses.
 Pension benefits may not be proportionate to the rate of inflation.
 Employer’s health insurance plan and medical insurance may not be enough to cover all
medical expenses.
It is important to methodically plan for retirement throughout your working years and to
periodically update your retirement plans. Starting planning for retirement earlier helps you to
overcome several unnecessary and serious difficulties.

Risks after the retirement

Employment risk: This is the basic risk you will have post retirement. There will be no job and
no job means no earnings. Without sufficient funds, you may not be able to fulfil your dreams or
spend amount on your daily needs. To solve this issue, retirement planning is mandatory. You
should plan your retirement while you are in the job or you are earning. Planned investment will
help you post retirement to live freely and as per your terms.

Increased expenses: There will be no or less expenses related to the work or clothing etc but
expenses may increase of insurance, medical expenses, gifts and contributions, expenses on
leisure activities, traveling expenses etc. You need certain amount of money for all these
expenses. You may avoid unnecessary expenditure on gifts or traveling but insurance, medical
expenses etc are mandatory in nature and cannot be avoided. In order to estimate your retirement
expenses, you need to take into account the rate of inflation and also determine the numbers of
years for your retirement. For example, over the past several years, medical and housing prices
have risen faster than food and clothing prices. Overall, however, prices have increased about 3
percent per year for the past several years.

Longevity risk: Longevity risk is the risk that you will run out of money, because you live
longer than you expected. People are, on average, living longer, John Anderson says. There is a
50-percent likelihood that a person who is aged 60 today will live to age 90; and a person who is
60 in 2075 will have an 85-percent likelihood of living to 90.

b) Retirement planning begins with setting defined life goals and formulating a financial plan to
achieve these goals. You need to start saving money early in order to take advantage of
compound interest and avoid financial risk. Before beginning to plan for retirement, it is
necessary to analyse your expenses for your retirement years. Determine how much you need to
save in order to live comfortably after your retirement.
You should think about your retirement goals. As medical expenses increase in the retirement
period, you need to determine the amount you may need to reserve for this according to your
health condition. Once you have determined the cost of the necessities, dreams, and wishes for
your post-retirement life, examine which financial tools can best help you. If you start your
retirement planning at a late age, you need to choose investments that maybe risky but that will
enable you to get greater returns more quickly.

There are different retirement plans and schemes which can be taken by John , both in the private
and public sectors in India. These retirement plans can be classified into the following four types:
Life annuity plans - These plans assure a person a specific amount of income till the person
lives. After the person’s death, the originally invested amount will be refunded to the
beneficiary’s nominee. For example, pension plans from LIC India, HDFC Standard Life
Retirement Plans in India, and so on.
Guaranteed period annuity - These plans guarantee a person a specific income for a minimum
number of years. If the death of the person occurs before that period, then the nominees are
eligible to receive that income till the guaranteed period is completed. Those who outlive the
given guaranteed period can continue to receive income till their death. For example, SBI life
insurance, LIC Jeevan Akshay, and so on.
Annuity certain - In this plan, a fixed amount of income is paid for a fixed number of years. The
payment stops at the end of the period, even if the retiree is still alive at the end of this period.
For example, LIC Pension plans.
Deferred annuity - In this plan, persons save some amount from their income to create a corpus
fund for a number of years. Later, this fund is used for investing in a specific retirement plan and
this gives an assured income for the retirees till they live. For example, Met Life India Insurance
Company Pvt Ltd.

Financial planning for retirement has become more challenging as most of the people are living
longer and are enjoying their active retirement years. Financial plan evaluates what your source
of income will be after you retire. Financial analysis also helps you to understand the alternatives
available to you and the complications involved in selecting the right employee benefits and
qualified plans.