Manoj Verma

Introduction
One of the most important functions of the New Business Department is to decide whether to accept, postpone or decline a risk and to determine the terms to be offered if the risk is to be accepted. This is called underwriting or selection of risk. The underwriter has to evaluate the hazards associated with the risk, which is being proposed.

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Underwriting is the insurance function that is responsible for assessing and classifying the degree of risk a proposer has and then deciding whether to accept or reject the risk. The life insurance underwriting is concerned with mortality rate and risk, i.e., the risk that the life insured may die before the maturity of the policy. Mortality risk depends upon the life insureds health, family medical history, nature of work etc.

UNDERWRITING PROCESS

The person willing to purchase the life insurance policy fills the proposal form. The proposal form along with the medical examiners report and the other reports is checked and the risk associated with the case is calculated.

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After evaluation of risk, the insurer has following choices: (i) The insurance company may accept the proposal If a company decides to accept then the calculation regarding the premium to be charged from the proposer is to be made and terms and conditions are decided upon. The premium should be paid within a particular period specified by the insurer failing which the proposal stands cancelled. (ii) The insurance company may reject the proposal If the company decides not to accept the proposal then the proposer is informed accordingly.

Steps in Underwriting
EVALUATION OF DOCUMENTS CLASSIFICATION AND REVIEW OF RISK ENTERING THE PROPOSAL IN PROPOSAL REGISTER SENDING ACCEPTANCE LETTER ISSUE OF FIRST PREMIUM RECEIPT POLICY WRITING

EVALUATION OF DOCUMENTS

The proposal papers will be complete when the proposal forms; medical examiners report, agents confidential report and personal statement are attached. In some cases medical examination may not be required. The question sin the proposal form must be answered with full honesty and no material fact should be concealed.

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The following particulars are generally required by the insurer: i) Age, Sex, Height and weight. ii) Occupation iii) Other Policies iv) Premium to be paid and income of the proposer

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v) Date of Birth vi) Risky habits of the proposer (Car racing etc) vii) Alcohol intake (Excessive intake of alcohol may affect the death probability of the proposer) viii) Frequency of foreign travel ix) Marital status and number of children of proposer x) Medical examiners report

CLASSIFICATION AND REVIEW OF RISK

Once all of the information is available, underwriter from insurance company evaluates the data. At this evaluation, the underwriter wants to classify the risk attached to the proposal. If the risk is more than what the insurance company is willing to bear for that proposal, the application is rejected by the underwriter. If the risk attached to the proposal is within the limits acceptable to the company, the proposal is accepted. Then the underwriter decides the category in which the risk falls and premium to be paid is calculated accordingly. In the underwriting process, the life insurance agent gives the details of information required by the underwriter.

ENTERING THE PROPOSAL IN PROPOSAL REGISTER

When the proposal is consistent with the rules and the company decides to accept the proposal it is serially numbered and entered in the Proposal Register and Review Slip is made. For every proposal a different file is made containing review slip and other particulars related to the proposal.

SENDING ACCEPTANCE LETTER

The acceptance letter is sent by the insurance company to the proposer. The reminder of the payment of the premium due is also sent to the insured from time to time by the insurance company.

ISSUE OF FIRST PREMIUM RECEIPT

After the acceptance of proposal and payment of premium by the proposer, the insurance company will send First Premium Receipt to the proposer.

POLICY WRITING
The policy is usually written in a special department whose main task is to issue written contracts in accordance with the instructions from the underwriting department. They also keep a register of policies for future reference. These days, insurance companies are using computers to keep records of clients, the payment of premium and other particulars.