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Insurance 101

Insurance underwriting: what’s with all the questions?

Insurance 101

Insurance underwriting: what’s with all the questions?

An industry expert explains how insurers use data to guess how long you’ll live.

Did you know that you have to go through something called insurance underwriting before you can officially get insurance? If you’re unfamiliar with the concept, this is where an insurer looks at how risky it is to offer you a policy so that they can figure out how much it’ll cost to insure you. “But what’s with all the fuss; why can’t I just answer a few basic questions and be done?” we hear you say. Well, in an ideal world, it would be that simple. But, life insurance is an industry based on risk. Your risk. The riskier you are to insure, the higher your life insurance cost will have to be. It’s just a fact of life *ahem* insurance. So how do insurers know how risky you are? Well, that’s where underwriting comes in. So let’s dive in, because It’s actually a pretty cool process once you know how it works. And we even hit up an industry expert for an über-duper professional opinion.

  1. What is underwriting?
  2. What’s the difference between continuous and instant underwriting?
  3. How do insurance underwriters know if I’m healthy or not?
  4. How has the Covid-19 pandemic changed the underwriting process?
  5. The bottom line:

What is underwriting?

Insurance underwriting is basically your insurer figuring out how likely you are to die during your contract with them—and then giving you a price based on that risk. The life insurance underwriting process confirms if you’re eligible for coverage, the amount you can buy, if there’ll be any restrictions on your policy, and of course, how much it’ll cost you.

Underwriting essentially exists to help you get the best possible coverage so that your family is taken care of in the event of your death.

The process usually involves filling out an application form with medical and lifestyle information, and maybe having a doctor or nurse check you out (but only in the health sense, sorry). If it sounds daunting, know that it’s not. “Like going to the dentist, underwriting is for your own good,” says Nick, an underwriting expert with 16 years of experience at a major insurance company. “Asking questions and obtaining data allows the insurer to make the right decisions around who to offer coverage to, and at what rates.” And even if you don’t qualify for the best rate at first (we get it, not everyone looks perfect on paper), your insurer may still approve you for a low-cost policy simply from your medical results. Overall, “you will pay a fair amount based on your risks, and your insurer will always be there when you need them,” says Nick.

What’s the difference between continuous and instant underwriting?

The underwriting process, of course, varies by industry (financial, medical, etc.). But, there are a couple of different styles:

Continuous underwriting is where an insurer will use real-time data to monitor risk factors as they appear. For life insurers, this could look like monitoring sleep quality, fitness levels, and even driving styles. An insurer would keep an eye on these things throughout the policy’s life, flag any risk factors as they appear, and work with you to minimize them. For example, let’s say if you’ve had one too many quarantine snacks and your BMI is reaching unhealthy levels. Your insurer may nudge you and offer up suggestions to get to a healthy weight.Or, if you’re tossing and turning in the night and your sleep is getting interrupted, they might suggest some strategies to help with sleep quality—things like wind-down exercises, etc. One way insurers monitor these things is through wearable tech like an Apple Watch that monitors your sleep cycle to see whether you’re in deep or light sleep. However, although one in five Americans own a wearable, Nick says it’s “early days for wearables in underwriting.” Why? Well, according to Nick, “companies are just beginning to access the data and understand its predictive value.”

Instant underwriting is where approvals happen at the point of sale. So essentially, as soon as you hit submit on your application form, an algorithm looks at your profile and approves you in a couple of hours or less. That is unless there’s more information needed. We’ll get more into this type of underwriting a little later on.

How do insurance underwriters know if I’m healthy or not?

The life insurance underwriting process starts as soon as you fill out your insurance application form. While some old-school companies still have you speak to someone, several new insurtech (insurance technology) companies allow you to do everything online.

No live agents, no dull or awkward conversations, no up-selling—just you and your laptop/computer in the comfort of your own home.

Once you’ve filled it in and you hit send, the underwriting process can begin. And although every insurer has their way of doing things, there are some standard factors that an underwriter looks at. Here are a few of the main ones:

Age: Simply put, your insurer wants you to live a long time. Being younger means a lower risk of death, which translates to cheaper premiums. So, if you’re applying for life insurance in your 20s or even your early 30s, you might be set up for some potentially lower rates.

Personal and family medical history: Your health and your health history is a big one. Most life insurance policies ask that you both answer some medical questions and maybe take a medical exam. Insurtech, however, with all of its fancy algorithms, has made it so that an insurer may not have to send you for a physical exam at all. Some companies can get additional information via many different databases. For example, they can get your prescription history data from pharmacy benefit managers, the middlemen between the insurers and drugstores. Outside of giving them the green light to search through your records, no additional action is needed from you at this step. Insurers can also access your driving records remotely without asking you to go through a bunch of paperwork.

So suppose the insurers can get a full picture of your overall health with just the information they get from these databases. In that case, you may be able to “skip the line” and get approved very quickly (thanks, algorithm!). That’s an example of instant underwriting. However, if there are any follow-up questions, or if they can’t find any information about you via these databases, then you’ll have to go for that medical exam.

  • What’s involved in the medical exam?
    The exam is pretty similar to the annual physical you get (or should be getting) at your doctor’s office once a year. During the process, your doctor or nurse will check things like your height and weight (to see if you’re overweight/underweight in relation to your height), blood pressure, pulse, etc. They’ll also ask you about your lifestyle to see if your habits could affect your health (smoking, drinking, etc.). There’s usually a blood and urine test involved to check for heart disease, stroke, kidney disease, etc. We’d say that’s a pretty robust test that you’re getting for free. Forget the insurance part; the medical is a great way to check that your body works the way it should be.

Driving record: In the US, car accidents account for roughly 35,000 deaths a year. Those are some pretty scary statistics. It’s no wonder the life insurance underwriting process also involves a little peek into your driving history. The way you drive correlates to how risky it’d be to cover you for life insurance. In this case, an underwriter is looking for things like any traffic violations, accident reports, driving record points, DUI convictions, etc. But don’t worry, even if these things are on your record, insurers also consider how recent these things are. Crashed your car into a tree two weeks ago? Yeah, that’s probably going to hike up your rates. Ran a red light two years ago? You’re probably ok.

Lifestyle: So you like having a couple of glasses of wine every once in a while. Who cares? Well, an underwriter might. But honestly, the vice they’re really looking out for is smoking. If you’re a smoker, you might end up with higher rates than your non-smoking counterparts. You know what they say: healthy lungs = healthy rates. Don’t let that news stress you out, though. A lot of insurers allow for a grace “quitting” period. If you quit within a certain amount of time, some insurers will look past your previous puffs and may even offer you a lower rate.

Life insurance classes

Once you’ve answered a few questions about your health and lifestyle, an underwriter will assign you to one of the above risk classes to determine how much your coverage will cost.

How has the Covid-19 pandemic changed the underwriting process?

Stay-at-home measures and social distancing combined with the restrictions placed on non-essential medical treatment earlier on in the pandemic have thrown a ton of new challenges at the underwriting world. Even now, many months into the pandemic, the unknowns are still out there. With so many uncertainties, insurers are facing new challenges for the first time. For example, what good is it asking for a doctor to share a summary of your medical history when there’s no one in the doctor’s office available to handle such requests? It might sound like a small detail, but every little thing needs to be considered. Insurers are being forced to develop innovative ways to maintain their standards without compromising anyone’s health. With that said, you should note that the insurance industry was already headed toward a data-collecting evolution—the pandemic just forced its hand. According to Nick,

“COVID-19 has caused companies to greatly accelerate their existing commitment to digital processes and data such as electronic health records, in place of the traditional paramedical exam and labs.”

The bottom line:

From biometric info like age, sex, height, and weight to medical history to lifestyle details, the underwriting process is unique to every industry and even every insurer. However, a new digital wave of tech-savvy insurtech companies are making the process so much quicker and easier for everyone involved. What was once a dreaded process can now be done in a few minutes with instant underwriting, and approval can arrive within a few hours vs. a few weeks. It’s pretty awesome, actually. As Nick says, “The shift to digital will only continue to pick up speed. Every one of us creates so much data in our daily lives, and there is a movement to harness its predictive value in an ethical way to create customer value and modern experiences.”

Also, contrary to what some people might think, the insurers aren’t trying to deny you coverage. They’re asking all of these questions because they want you to get the right coverage—and pricing—based on your risk levels. “We always try to get to “yes” in underwriting. Insurance companies only make money when they issue policies, so any decision to decline is taken very seriously, and we want to give you the best price that we possibly can based on the data,” says Nick.

Finally, always remember that your insurance policy is not for you, but for the protection of the people you love. Fibbing on a life insurance application—whether you lie about your hobbies or anything else—is not a good idea. So if you’re a smoker but say you’re not, and an insurance claims agent comes across a Facebook photo of you puffing away at a party, it’s not going to look good. If you’re caught in a lie, and your insurer finds out, your loved ones might not receive some (or all) or the death benefit. This is more likely to happen if you die within the two-year “contestability period. As always, honesty is the best policy. It’s best to be truthful throughout the entire application process. That way, your insurer can steer you toward the right coverage for the best price.

The opinions we expressed in this post are for general informational purposes only and are not intended to provide specific advice or recommendations.
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