1. Head of Affluent Segments Botswana Life Insurance Company
Simplified Issues & Preferred Underwriting In Life Insurance Botswana Aug 2016
Colleta Simbanegavi
Head of Affluent Segments
Botswana Life Insurance Company

2. PAPER OBJECTIVES
This paper seeks to discuss Simplified Issues vs. Preferred Underwriting in Life Insurance.
The aim is to equip delegates with knowledge and skills for understanding principles and practice of Life insurance Underwriting and emerging trends

3. Are Objectives of Underwriting Being Achieved?
Understand the purpose of underwriting
Define Preferred Underwriting
Define Simplified Issues in Life Underwriting
Why Simplified Issues?
Understand the difference between simplified issues and preferred underwriting
Characteristics of simplified issues
Benefits and challenges in preferred vs. simplified issues

4. LIFE INSURANCE UNDERWRITING? WHAT IS IT?

5. Underwriting/Selection is a term used to describe the consideration given to an application for insurance to determine whether or not the policy applied for should be issued.
It is the process used to determine an individual’s probable degree of risk of loss

6. Underwriting Objectives
To ensure that the business that is put into force for an office remains profitable by avoiding early claims and lapses.
To classify risks into “common pools.” The underwriter seeks to classify standard risks and substandard risks on their own.
The premiums are received into these pools (fund) for that type of risk and the claims of those suffering losses are paid out of this pool.
The underwriter ensures that the contributions paid into the fund should be fair and equitable to the risk that the individual brings in.
To Guard Against Anti Selection
Premiums charged must be in line with other competitors. It should be the responsibility of the underwriter to continually revise premiums by checking what the market offers with input from an actuary

7. Underwriting Objectives cont.
To maintain equity between policyholders (every life assured should contribute his fair share towards the risk involved).
Enables life assurance and reassurance companies to remain competitive if proper selection is being executed.
To maintain the mortality levels for which the life assurance premium rates are based.
To establish the existence of insurable interest on life policies (the beneficiary must have a real interest in the continued life of the assured).

8. Preferred Underwriting vs. Simplified Issues
The extent/degree to which the underwriting process is done defines Preferred/standard Underwriting and Simplified Underwriting
Simplified
Guaranteed

9. Preferred Underwriting
WHAT IS PREFERRED UNDERWRITING?
The selection of life risks from a group of people where normal or standard risks are accepted at standard rates and those that present a higher mortality are accepted at special terms, postponed or declined.
It is the FULL assessment of personal, medical, financial, occupation avocation and residential risks.

10. Preferred Underwriting Risk Assessment
To obtain adequate assessment of risks, preferred underwriting considers the following factors in detail:
Age
Gender (certain ailments are common in one gender than the other: breast cancer)
Build (obesity/underweight)
Race (certain ailments affect particular ethnic groups- Diabetes: Asians)
Heredity/Family History (heritable ailments e.g. BP, Cancer)
Medical History (establishing ailments that could recur)
Current Health Status (to establish mortality risk)
Habits (adverse effects of lifestyles; e.g. excessive smoking)
Occupation (certain occupations present higher mortality/morbidity risks)
Avocation (certain Pastimes/Leisure present higher mortality/morbidity risks)
Income/Finances (to avoid over-insurance, fraud/speculation, lapses)
Residence (politically unstable countries present high mortality risk)
Previous Policies (cumulative effect on exposure, over-insurance, previous decisions)

11. Sources of Preferred Underwriting Information
Build tables
Proposal form
Medical Examination Reports
Private Medical Attendant’s Report
Laboratory tests (LFTs, PFTs,HIV etc)
Life Offices Association Register &Office Papers
Questionnaires (Medical, Financial, Occupational etc.)
Medical Doctors/Physicians
Research (internet, books etc)

12. Preferred Underwriting Tools
BP Tables
Medical Limits
Underwriting Manuals - provided by Reinsurers
Rate book/Mortality Tables

13. Simplified /Guaranteed Issues Simplified Underwriting
Definition
A simplified/guaranteed issue life insurance policy covers a life without a medical exam. This applies to both term and whole life insurance.
There is a thin line between simplified and guaranteed issues where simplified issue is defined as being somewhere between fully underwritten and *guaranteed underwriting
An Individual gets coverage simply by completing an application form which is generally made up of a series of simple yes or no questions.
Application form is reviewed by the insurance company along with medical history or nothing at times.
Guaranteed issue is the simplest form of underwriting mostly with exclusion of pre-existing conditions

14. Simplified Issues/Simplified Underwriting
Upon approval, insurance coverage begins immediately
Oftentimes, it is possible to obtain coverage over the internet without having to speak to an agent
Simplified issues in life insurance underwriting originated in the USA in the late 80’s
The degree of simplification depends on the company/country’s risk appetite 14

15. Why Simplified Issues? Advent of simpler products Microinsurance
Need for improved turnaround times/quicker issues
Need to simplify and demystify insurance
Need to satisfy customers
Improve profitability on lower sums assured (reduce medical costs)
Increase new business volumes
Improve Accessibility
Agents Demand
Moving with Technology
Competition (reaction)

16. Characteristics of Simplified Issues
Sign Up Process simplified
No proposal form at all (telephonic)
Abridged proposal forms
Internet
Mobile

17. Characteristics of Simplified/Guaranteed Issues
Products and Pricing
All products
Mostly Funeral Policies (with unlimited number of dependents covered)
Pricing (Untested Class of Business basis-cross subsidies)

18. Characteristics of Simplified/Guaranteed Issues
General
Lower sums assureds.
Cover restrictions for older ages)
Age restrictions - maximum issue ages of
Fewer questions, generally just covering key medical risks (policies are Accepted/declined or manually underwritten if key medical risks are disclosed).
No medical examinations.
Immediate acceptance on clean cases.
Waiting periods ranging from 3 months
Exclusions

19. Simplified/Guaranteed Issues- Benefits
No medical exams required
Fast
Easier
High volumes on new business
Short turnaround times on processing.
Improved customer satisfaction
Less costly
Improved profitability

20. Disadvantages
Premiums tend to be quite high (due to cross subsidies, no equity)
Overall value of the policy is likely to be much lower than if the application process was more in depth (reduced benefits)
Exclusions:-Those with pre-existing conditions or serious medical problems are unlikely to qualify for simplified issue life insurance.
Waiting periods ranging from 3 months

21. Challenges Presented by Simplified Issues
Increased anti-selection. (adverse claims, reduced profitability)
Increased speculation (e.g funeral policies) which have cash benefit (adverse claims, reduced profitability)
Non- disclosure of critical information, in an attempt to be accepted without medicals.
Increased negative perception – as numerous claims are repudiated due to non-disclosure.
Reputational risk

22. Challenges Cont.
Too much simplification of products (Funeral policies that cover main member and immediate family members plus other 6 or so adult dependents that are not specified)
Increased Fraudulent activities
High Lapse Ratios
Insurable interest compromised
Anti-selection & Speculation

23. Advantages and disadvantages of Preferred underwriting
Attracts low risk individuals
Long administration process
Minimal losses
Medical tests costs
High covers can be written
High administration
Substandard lives covered with loadings
Complex
Reduces Anti-selection
Product prices high due to loadings

24. USE OF MEDICAL EXAMS BY COUNTRY
South Africa’s business on simplified issues is 10%.
The percentage of business written with a medical exam ranged from 3% in Croatia to 90% in South Africa.
The reason for the high percentage in South Africa is due to the high prevalence of HIV. Canada, Japan, UK, and USA write their businesses with no medical questions.

25. South Africa- Simplified issues
The application form consist of between 3 and 5 questions with regard to general health, HIV testing and whether the life assured had ever been loaded, declined, had an exclusion on prior policies or claimed a benefit.
There is a limit to the amount of cover that can be taken up on this policy and the underwriting decision is usually to accept or decline.
The use of pre-existing conditions clauses are applied at claim stage.
There is often a ‘phased in’ waiting period for deaths due to natural causes; this means that, if the life insured claims, he will only be entitled to a % of the benefit amount which is linked to the time since policy inception (for example 50% of the benefit will be paid between 6 and 12 months; 75% between 12 and 18 months etc.). Claims due to unnatural causes will always be paid at 100%.
There are generally no medical requirements (examinations or blood tests) on these policies.

26. Conclusion & recommendations
Each country has unique market conditions which may mean that one method of underwriting may be more viable, practical or sensible than another.
The method and level of underwriting is often a commercial decision, based on a full cost benefit analysis and local market conditions, made by insurance companies operating in a particular market.
Higher Covers must be assessed fully

27. Conclusion and Recommendations Cont.’
Improvement in technology especially in the mobile industry and internet has enabled more uptake of different type of products.
The unbanked sector now purchasing products via the mobile
Simple insurance products now accessible across all market segments (Financial Inclusion)
All things equal Companies should consider simplified issues in life underwriting so as to increase product uptake and efficiency in administration processes

28. Ke a leboga
Tatenda
Thank You