Life Insurance Underwriting
PGDM Course 2201
Life Insurance: Module 7 of 10
Trimester I- 2025-26
Sumesh Sheth
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Conten
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Life Insurance Underwriting
Meaning and Need for Underwriting
Proposal form and other forms required for
underwriting
Numerical and Judgmental underwriting
method
Standard Lives and Sub-standard Lives
Meaning and Need for
Underwriting
Insurance is based upon the concept of
“pooling resources- sharing risks”
Its expected that everyone joins the pool with full and
correct disclosures so that their risk is assessed correctly
If anyone joins pool with an intention to profit from it
(anti-selection) then other members will bear the cost
Therefore, there must be a mechanism to protect other
members of the pool
Underwriting is thus a mechanism that checks anti-
selection and asses the risks to decide the
price(premium)
Underwriting
Underwriting is thus a mechanism by which the
insurer will :
Analyse all the given information
Asses the risks
Take a Decision on the acceptance of the risks
If accepted decide the terms and price of
acceptance(premium)which the new entrant
has to pay to join the pool
Life Insurance
Underwriting
• Life Insurance covers the risk associated with mortality
• Mortality is primarily linked to Age
• Mortality is also based on number of secondary factors
like : occupation, location, habits ,gender etc…
• standard mortality tables : Indicate probability of death
for a given age and gender
• Primary method of assessing mortality is by comparing
it with standard mortality table
Proposal form and other forms
required for underwriting
Life Insurers collect substantial data to assess the mortality risk
Data is also collected to comply with FATF’s (Financial Action
Task Force) Guidelines on CFT(Countering finance for terrorism)
and AML(anti-money laundering) .
These are implemented in India in the form of Prevention of
Money Laundering Act, 2002 (PMLA) and subsequent IRDA
guidelines to know your customer(KYC)
This data is collected in the proposal form and other
documents
Proposal form
Definition as per IRDAI’s (Protection of Policyholders’
Interests) Regulations, 2017:
“Proposal form” means a form to be filled in by the prospect in
written or electronic or any other format as approved by the
Authority, for furnishing all material information as required by
the insurer in respect of a risk, in order to enable the insurer to
take informed decision in the context of underwriting the risk,
and in the event of acceptance of the risk, to determine the rates,
advantages, terms and conditions of the cover to be granted;
IRDA Standard Proposal Form for life insurance ..
Proposal form: Typical Details required
1. Basic Personal Information
Name/Gender/Date of Birth/ Age/Age Proof Submitted
Place of Residence /Contact Details
Photo
2. KYC
PAN/AADHAR
Documentary proof
Proposal form: Typical Details required
[Link] Related:
Family details/Dependents
[Link]/Employment Details
Hazardous/High risk Occupations
5. Financial Condition
Income/Income proof
Previous Insurance
Proposal form: Typical Details required
[Link] Information/Medical Information
Physical condition and Build
Personal health history /Family History
Habits
7. Female Lives additional information
8. Declarations
9. Nomination
Some Other forms required for
underwriting
Proof of :
Age
Residence
Income
Report by Field Personnel/Moral Hazard Report
Medical Reports
Report by officers of the Insurer
Benefit Illustration(BI) signed by the customer and the intermediary
Other documents, If required
Judgmental
Underwriting
This relies on the personal judgment of the
Underwriter to decide on the acceptance or
otherwise of a risk.
This method is highly subjective and dependent on
the underwriter.
The Underwriter uses his expertise to decide:
o whether to accept
o If yes, then at what terms and
condition
Judgmental
Underwriting
Advantages-
Experience based underwriting can be more useful in case of large
value ,complex cases
Possible to spot inconsistencies by a trained eye which is difficult to spot in
a system driven process
Disadvantages-
If more adverse features are involved, it becomes very prolonged with
no standard norms established.
Not possible to use when the volume of underwriting is very large.
It is highly subjective
Thus, there can not be any Consistency in underwriting as Its ‘person
driven’ and not ‘system driven’
Difficulty in finding/replacing good underwriters
Numerical Underwriting
It’s a standardized, system driven method (RULE BASED UW)
The risks are assessed by rating the various factors affecting
mortality by assigning points(+ve or –ve) to arrive at the
Rating.
Every favorable factor is rated by giving them credit points,
while every unfavorable factor is given debit points.
After evaluating every factor affecting mortality, the total
EMR(Extra Mortality Rating) is arrived at.
The total EMR thus arrived at are then used to classify the
risk.
Often done through a software with some human oversite
Numerical Underwriting
Advantages :
Removes subjectivity
Ensures uniformity in decision
Helps in assessing multiple factors simultaneously
Easy to understand
Standardized and hence easy to administer
System Driven-ensuring :
Ease and speed of use for handling large volumes
Can be used by anyone with minimal training
Disadvantages:
Chances of making error increases with speed
Individual impairments are considered for the extra risk factor each of them
contributes, it does not consider the impact of all of them in totality on the
mortality
The method involves charging level extra premium for substandard lives throughout
the period of policy, despite the risk being of reducing nature
Not suitable for handling complex , high value proposals
Life Insurance
Underwriting
Underwriter will take a decision based
upon study of all information and
documents
Underwriter has the following choices
Accept
Postpone/Defer
Decline
Life Insurance
Underwriting
In case of acceptance ,underwriter will classify the Proposed life as
per the risk levels into:
Standard Life
Sub-Standard Life
Standard lives will be charged standard premium rates(At ordinary
rates or at Tabular premium)
Substandard lives are charged extra premium over standard rates
as chances of mortality are higher
Underwriter may accept with a lien (eg:- In case of recent recovery
from a medical condition )
Add some exclusions/restrictive clauses
Life Insurance
Underwriting
Life Insurance Underwriting is :
Science as well as Art
Underwriter is the “guardian of the pool”
Current changes in section 45 of Insurance Act 1938,has made
role of underwriter more relevant
He needs to do a tightrope walk between –
business need &
the need to protect from adverse selection
Underwriting Philosophy of the company as disclosed
LI UW : Emerging Trends
Databases
Eg:-In August 2023 Lok Sabha passed the Registration of Births and Deaths (Amendment) Bill
that seeks to build a comprehensive database of births and deaths in India
DLT(Distributed Ledger technology) for UW
Use of AI
Rule based Automated UW
Genome Research
Q&A