Expect more and more underwriting; and not just with new business

Russell Hutchinson says the rules around underwriting are changing. Policies in changed circumstances are now being re-underwritten even through the risks haven't changed.

Monday, December 9th 2024, 6:00AM

by Russell Hutchinson

We used to think that existing business was pretty much settled, underwritten, and done.

We also liked to think that there was ample flexibility - a good, simple rule of thumb used to be that if a change did not increase risk for the insurers, then you could get that change without underwriting.

In fact, the reasons why you may be underwritten again are growing.

Some insurers will require that a couple, should they split, each get underwritten. The rationale is that the old contract is gone – being changed too much to continue – and if they want cover that’s two separate contracts, so they must be underwritten again.

Some are a little more generous, and one of the clients can ‘stay’ on the old policy and only one will have to be re-underwritten.

Another example: children covered under medical insurance contracts, when they come of age receive a new (non-underwritten) adult medical policy.

So far, so good.

But when that contract is issued some insurers state that no child or partner can be added to the contract – and if a joint contract or family contract is required, then the life will have to be re-underwritten. A surprise.

You can probably name more. If you were around 20 years ago, special events increase in cover options were a lot less restrictive than they have been over the last few years.

One company has announced a change to make this slightly less restrictive, but this is not the norm.

We could go further, examining the details of pass backs, closed products, companies closed to new business. The run of play has been towards more underwriting. Will it continue?

Changing price after the contract has been issued has been restricted to categories of business – products – as a whole.

Some of the wellbeing programmes now allow for price to be adjusted by giving a discount and reducing that back toward standard rates, depending on the extent of engagement in wellbeing activities.

It’s underwriting of sorts, but it is not really underwriting: no-one will be declined cover, after all. Some other wellbeing programmes, or preferred life regimes, have no changing pricing elements, so are even less like re-underwriting.

There are battles going on all the time between various special interest groups and the way insurers treat them in the underwriting process.

Insurers tend to be slow to change their minds about conditions.

Conservatism is a good instinct when you are trying to ensure that you can pay claims. But still, some ground may be given in areas like underwriting treatment of mental health and some genetic conditions.

It will probably not be given easily – it is in no customer’s interest to end up in a situation where insurers are unable to underwrite.

Examples of that situation are Florida’s flood risk, or California's fire risk markets which have been effectively broken by misguided regulation. Australia’s medical insurance market has also become an ongoing battleground. We want to avoid that.

On the other hand, we tend to have a high tolerance for issuing cover without tests being performed – especially high compared to markets like the United States.

That suggests lots of scope to make underwriting tougher.

Tags: Russell Hutchinson