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Understanding Underwriting in Insurance

Posted At November 21st, 2019

Understanding Underwriting in Insurance

When you are going to buy an insurance product, the most crucial first step is the underwriting process (risk selection) by the insurance company.

The following is an explanation of the underwriting process that you need to know about.

Understanding Underwriting and Its Functions

Insurance underwriting is a process of identifying and selecting the risk of a prospective insured who will buy an insurance product.

The process is related to all things that will be insurance coverage, both yourself, the object of coverage to be insured, and the environment or people around you.

The underwriting function is responsible for assessing or classifying the risk level of the object of coverage. The underwriting process is also used as a guideline for insurance acceptance decisions for the object of coverage.

How does It Work?

The underwriting process aims to find out as much information or material facts related to the risk of the object to be insured.

The more information that can be obtained, the better the underwriting process. The following is a series of processes.

Gather Material Fact Information

The first step is to collect all information about material facts related to the object of coverage. Information gathering can be done in the following ways.

  • Fill out the insurance closing request form (SPPA).
  • Interview.
  • Test series, such as medical tests, vehicle or building eligibility tests, and so on.
  • Direct survey.

In the underwriting process, valid and accurate information about the object to be insured is needed.

So, what you should pay attention to is providing all material fact information, especially information related to the risks that will be faced.

Remember, all information must be true and conveyed clearly and completely, both information requested by the insurance company or unsolicited.

Conducting Analysis & Assessment

If all the required information is sufficiently fulfilled, the next step is to assess various risks that will be faced, such as:

  • the type of risk,
  • frequency of occurrence,
  • how big is the damage if the risk occurs (severity).

Make Acceptance Decisions

Decisions are made based on the results of the analysis and assessment process. The resulting decisions are as follows, namely:

  • refuse or accept insurance closure requests or;
  • accept by adding premium values ​​(substandard premiums) or;
  • accept with various additional provisions that must be met by the prospective insured.

Underwriting Results

If from the beginning this process has been going well and you are quite cooperative then the insurance company will certainly appreciate your positive actions. Insurance will provide a reasonable premium value or even not impossible to provide premium discounts.

But on the contrary, the rejection of insurance coverage may occur if you do not submit all information or hide some crucial information. In fact, the worst scheme is the rejection of your claim and the unilateral termination of insurance coverage.

Utmost Good Faith

Underwriting is the most important stage for you and the insurance company before the insurance contract.

In essence, honesty and openness (utmost good faith) are very important to be done by each party so that no one is disadvantaged.

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Topics Article

insurance underwriting risk selection