Underwriting explained

You may have come across the term ‘underwriting’ before – most likely in the small print on an insurance website. If you’ve ever wondered what it meant, read on to find out.

Where did the term originate?
Centuries ago, a few enterprising bankers offered an insurance of sorts to those embarking on risky ventures – typically of the ocean-going kind, where shipwrecks were par for the course. In return for a sum of money, these bankers would agree to absorb some of the risk associated with the voyage. By way of a ‘contract’, bankers would sign their names under the amount of risk they were prepared to assume and the term ‘underwriting’ was born.

What is underwriting?
While it may sound complicated, underwriting is simply the process by which an underwriter assesses the risk presented by an individual applying for cover ­– whether it be Life Cover, Serious Illness Cover or Disability Cover.
 
Based on the risk analysis (more about this below), the underwriter then decides a) whether or not the insurance company should offer you cover, b) how much your cover should be and c) how much you should pay for the cover.

How do underwriters analyse risk?
While the underwriting process may vary slightly from one insurance company to the next, the same basic principles apply, depending on the type of cover you’re applying for. Once you’ve completed your application, underwriters use specialised software to analyse your data and calculate how likely you are to submit a claim in the future.
 
In the case of life insurance, for example, an underwriter will evaluate information, which includes the following, in order to arrive at a decision about whether the insurance company should offer you insurance:
 
• Gender
• Age
• Education
• Income
• Lifestyle (e.g. whether or not you are a smoker or non-smoker)
• Current health status
• Family history

If you’d like to know more about cover from Standard Bank’s direct life insurance services, get a quote or request that a customer service agent call you back.

Sources
investopedia.com
wikipedia.org
bls.gov
insurancecompanies.com
personalinsure.about.com

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