[Digest, Winter, 2002]

Underwriting is a risk evaluation process used by insurance companies to determine whether an applicant's potential risk is appropriate to the coverage requested. While underwriting guidelines vary from company to company, the overall process for life, health, and disability coverage is similar.

Insurance companies rely on experienced reviewers, called underwriters, to evaluate and classify risk. When a life, health, or disability underwriter receives an application, he or she verifies the application information, collects omitted data, and gathers additional input. If a medical exam or test is required to evaluate health risks, the underwriter will arrange for it and review the results. The underwriter might contact the applicant's doctor to check medical records, call to verify employment status, or review motor vehicle records. In some cases, insurance companies turn to a third party verification service, such as the Medical Information Bureau (MIB).

The Medical Information Bureau
The MIB, a nonprofit association of more than 600 life insurance companies in the U.S. and Canada, has compiled data and facilitated the exchange of insurance information since 1902. The MIB obtains its information from insurance applications; however, insurance companies and the MIB may only share personal information as authorized by the applicant in writing and in accordance with applicable laws.¹

MIB reports may include, among other things, data on height, weight, lab tests and blood pressure readings, but only if these factors are considered to be significant to an applicant's longevity or health. Some nonmedical information, such as an adverse driving record, participation in a dangerous sport, or how often someone has applied to other member insurance companies for coverage, also may be reported by the MIB through its insurance activity index. All of this information is highly confidential and tightly controlled.

Entire medical records are not on MIB reports. Rather, conditions ("risk factors") that show up on medical records, not specific numbers, are coded on MIB reports. These codes serve as "flags" to underwriters, who can pursue further investigation if they deem it necessary. According to industry standards, an underwriter cannot base a decision solely on MIB data. Insurance companies must conduct their own investigations, using MIB reports only as verification.

The Applicant's Role
The applicant's primary role in the underwriting process is to complete the application accurately and truthfully. The form must be signed and dated, as applications without signatures cannot be processed. Forms should be returned promptly. An individual's health status and signature are valid only for a specified period of time. If weeks or months elapse before an application is submitted, most insurance companies will require verification of health status again before processing the application.

After receiving a life, health, or disability application, the underwriter may call the applicant to collect more data. The sooner the applicant provides the information, the faster the process will go. The insurance company may return an application if additional information is needed.

Once all the necessary information is collected, the underwriter evaluates this information against the insurance company's accepted underwriting policies. These confidential guidelines vary, but generally include age, income, morbidity rates (likelihood of becoming ill), occupation, and height and weight charts. It can take from several weeks up to a few months to underwrite an application, depending on the company, the type of insurance sought, the complexity of the applicant's medical history, and the response time to the underwriter's requests for information.

Unfortunately, insurance companies sometimes have to decline applications. In cases where the applicant believes he or she has been declined mistakenly, the insurance company usually allows the applicant to appeal the denial. Some companies allow reapplication for coverage after a certain amount of time has elapsed.

In instances where a policy expires, the insured may have to repeat the underwriting process, depending on the clauses of the policy. Some policies allow insureds to automatically renew their coverage without repeating underwriting, even if conditions (such as health) have changed. Other policies require insureds to reapply for insurance and undergo what is known as post-selection underwriting in which the carrier decides whether or not to grant continued coverage.

Members of the American Academy of Ophthalmology can participate in high quality, reasonably priced, members-only insurance plans, including life, disability, and office overhead expense coverage.² For more information, please call (888) 424-2308.

Notes:

1. An applicant can obtain a copy of his or her own MIB report for US $8.50 by writing to: MIB Information Office, PO Box 105, Essex Station, Boston, MA 02112 (617-426-3660). In Canada, write to: 330 University Avenue, Suite 403, Toronto, ON M5G 1R7 (416-587-0590). Or visit the web site at www.mib.com.
2. The Term Life, Disability Income, and Office Overhead Expense Plans are underwritten by New York Life Insurance Company, 51 Madison Avenue, New York, NY 10010.