Underwriting under the lens
07 December 2002
Chennai: Many insurance failures — life and non-life- can be attributed to imprudent underwriting/selection of risks for insurance.
According to Mike Wood, chief actuary, AMP Sanmar Assurance, “There should be consistency between an actuary's assumptions in designing and pricing of a product with that of underwriting.“
While insuring poorer sections of society needs no major underwriting skills as protection is given on a mass scale (mass scale insurance cover is given to a big group), the same cannot be said of a preferred life product — a policy for the upper echelons of society, characterised by large policy and high premium. "Underwriters should take extra effort to see that the mortality rates are low in this portfolio," he adds. In rural markets, the average size of a policy is small, with differing mortality rates. This should be factored into underwriting.
The threat of AIDS spreading in the country is also a cause of worry to the life insurers. Wood feels that insurers, before taking the first premium, could insist on prospective customers filling out a special AIDS questionnaire before accepting the first premium.
“Policyholders could be asked to undergo an AIDS test every five years till the policy matures. All the insurers should evolve a uniform code relating to genetic information and AIDS while underwriting a proposal.“
Wood, who has two decades of actuarial experience, is here as Australian company AMP's representative in the Chennai-based life insurer. AMP Sanmar is a 74:26 joint venture between Sanmar group and AMP.