Underwriting in Health Insurance Explained

What happens when you are taking a loan from a bank? The bank does not approve the loan for you very easily. They first look at your credit score and see if you are capable of repaying the loan. The same applies to health insurance; at the time of buying a policy, the insurer will evaluate your health, lifestyle, and risk potential.

This process is known as insurance underwriting. Using this process, insurance companies evaluate potential policyholders’ personal risk factors; after that, they set the premium for a specific policy.

In this blog, let us understand what insurance underwriters do and what their process looks like.

​What is Underwriting in Insurance?

Put simply, underwriting is how your insurance company assesses risk before enrolling you in a plan. When you purchase a health plan, you're not just buying a product. You're transferring your risk to the insurer.

And the insurer needs to determine whether it's capable of protecting you without sustaining a catastrophic loss.

This is where the underwriters come in, examining your application for three key factors:

1. Eligibility: Can the insurer cover you?
2. Coverage Scope: What will and will not be covered?
3. Premium Cost: How much should the insurer charge based on your health history?

If you're young and healthy, insurers view you as low risk. That's why you're told to get health insurance while you're still young.

If you've had heart problems and are a smoker, then you will be at high risk. Underwriting is a way of making sure the premium you pay is proportional to the risk you impose upon the plan (adverse selection). If not, only sick people would buy health insurance plans, which would eventually drive up the premium to unaffordable levels.

​What are the Responsibilities of a Medical Underwriter?

Now that you understand what is underwriting in insurance, let us understand the different responsibilities of an underwriter. The medical underwriter is the watchkeeper of the insurance pool.

They see themselves as risk analysts for whom the financial health of the company is directly balanced with the needs of the proposer. The following are their responsibilities:

1. Risk assessment
2. Medical report analysis
3. Price determination
4. Policy customisation
5. Fraud detection
6. Consulting insurance agents

These crucial skills help not only the insurance company, but also you, the policyholder. This is because they ensure that you pay a fair price for the coverage you want.

​What is the Insurance Underwriting Process?

​The insurance underwriting process is structured and methodical. While it occurs behind the scenes, knowing these stages helps you understand why your policy issuance might take time.

​Stage 1: Application Review

The process begins the moment you submit your proposal form. The insurer checks and verifies the basic details such as your age, occupation, BMI, and declared medical history. This is the first filter. If you declare a major illness here, then they will flag the application for detailed scrutiny.

Note: Always disclose your full medical history at the time of proposal. Failing to do so can result in claim rejection in the future.

​Stage 2: Risk Analysis and Validation

This is the core of medical underwriting. The underwriter digs deeper into your profile to determine how much of a risk you bring. This step includes:

​Financial Underwriting: Though it is more common in life insurance, health insurers also check if the sum insured that you have requested makes sense relative to your income and lifestyle.

​Medical Screening: If you are above a certain age (usually 45+) or have declared a pre-existing condition, the insurer will ask for a pre-policy medical check-up (PPMC).

​Stage 3: Risk Classification

Once the underwriter has all the information they need, they will classify your profile into the following 4 categories:

​Preferred Risk: This indicates that you are healthier than the average person. You get the standard (or sometimes discounted) rates.

​Standard Risk: You have average health and life expectancy. So, you will pay the standard base premium.

​Sub-standard Risk: This means that you have a critical illness such as hypertension or diabetes. The insurer will accept you, but you will have to pay a higher premium. The waiting period may also be increased.

​Declined Risk: This means that your health risk is too high for the insurer to cover. They will reject the application to protect their finances.

​Stage 4: Final Decision and Policy Issuance

Once classified, the final verdict is delivered. The insurer sends a counteroffer if there are changes in the premium or terms. Once you accept and pay, the policy is issued.

​What are the IRDAI Rules for Underwriting in Insurance?

The IRDAI, which is the insurance regulatory authority, has issued guidelines to ensure transparency and fairness in underwriting practices. The major changes introduced in 2024 in favour of the policyholder are: The maximum waiting period for PED has been decreased from 4 years to 3 years, so underwriters cannot make you wait 4 years for a pre-existing condition when buying insurance.

1. Moratorium Period: The moratorium period has been reduced from 8 years to 5 years, called the incontestability period. After 5 years of consecutive coverage, an underwriter cannot dispute a claim based on non-disclosure or false representation unless it was done fraudulently.
2. ​Denial of Coverage: Insurers can no longer deny health insurance policies to individuals with severe medical conditions like cancer, heart failure, or AIDS. They must offer a product, though they can charge a premium commensurate with the risk.
3. ​Standardised Exclusions: IRDAI has standardised what can and cannot be excluded. Underwriters cannot permanently exclude conditions that are curable or part of modern medical advancements, such as mental illnesses or genetic disorders.
4. ​Turnaround Time: Insurers are mandated to decide on a proposal within 15 days of receiving all requirements. They cannot keep an application in limbo indefinitely.

The rules take away the advantage that underwriters have over potential policyholders. This decision has also increased insurance penetration in the country, helping people when in need.

​Why Underwriting Matters in Health Insurance?

After knowing what is underwriting in insurance, you may wonder why companies don't just give insurance to everyone immediately. Underwriting in health insurance is vital for the ecosystem's survival.

Price Stability for Everyone

If insurers didn't underwrite, people would only buy insurance when they got sick. This would immediately drain the funds, forcing the insurer to raise premiums for everyone drastically. Underwriting ensures that healthy individuals pay fair rates, and those with higher risks pay a proportional share.

Solvency and Claim Settlement

An insurance company promises to pay for your health bills in the future. If they accept too many high-risk individuals without charging the right premium, they won't have the funds to settle claims when they arise. Rigorous underwriting ensures that top insurers such as Bajaj General Insurance stay financially strong to honour every valid claim.

Encourages Transparency

The underwriting process discourages fraud. Knowing that a medical underwriter will verify facts encourages applicants to be honest about their health. This honesty leads to smoother claim settlements later, as there are no hidden surprises for the insurer.

​Final Thoughts

Insurance underwriting is not just paperwork; it is the backbone of your health insurance policy. Underwriting in insurance helps keep your health insurance policy strong. It makes sure the premium you pay is just and that the insurer has the resources to catch you when the unforeseen happens. When applying for a policy, think of underwriting in insurance as more of a prerequisite quality check and less of a roadblock.

Knowing what is underwriting in insurance is one thing, but knowing who to trust is another. It's all the better with Bajaj General Insurance's simple, straightforward solutions to keep you covered. Download the Bajaj General app today and buy health insurance within minutes!

​FAQ

​What exactly is underwriting in insurance?

It is the process by which an insurance company evaluates your risk profile based on age, health, and lifestyle to determine if they can insure you and what premium to charge.

​What are the 4 stages of underwriting?

The four stages are application review, risk analysis, risk classification, and final decision. This 4-step process not only protects the insurance company but also lets you pay a justified premium.

​What is the job description of an insurance underwriter?

The underwriter reviews risk applications and considers reports on health checks to identify non-disclosure and fraud. They then work out the premium for the policyholder and what level of cover is appropriate.

​What is an example of medical underwriting?

A 40-year-old smoker applies for an insurance policy. The underwriter considers any lung health problems and may decide to take out cover, but add a 20% loading on the premium to compensate for the higher risk of respiratory diseases.

​How does medical underwriting affect premium rates for health insurance policies?

It directly determines them. A clean medical history leads to standard premiums. The presence of risks like obesity, diabetes, or smoking leads to increased premiums. In severe cases, it can lead to policy rejection as well.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.

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