Declined or Rated for Coverage….Know Your Options!

November 19th, 2012

Written by Dr. Ian Wexler: Do you know someone with a rated insurance policy…meaning they pay higher rates due to a higher risk? How about an application for coverage that has been declined or postponed? Are you having trouble making any sense of a recent underwriting decision?

 Underwriting, to simplify, includes the entire process of determining your insurability, and is the most important aspect of the individual insurance application process. The insurance industry promotes the perception that underwriting is a fact-based assessment of your risk. However, scratching beneath the surface reveals that life underwriting is far more an art than a science.

 The traditional underwriting processes for life and living benefits insurance can be a trying experience for clients and advisors alike. Long delays are commonplace. Once the application is submitted, control is given over to the insurance company’s underwriter who makes highly subjective decisions about the applicant’s insurability – often without enough information. There is no transparency into how the applicant is being evaluated. And, since you need to pick one insurer based only on a quote, all of this occurs without any meaningful competitive business process or accountability to the client.

Many clients have asked, “If I am willing to pay the premiums, why do I have to subject myself to this scrutiny?”

Anatomy of a Decision

Insurance underwriters base their decisions on three broad categories of information about your health:

  • what they know;
  • what they think they know; and
  • what they don’t know.

 The first category contains just the facts, while the second category could include inaccuracies that the underwriter thinks are facts. Maybe the underwriter mis-read the facts. (The line between these categories is usually invisible.) The last category may include information that the underwriter would like to see, but cannot. For instance, the underwriter might want to see the pathology report on the lesion that was removed from your back 10 years ago, but now, no longer has the access because the report is not in your physician’s file and the specialist who did the incision has long since retired. Was it malignant?  Certainly critical information for the underwriter to make a decision.

 Supporting Evidence Is Crucial

 Before rendering a decision, underwriters need to gather evidence and information on the health, finances and lifestyle of an applicant – test results, medical files, reports from physicians and specialists, tax returns, motor vehicle reports, etc.

Here’s where the problems start. Medical records can be tricky to assess for a number of reasons. It is not uncommon for one’s medical records to include incomplete, inaccurate or entirely incorrect information or diagnoses. Medical records can be difficult to interpret and understand. If you’ve ever had a prescription, you know what a doctor’s handwriting looks like – not pretty. How is an underwriter supposed to make any sense of this?

Underwriting is a Business Process

Underwriting decisions are business decisions made in the context of an insurer entering into a policy contract to provide a benefit to a client. A number of real world factors influence these decisions.

Most underwriters in Canada are under enormous pressure to process more files and do it faster than ever before. As a result, underwriters have no time or resources to contact your doctor and clarify dates, facts, or their illegible handwritten notes.

Whether or not they are able to obtain the information they need, underwriters still need to render timely decisions on insurance applications. Thus, many underwriting decisions are as much a result of what the underwriter thinks they know and don’t know, as it is about what they, in fact, do know.

Clarify “knowns”, Eliminate “unknowns”

It is important throughout the insurance application process that you and your advisor strive to eliminate inaccuracies and unknowns. Any gaps in the information should be clarified before any evidence is submitted to the insurers. And contextual information can be added to help insurance company underwriters understand the big picture – why are you seeking insurance coverage, what are you doing to promote your health and well-being, why do you have so many traffic violations, etc.

My firm Protect Insurance has recently partnered with the only Private Underwriting firm in Ontario, and perhaps Canada,  that actually specializes in ensuring that all evidence collected is documented, accurate, and complete, and that all insurance offered provides the best plans, with the best underwriting decision, and the lowest rates or premiums.


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