You can have the greatest underwriting process in the world, but it can all fall down if you have an unreliable applicant.

Unfortunately there are people out there who understand that certain answers will trigger certain issues with the underwriting of their insurance policies.  This could be a trigger that results in an increased premium or even the declining of their application.

To avoid these triggers some people may choose to lie on their insurance application to ensure their cover goes through at a premium that may be lower than they should be paying.

Fixing the problem

As underwriters and insurance company managers, how can we stop this problem?

There are a number of methods which can be used, but one of the most effective is to simply know the client better.  Part of this means having insurance brokers who better understand their clients and have better relationships, however this isn’t going to be possible with every single insurance client.

What about online insurance?

It’s all good and well to rely on stronger relationships to produce more honest answers on an insurance application, but where does that leave the growing online insurance market?

There is no escaping the fact that insurance is moving towards an increasingly online-only environment.  Sure there will always be a need for experiences insurance brokers to deal with large and complex businesses, but for the average Australian SME there is no reason why their insurance needs can be looked after online.

The key to properly underwriting these online cases is to ask the right questions in the right manner.  This isn’t easy, but with experience we can learn how to do this effectively.

Instead of having the same application forms for every form of insurance, we need to consider completely custom forms for each different type of risk insurance.  For example the type of questions asked on a public liability insurance application form should be completely different from those on a trauma insurance application.

Right now most online insurance application systems are built to mirror the paper-based applications, but this isn’t the right way forward.  Online insurance requires a different way of thinking, as the forms are completed by a business owner on their own, rather than a paper-based application with is often completed whilst sitting with the insurance broker.

The way forward

Knowing your clients better does not necessarily mean more insurance brokers or more red tape, it simply means asking underwriting questions in a better way.

By asking questions in the most effective way, we will learn more about our clients and the risks that they pose from an insurance perspective.  We can also foster an environment of honesty by asking questions in a certain way and making the application process more like a conversation rather than simply ticking boxes and providing short form answers.

Online insurance is undoubtedly the way forward, and this is where the insurance industry needs to focus its energies on making the questioning and underwriting process as effective as possible.

Better information will lead to better underwriting, and better underwriting will lead to more profitable insurance companies and lower premiums for Australian consumers and businesses.

The underwriting of public liability insurance can be a very complex and involved process.

When dealing with personal insurance such as car, home or life, we have a good idea of the types of risks that the insured party will be exposed to.

We also have a good idea of the exposure under a public liability insurance policy, however there are many different types of businesses that are covered by such policies, and each business operates in a different manner to the next.

When underwriting a public liability policy we need to consider not only the type of business, but also the way that they do their business.  For example two companies manufacturing a similar product may do so using completely different methods.  How do we know when method is safer and will expose us to less potential risk of claiming?

There are also varying levels of experience amongst business management and staff that will affect the level of risk posed by a client.  This is also something we should take into account when underwriting a public liability cover.

Obviously there are many other factors involved, and all of these need to be taken into account to ensure we are taking on acceptable risks and pricing them accordingly.

The underwriting process for public liability insurance, and any type of insurance for that matter, should really start with the insurance broker who is placing the cover.  The broker is generally in the best position to really know the business and the management team.

As underwriters we need to rely on the insurance broker to provide us not only with accurate information, but also to take some ownership of the initial underwriting process themselves in determining the level of risk posed by their current or potential clients.

It is generally accepted that any public liability underwriter dealing with specialised risks really needs to specialise in that area.  It could be the construction industry or the marine industry, but either way it is important to have an underwriter or an underwriting team that really understands the specific risks in the industry and how those risks relate to the public liability insurance being sought by the business.

Public liability insurance provides a great level of protection and comfort for many large and small Australian businesses.  By correctly underwriting these policies we can ensure the ongoing success and affordability of public liability cover.

The process of underwriting trauma insurance is very similar to underwriting most other forms of life insurance, however there are some differences worth pointing out.

As we know, trauma insurance covers major illnesses, whilst life insurance, TPD insurance and income protection all include cover for accidents.

What this means is that whilst dangerous pastimes or a hazardous occupation will definitely have an impact on the policy manufacturer’s underwriting of most types of life insurance, it can have a reduced impact on the underwriting of a trauma insurance policy.

There may be examples were a pastime or occupation can contribute to someone’s likelihood of suffering a major illness, but generally not.  This doesn’t necessarily mean that the insurer will still cover the activity, and indeed they may still place an exclusion for the activity concerned.

Family health history can also have more impact on underwriting a trauma insurance policy compared with a TPD policy.  There are many illnesses that could result in a trauma insurance claim that may not necessarily result in a TPD insurance claim.

Some types of existing injuries can also be underwritten differently for trauma insurance.  For example, an existing back complaint may result in an exclusion on a TPD insurance or income protection policy, but an exclusion of this type would generally not be required on a trauma insurance policy.

Generally speaking the policy manufacturer will go through a very similar underwriting process for all types of life insurance, including trauma insurance, but it is important to note that there can be slight differences in the process.

Mortgage underwriting is an incredibly important role that is unfortunately looked down upon by many mortgage brokers and other people involved in the mortgage sales channel.

The role of the mortgage underwriter, who is generally employed by the mortgage product manufacturer, is twofold.

Firstly the underwriter must protect the product manufacturer’s interests.  They must ensure that the borrower is fit to take out such a mortgage.  To do this there are a number of criteria which we will cover off later.

Secondly, the underwriter must protect the borrower from committing themselves to a loan advance that they may not be able to afford.  Just because a servicing calculator and a mortgage broker things a person can borrow a certain amount doesn’t necessarily mean that they’ll be able to repay the full advance.

There is also a third function, which is arguably the most important of all.  By taking care of the first two factors above, the underwriter is helping to protect Australia’s entire economy from trouble.

Without advanced underwriting by the mortgage product manufacturers and lenders, we’d have a huge percentage of the population who could not repay their mortgages, and a banking industry that would face enormous difficulties with bad debts.  Another obvious side effect of this situation would be rapidly declining house prices, as we saw in the US market thanks to the sub-prime debacle.

As we can see, underwriting in the mortgage industry is very important not just for the industry itself, but for the Australian economy as a whole.

Unfortunately, mortgage brokers and other industry participants in the sales channel are conflicted when it comes to good underwriting.  Of course they don’t want to lend out money to people who can’t afford it and create bad debts for the banks and product manufacturers, but at the same time it is in their best financial interest to facilitate as many mortgage as possible for the most amount of money possible.

This situation is brought about by the commissions that product manufacturers pay to the sales channels, be they brokers or in-house staff.

The use of commissions to remunerate sales staff in the Australian mortgage industry is unlikely to cease any time soon, so the industry as whole must work to ensure that underwriting starts at the more advanced stages of the mortgage process, and that can only occur through greater training and education of the mortgage brokers and other front line sale staff.

Today’s article is not for the insurance product manufacturers and their in-house underwriting teams, but is instead for the average financial adviser specialising in risk insurance.

Many advisers think of underwriting as being the product manufacturers role, but in reality – and certainly for the most successful advisers – the underwriting process starts in the adviser’s office.

We’ve all been through the drama when the insurance underwriter comes back with a list of hard questions or unfavourable conditions on a new policy.  Then we have to make the dreaded call to the client, with most of us blaming the insurance product manufacturer instead of doing the right thing and taking the responsibility ourselves.

The underwriting process should start at the first meeting with your client, not at the advanced stages when it could be too late to salvage.

Visually you should be able to see whether or not there are going to be issues with BMI.  How you approach the subject of the client’s weight can be tricky, but most people with a well above average BMI will know that it could have some effect on their application or personal insurance.

Other less visual factors should come up during your conversations with the client.  Do they participate in any hazardous activities?  Do they have any health issues?  Are there any financial matters that the insurance product manufacturer will have a problem with?

You should not wait for the insurance company to pick these items up in the completed application.  Instead, they should be raised as soon as they become evident, which allows you to preposition the client for any negative result which may come back from the insurer.

Furthermore, you should obtain us much information as possible from the client to assist the insurer with their underwriting process.  On face value a particular answer on an application form may look very bad for the client, but if you can investigate this with the client and provide the mitigating information to the insurer up front, you may find that the underwriting decision is much more favourable for you and your client.

The underwriting process is a long and complex one, but by taking some responsibility yourself and not leaving everything up to the insurance product manufacturer you will find that the outcomes are much better for all involved.

As a pleasant side effect, you will also find that the insurance manufacturers underwriting staff will have a lot more respect for you, which can only lead to even better outcomes for you and your clients.

Australian Mortgage And Underwriting Services (AMAUS) provides services to the financial industry on mortgages and the underwriting of mortgages and insurance in Australia.

Our clients are mainly the financial product manufacturers – be they mortgage lenders or insurance providers.  Our advanced services help these product manufacturers to underwrite their risks in a way that gives positive outcomes for all stakeholders.

Underwriting any risk is an extremely important role, especially in the world of mortgages and insurance where the dangers of incorrectly underwriting risks can be significant and result in severe financial losses for the company taking on the risk.

Using our experience in the financial field, the experts behind AMAUS plan to assist mortgage, insurance and financial specialists to understand and then underwrite their risks correctly, giving the best outcome to both the source of the risk (generally the borrower or the insured entity) as we as the company taking on the risk (generally the lender or the insurance company).

AMAUS (pronounced a-mouse) believes that the important of underwriting cannot be underestimated.  We will do everything we can to assist your financial or product manufacturing organisation to get your risks managed correctly.

For more information for lenders, insurers and all other financial product manufacturers in Australia please contact us for an obligation free assessment of your needs.