Insurance in some form is as old as historical society . So-called bottomry contracts were known to merchants of Babylon as early as 4000–3000 BC. Bottomry was also practiced by the Hindus in 600 BC and was well understood in ancient Greece as early as the 4th century BC. Under a bottomry contract, loans were granted to merchants with the provision that if the shipment was lost at sea the loan did not have to be repaid. The interest on the loan covered the insurance risk. Ancient Roman law recognized the bottomry contract in which an article of agreement was drawn up and funds were deposited with a money changer. Marine insurance became highly developed in the 15th century.

In Rome there were also burial societies that paid funeral costs of their members out of monthly dues. A military leader by the name of Caius Marius, formed burial clubs where members would help cover funeral expenses should another member die. This practice has been noted as one of the earliest forms of life insurance in human history.

The objective of a life insurance company is to provide insurance coverage to as many people as possible. However, this does not mean that insurance companies would issue the life insurance cover to everyone who applies for it. Every insurance company has their defined process manuals for risk selection based on the inputs gathered from the insurance applicants. This risk selection process is called field underwriting. Since the insurance company manages the funds on behalf of policy owners, it becomes all the more important for them to avoid adverse selection.

The insurance companies employ various underwriting tools towards effective risk selection such as the answers submitted by the proposed insured to the medical examiner and the results of the physical examination (if applicable), any additional information received from the client’s attending physician etc. The insurance company also looks into the financial reports and collect data through various medical, occupational and lifestyle related questionnaires etc. It is prudent for the client to give complete and accurate disclosures during the underwriting process so as to ensure a hassle-free transfer of death benefits to the beneficiaries. The underwriting tools are often designed in such a manner that the ambiguity in the information, if any, will surface in the application approval process.

Let us now look at the steps of field underwriting.

Medical Underwriting

The life insurance company requires to check the medical history of the patient, their present health status etc. to arrive at a life expectancy of the primary insured in a broader sense. Some insurance companies require the applicants to undertake paramedical examination whereas some companies issue policies without any paramedical examination but cap the coverage at a certain amount based on the age of the life insured.

In case of paramedical examination, the underwriter evaluates information such as height, weight, blood pressure, blood sugar etc. Your height-to-weight ratio, body mass index (BMI) play a major role in how you’ll be classified and eventually how much premium you will pay for your life insurance policy. Conditions such as high blood pressure increase your risk of contracting heart diseases at later age and hence are required to be checked for setting your premiums. As a next stage of underwriting, insurance company may ask for Attending Physician’s Statement (APS). It provides the status of each condition your doctor is treating and information about the condition, such as how long you’ve been treating it, how long symptoms have been present, and your prognosis. E.g. if your paramedical examination indicates elevated blood pressure, the APS can clarify if it’s a temporary condition or a side effect of a medication you are currently taking for some other ailment.

You can reuse the results of your paramedical exam to apply for other types of insurance, like disability insurance, or even for life insurance from another provider.

In case of no medical exam life insurance policies, the in-person medical exam is substituted with a thorough evaluation of your medical history, including your previous lab tests, prescription history, surgeries, and any past diagnoses. The insurance company may conduct a Medical Information Bureau (MIB) check which helps insurers avoid fraud proposals by seeing where and when you’ve previously applied for life insurance in a general window of six months. While it is acceptable to apply for life insurance with different providers in the past, the MIB covers what sort of information you’ve disclosed in previous applications that you may have missed disclosing in the present application.

Insurance companies may also look into your motor vehicle report to find out instances of speeding or reckless driving tickets, vehicular crimes, accident reports etc. to understand riskiness in your driving habits. If you have a tendency to speed or engage in other dangerous driving habits, you’re considered riskier, and your premiums will be higher than someone who has a clean driving record.

No medical exam life insurance policies or accelerated underwriting insurance policies are suitable for healthy individuals. While people with health concerns can be approved for some no exam policies, they may get lower coverage and higher premiums to compensate for the riskiness in their profile.

Other Statistical Tools

Life insurance underwriters use various statistical tools such as an actuarial table (which is a statistical analysis of your life expectancy) to estimate the likelihood that you’ll die at any given age and in turn what risk you pose to the insurer. Underwriters generally refer to two actuarial tables i.e. Mortality table and Build table. The mortality table indicates generic mortality probability of a given population, based on age and gender and doesn’t take into account the unique attributes of individual health profile. It’s used as a statistical baseline to predict when you’re most likely to die.

On the other hand, build table considers your body mass index (BMI) to determine how healthy you are and what could be your life expectancy. A person with a poor BMI will have to pay a higher premium than the person with a good BMI. The healthier you are, the better will be your rating on an actuarial table and the lower will be your life insurance premiums.

In addition to above, insurance companies also do the financial underwriting wherein they take into account the total in-force and applied-for insurance on an individual life. Companies look for stability of income of the proposer to ensure serviceability of the premium.

Overall, the information provided by the life to be insured helps underwriter to arrive at the risk rating and in turn decide if the premium quoted at the time of application needs revision or not. The more accurate the information you give, smoother and accurate will be the underwriting process.