Reverse Underwriting

For the benefit of readers who did not read my Paper on Reverse Underwriting published in the Journal of the Insurance Institute of India [link given on the page on other publications] I am giving here a brief write up on this concept developed by me.

If I am to make a broad generalization of underwriting decisions of a life insurance company, the following are the most prevalent decisions on proposals:

(i)                  accepted on the company’s standard / ordinary rates

(ii)                accepted on terms other than those proposed

(iii)               Consideration of the proposal is postponed, and

(iv)              Proposal is declined

This was generalized from underwriting decisions of insurer on 49, 333 proposals.

Now see how the prospect responds to the Company’s / Agent’s suggestion to purchase life insurance for the benefit of his family:

(i)                  okay, I shall purchase the policy you have suggested = Accepted at standard rates

(ii)                okay, I shall go in for an annuity policy instead of a Money Back policy you have suggested = Accepted on terms other than those proposed

(iii)         okay, I shall go for the policy you have suggested, not now, but on my next visit to hometown = Consideration of the proposal postponed

(iv)       Life insurance is not a good investment, so I will not purchase any policy = proposal declined

Prospect goes through the same underwriting decisions of the insurer, in a reverse way.

This was located on the basis of response from 21, 169 propspects.

From these prospects it was found that prospects say ‘NO’ to life insurance salesmen’s suggestion to go in for life cover on the following reasons:

(i)                  insurer related risks

(ii)                salesmen related risks

(iii)               product related risks

(iv)              investment related risks

(v)                future society related risks, and

(vi)              other risks

Of these (i), (ii) & (iii) above are controllable risks whose probability is above 0.5 (in creating a negative response) and (iv), (v) & (vi) above are uncontrollable risks whose probability in creating a negative response from prospects is less than 0.5. In other words insurers with a little more efforts could reduce the first three risks and the new business inflow will be very high.

Key words:

Underwriting
Reverse underwriting
Controllable risks
Uncontrollable risks