The way health insurance works is by protecting your assets from the high cost of medical care when needed. An important process in health insurance is underwriting.
Underwriting is the process of evaluating the risk of insuring the individual to determine if it’s profitable for the insurance company to take a chance on providing them insurance. After the risk is determined, the underwriter sets a price and establishes the premium that will be charged in exchange for the risk. In simple terms, it is the process of measuring risk to determine the premium accurately.
During the process of medical underwriting, insurance companies want to understand about you in as much detail as possible. They will examine key information such as your medical history, demographics and lifestyle to estimate the risk associated with providing medical coverage. If you are considered a high-risk prospect, the insurance company may charge you a high premium, set exclusions and other limitations or even decline to offer you coverage.
The underwriting process is carried out by professional insurance underwriters who work directly with the insurance companies. Underwriters are trained insurance professionals who understand risks and how to prevent them. They review specific information to determine the actual risk and the kind of policy coverage. The work of an underwriter relies on actuarial analysis. It is important to note that insurance agents are different from the underwriters. While the agents or brokers represent you by presenting your situations to the insurance provider and negotiating on your behalf, the underwriter protects the insurance provider by enforcing rules and assessing the risks. The decision made by the underwriter can be discussed through the agent or broker with the insured.
Medical underwriting impacts the types of health insurance products directly. Based on the pricing methodology, the health insurance products can be classified in different ways. Broadly speaking, there are three different types of insurance products in the UAE market:
- Indexed price: This is the type of insurance product where the insurers have to sell a given product within a specific premium range. These products are regulated by the health authorities like DHA in Dubai and HAAD in Abu Dhabi. The products are underwritten already for a given set of benefits and priced within a specific indexed rate. For example, the DHA Basic Plan.
- Book rated or community rating: This is the type of plan where insurance providers offer health insurance policies with pre-defined sets of Table of Benefits within a given territory or population at the same price, without medical underwriting regardless of the individuals’ health status. The products are also pre-underwritten and follow the guidelines of the insurers. For example, SME Health insurance products.
- Group Tailor Made: These are also referred to as experience-based rating schemes as the insurers price the scheme considering the specific requirements of the group and past claims experience. The risk here is evaluated based on the analysis of the nature of the business or industry, size of the group, demographic trend of the population, existing ToB compared to required and, claim loss ratio report.
Underwriting is a vast process not limited to just these plans or processes. Having a good understanding of the process can enable you to learn about your insurance policy better and be able to manage it well year-round.