A well-written insurance policy can provide financial relief from an unexpected event. For example, a serious car accident can lead to expensive repairs and loss of use of the vehicle. A severe injury or illness can affect an income-producing family member, perhaps leaving them unable to work for an extended period. Insurance experts like IOA Co-Founder John Ritenour understand the importance of a well-written policy.
If the affected person has obtained insurance for the unforeseen event, they will receive compensation in accordance with the insurance policy’s stated provisions. The policy will spell out exactly what is (and is not) covered along with the conditions that must be met for the coverage to apply.
Obtaining the Right Insurance Coverage
Purchasing a personal or business insurance policy is a relatively straightforward task. The applicant (soon to be the insured) works with a knowledgeable insurance agent to choose the right type of coverage to protect against a potential event. To determine how much coverage will be needed, the applicant answers a set of targeted questions.
Insurance Policy Rate Quotes
IOA’s John Ritenour provides insight regarding the process of creating quotes. He reports that using the applicant’s provided information, the agent works with insurance carriers to obtain a quote for the specific type and level of coverage. The quote states the premium or coverage fee, the insured will pay for the insurance policy.
Sometimes, minor changes are necessary to address an applicant’s needs. When the applicant is satisfied with the rate quote’s terms, the insurance agent submits the application to the insurance carriers for approval.
With many available policy choices and coverage requirements, Insurance Office of America’s John Ritenour stresses the importance of working with an experienced insurance agent. This skilled professional will possess well-rounded industry knowledge and be familiar with every one of the agency’s offerings. Insurance Office of America (or IOA) agents are well versed in the portfolio of personal and business insurance policies that can be secured by the agency.
Factors That Influence Policy and Premium Decisions
Each type of insurance coverage has different factors that influence policy and premium decisions. For example, health insurance premiums depend on an applicant’s age, health history, and current medical conditions. If the applicant has previously experienced a life-threatening illness, that factor will play a part in the policy issuance and premium decisions.
Life insurance premiums vary according to an applicant’s age, health history, occupation, and hobbies, plus other criteria. To illustrate, a skydiving applicant may encounter skyrocketing life insurance premiums (or even a declined application) because of their extremely dangerous hobby.
Car insurance premiums differ according to an applicant’s age, location, marital status, vehicle make and model, and driving record, along with additional factors. An applicant who enjoys drag racing may be faced with considerably higher premiums and/or difficulty obtaining car insurance coverage.
How Insurance Underwriting Fits In
After the insurance agent submits an application for approval, the document goes to the insurance carrier’s underwriting department. There, specialized insurance professionals often play a key role in the issuance of various policy types.
Each application is routed to an insurance underwriter, who evaluates the applicant’s level of risk based on their provided information and other factors. During the evaluation process, the underwriter enters the applicant’s information into an actuarial software program.
Based on the supplied data, the program recommends the policy’s coverage level and corresponding premium. Stated another way, these results reflect the insurance carrier’s potential financial impact if it accepts the risk and insures the applicant.
Making the Insurance Coverage Decision
Based on the actuarial program’s analysis, the underwriter decides whether the insurance carrier will accept or decline this risk. If the carrier takes on the risk, the underwriter determines the policy’s insurance premium that reflects this level of risk.
However, the carrier can decline to accept the risk if the chances of a claim are higher than average. John Ritenour notes that insurance agents may be able to offer alternative solutions to declined applicants.
Underwriting Decision Restrictions
State laws do not allow underwriters to make decisions based on an applicant’s race, ethnicity, education, income, or marital status. In some states, an insurer cannot decline to issue a policy solely on the basis of the applicant’s credit reports or credit score. Each carrier’s underwriting department will be aware of the state laws and regulations that are relevant to the policy.
When Additional Analysis is Necessary
The actuarial program’s recommendations are generally adequate for common types of coverage. Examples include homeowners and automobile insurance policies.
For more complex types of coverage, such as a business income or workers’ compensation policy, the underwriter may need to analyze the applicant’s risk factors before making a coverage decision. For a health or life insurance policy, the underwriter might contact the applicant’s healthcare provider for more detailed information.
Sometimes, an underwriter will note specific conditions under which the insurer will issue coverage. Alternatively, the underwriter may search for solutions that may minimize the insurer’s claim risk. Finally, John Ritenour states that the underwriter may negotiate with the insurance agent to identify a way to issue the policy even when significant concerns are present.
Insurance Underwriting: Special Cases
An underwriter often evaluates insurance applications on a case-by-case basis. This practice enables them to review the entire application package rather than making decisions based solely on the actuarial software program’s recommendations. Following are three hypothetical underwriting cases, each with its own potential resolution. Note that actual underwriting outcomes will differ based on the specific scenario.
Let’s say an applicant purchases a new home, and he or she moves into the house shortly after buying the property. However, a difficult real estate market prevents them from selling their existing home as quickly as they planned. As a result, the applicant’s now vacant house still has full insurance coverage.
When the applicant notifies their insurance agent about the move, the agent asks them to complete a vacancy questionnaire. Then, the agency’s underwriter evaluates the risks and determines whether the home can stay insured while it is unoccupied.
Homes Needing Extensive Repairs
Maybe an existing policyholder purchases a home that requires a major repair. The policyholder has never made any claims, and they promise to complete the repair within a predefined time period.
The underwriter reviews the policyholder’s account and decides that the company will temporarily take on the additional risk. Therefore, the underwriter increases the deductible until the work has been completed. If that condition is met within the preset time period, the deductible will return to its previous level.
Repeated Auto Insurance Claims
An automobile insurance policyholder has a habit of backing into pylons, posts, and trees. During the past several years, he has made multiple claims for varying degrees of bumper and taillight damage. The insured’s low deductible means he has very little out-of-pocket costs while the insurer picks up most of the claim.
Because of these factors, the insurance carrier’s underwriter reexamines the coverage. The underwriter determines that the existing contract does not adequately compensate the company for its increased risk.
Based on this decision, the underwriter states that new conditions will be in effect upon the auto policy’s renewal. Although the coverage will remain in effect, the deductible will increase to a higher level. Alternatively, the carrier offers to renew the auto policy with lower coverage for bumper-related claims.
When Underwriters Revisit Insurance Policies
In certain cases, an underwriter may reexamine an existing policyholder’s account. A change in the insured’s risk level will likely merit an underwriter’s attention and could result in a policy status change.
If insurance conditions have changed, the underwriter will determine whether the agency will renew the policy in force with its current terms. If not, the underwriter may issue new terms for the policy’s continuance.
If an insured has made multiple claims, or the account has payment irregularities, the underwriter may periodically review the insured’s coverages. If the insured applies for a new policy, the underwriter will likely take the existing policies into account.
How Insurance Agents Differ from Underwriters
Insurance agents and underwriters each play an integral role in the issuance of insurance policies. However, they perform vastly different functions.
Independent insurance agents, including local Insurance Office of America agents, can offer clients insurance coverage for multiple insurance companies. Agents’ current and potential policyholders find the best coverage for their needs.
In contrast, underwriters do not sell insurance policies under any circumstances. An underwriter determines an applicant’s acceptable or unacceptable risk, but they are never involved in actual policy sales.
Choosing the Best Insurance Solution
To find the best coverage, an applicant should partner with an insurance agent who works with a multiline insurance agency. John Ritenour emphasizes that Insurance Office of America offers a full range of business and personal insurance coverages along with risk management solutions.