Risky Business, Banking on a change.


Vanguard Financial Informer - Q3 2019


Insurance underwriting is generally misunderstood. The “unfairness” of an underwriting decision is a story often told. When someone gets denied a payout due to non-disclosure the public often rallies against the insurer and calls out the big bad company as doing everything to avoid paying. Likewise, when John and Joe, standing around the braai, discover that one is paying double for the same amount of cover. All of these are typical examples of how underwriting is misunderstood. This article should clarify the ins-and-outs and make sense of a process most of us will have to go through in our lifetimes.


The contract of insurance is essentially one based on trust and risk. Clients need to trust that, if they are completely honest with their insurer, they will pay out an insured sum in the hour of need. However, what is often forgotten is that the concept of trust goes both ways.

The insurer also needs to trust that their clients will honestly disclose all information they will need. The insurer needs all your information in order to assess the risk they will be taking insuring your life.

No one likes visiting the dentist but it’s necessary. Likewise, underwriting is a pain in the neck but if you want the cover, it is something that just has to be done. You may find the questions intrusive and time-consuming. You’re asked about your income, health status, family history, lifestyle habits and a lot more. You're even sent a nurse to meet you at a convenient place to draw blood from you, perhaps even weigh and measure you.

It’s a deeply personal process that ultimately decides the level of cover and the cost of the premiums you will pay. Insurers do this to make sure they have enough information about you to know that they’ve charged you the correct premium, and that you have peace of mind that your claim, which is the insurer's ultimate promise to you, is honoured when the time comes.

What is underwriting?

Underwriting is a process where the insurer checks who qualifies for insurance and how much they qualify for. Insurers set their pricing based on average risks. Underwriters are required to find out which people stand out from the average, and to charge them the correct premium for their unique risk. This keeps life insurance premiums fair for everyone.

While underwriting can seem painstaking, the process is streamlined as far as possible, by only asking for essential information required to initiate policies. Truthful, comprehensive disclosure is imperative for underwriters to make accurate assessments.

To ensure transparency and to ease the process, your financial adviser can step in to assist where you are unsure about how to answer a question. We are experienced and well-equipped to deal with these questions.

There are no “white lies” in underwriting

Underwriting is your most important and powerful tool to get cover that is accurately priced, meets your expectations, and guarantees your claim payment. Even if you think certain information is unnecessary, rather bring it to the under-writer’s attention. Rather disclose every-thing required, and more, and let the underwriter decide its relevance. Insurance benefits are very comprehensive, and even events you think are minor (such as a previous knee injury, for example) can give rise to claims later.

The impact of non-disclosure

Non-disclosure happens when the medical, financial, lifestyle or occupational questions are answered incorrectly or where important information is omitted when applying for cover. This ranges from deliberate fraud (not telling us that you have had cancer, for example) to innocent omissions where certain information is simply forgotten (you went for physio for your back 2 years ago, it doesn't currently bother you, you forgot to mention it) . The most common areas of non-disclosure are related to occupation, financial standing and most frequently medical disclosure. A popular misconception is that insurers avoid pay-ing out claims. This, however, is not the case and it is the philosophy of reputable insurers to pay out all valid claims. However, it re-quires cooperation from policyholders from the outset.

Consider this:

  • Failure to provide full medical and financial information at application may delay the underwriting processes and could lead to the cancellation of a benefit or reduced payment at claim stage;
  • Take time to think about the questions in the application form and provide all relevant information;
  • Check the summary of the disclosures in policy documents and go back to your financial adviser or insurer if there are errors or omissions;

Regularly review your cover to ensure it remains in line with your needs. The reality is that non-disclosure can result in the rejection of a claim. This can be traumatic because you need ...