Core Underwriting Strategies for Individual Life and Health Insurance: From Quantitative Assessment of Additional Risks to Medical Classification of Renewal Clauses

(V) Specific Life Insurance Underwriting 1. Underwriting of Individual Life Insurance Individual life insurance underwriting is based on mortality rate. As a long-term insurance product, the situation in mainland China differs from that in other countries and regions, depending on the current distribution of insurance products. In other countries and in Hong Kong, Macau, and Taiwan, individual long-term life insurance is usually considered as a "simple" primary insurance, based solely on factors affecting mortality rate. In China, however, it is often composed of comprehensive insurance coverage, such as accident insurance and illness insurance, and is usually referred to as a "package deal." Coverage clauses formed in this form are characterized by comprehensive coverage, high purchase rates, complex premium determination, and difficulty in calculating special surcharges. In the underwriting process of personal life insurance, due to its complex insurance coverage, which includes accidental death, death from illness, disability due to illness, accidental disability, payment of survival annuities, and partial or full return of insurance proceeds at different times, the underwriting process must comprehensively consider various risk factors and determine the underwriting conditions after a comprehensive evaluation of these factors. Commonly considered factors include: ① age; ② gender; ③ health status; ④ family history; ⑤ occupation; ⑥ hobbies; ⑦ environment; ⑧ economic status; ⑨ motivation for insurance; ⑩ premium payment method, etc. The impact of these multiple composite factors on the probability of death determines the underwriting conclusion. Another issue that must be mentioned in the underwriting of personal life insurance is the underwriting of the sub-healthy group. Because they cannot be underwritten with standard premium rates like the standard health group, they are underwritten with additional special conditions. The portion of risk in the sub-healthy group that exceeds that of the standard health group is usually called additional risk, and the mortality rate caused by this additional risk is called additional mortality rate. Additional risks are generally classified as decreasing additional risks (decreasing with age, remaining constant, or increasing), fixed additional risks, and increasing additional risks. The underwriting methods are roughly as follows: (1) Age-increase method. When the mortality rate of an insured with additional risk is considered equivalent to that of the standard health group above that age, the premium is charged based on the added age. This method is applicable to increasing or fixed additional risks. (2) Premium surcharge method. Under the assumption that the mortality rate increases by a certain percentage at each age, an additional premium is charged according to the corresponding percentage. This method is mainly applicable to increasing additional risks. (3) Fixed premium surcharge method. A specific additional premium is set for each fixed sum insured. This additional premium does not change with the age of the insured. The fixed premium surcharge method is particularly applicable if the main cause of death is an accident caused by occupation or hobby. Usually, this method is not applicable to the underwriting of additional risks involving multiple health damage factors, because such risks change more frequently. (4) Insurance Benefit Reduction Method. This refers to the method of reducing the insurance benefit payment by a certain percentage when an insured event occurs within the agreed period after the contract is signed. This method is applicable to diminishing risks, that is, the insurer charges an additional premium for minor additional risks, rather than reducing the insurance benefit according to the size of the risk.

2. Underwriting of Personal Health Insurance. Health insurance has a long history and primarily refers to insurance coverage that pays out benefits when illness occurs, aiming to alleviate the medical burden on the insured. Pure health insurance does not cover injuries. Its characteristics include the ability to divide insured individuals into adults and children, coverage for specific internal diseases, and short-term policies, typically with a term of one year, though some may be longer than three years, often with a health observation period of varying length. There is usually a deductible for claims. It takes many forms, such as women's health insurance, cancer insurance, hospitalization insurance, outpatient insurance, hospitalization subsidies, hospitalization surgery, health checkups, and insurance for specific systemic diseases-a range of insurance closely related to health conditions. Furthermore, health insurance has a high claim rate and high loss rate. The frequency of losses after an incident is not relatively stable in relation to the severity of the illness over a certain period. Without a rigorous underwriting process, moral hazard can easily arise. Because health insurance is mostly short-term, renewal fees often arise upon the expiration of the policy term, i.e., the issue of renewal. With the gradual development and improvement of my country's life insurance market, the claims rate of health insurance has gradually stabilized and the claims experience has gradually improved. How to deal with the renewal of health insurance will inevitably form a more reasonable underwriting method. At present, there are four types of renewal clauses in foreign countries: ① Selective renewal, when renewal occurs, the insurer may refuse to renew due to the increase in the risk of the insured; ② Conditional renewal, that is, if the insured has a situation that can be terminated, the insurer has the right to refuse to renew; ③ Guaranteed renewal, when the policyholder applies for renewal with payment, the insurer may not refuse; ④ Irrevocable, during the payment period, as long as the policyholder is willing to pay, the insurer may not refuse to renew for any reason. Compared with life insurance underwriting, the characteristics of health insurance underwriting are mainly: (1) Different risk factors. In the risk factors of health insurance, the underwriting focuses not on the mortality rate but on the disability rate, so the factors to be considered are concentrated on aspects that are highly correlated with the disability rate. Although many factors affecting disability rates are very similar to those affecting mortality rates, the differences between the two are also obvious. Therefore, when considering different types of insurance, it is still necessary to pay attention to the distinction and focus. (2) Different insurable benefits. The difference between life insurance and health insurance is also reflected in the different considerations of insurable benefits. In health insurance, the policyholder is the beneficiary. Therefore, the timing of the policyholder's claim must be carefully considered during underwriting. In life insurance, the policyholder and the insured are generally separate, that is, the beneficiary and the insured are separate. (3) Different term selection. Generally, life insurance is based on a person's lifespan, so the term varies with the length of a person's life. And a person's lifespan is expected to be relatively long unless there are special circumstances. Therefore, the term of life insurance is relatively long. The term of health insurance is generally one year, and it can be renewed after one year. During this year, the insured's medical expenses, economic income, etc. must be accurately predicted. Otherwise, if the uncertainty is too great, it may be considered to refuse coverage. (4) Different age groups. Life insurance is mostly chosen by older people, generally those over 50. This is because the mortality rate begins to rise in this age group, and many of their pre-existing conditions are chronic, meaning that the benefits of health insurance may be relatively lower. Therefore, the demand for life insurance is relatively higher. Health insurance, on the other hand, is more commonly used by young adults. These individuals are either in the early stages of starting a business and cannot afford the medical expenses of a major accident, or they have already established families, have children, and are the primary breadwinners. An accident would have a significant impact on their families, making health insurance undoubtedly more important than life insurance for them, and their insurance choices tend to favor health insurance. Therefore, health insurance underwriting often focuses on the following risk factors: age, gender, health status, occupation, hobbies, and financial situation. Similarly, health insurance also has underwriting issues for sub-healthy groups, which mainly employ methods such as: shortening the benefit payment period; extending the benefit payment period; reducing the benefit amount; excluding or limiting coverage; and increasing premiums.