A Marketing Decision: Assessing You As a Risk for Insurance

All of us - you, as an individual, and corporations, as business entities--make deliberate, intentional decisions every day with natural consequences for which we must accept responsibility. This is part of life. It is the real world. But this should also apply to insurance companies as they make well thought out decisions on how to run their business.

For example, when analyzing your insurability as an applicant, an insurance company must initially decide how much information must be obtained from your insurance application in order to properly underwrite you as a risk for insurance. The more detailed the application, the better chance the insurance company has to screen out unacceptable risks. Conversely, the less detailed the application, the greater the risk the insurance company assumes because it intentionally hasn’t learned very much about your health history through your application.

The decision about the extent of pre-issuance underwriting is primarily a marketing decision made by the insurance company. This is an intentional, carefully thought out decision that involves underwriters, actuaries, financial analysts, marketing and sales people, attorneys and top executives. It is not a casual uninformed decision by the insurance company. It is at the heart of what the insurance company does – deciding how to assess insurable risks to provide a product that the consumer will buy and that will be profitable to the insurance company.

Insurance companies must decide whether to thoroughly investigate you, the applicant, at the beginning, in which case they will accept fewer applications but also insure better risks, or to increase sales by simplifying their underwriting requirements with less detailed questions on the application. If they make that decision, they are increasing their risk of insuring individuals who are not healthy. When the marketing decision is to increase policy sales by means of a simplified underwriting process, applications are approved routinely and without further investigation, even when an answer on the simplified application provides a red flag to the underwriter. In this case, the decision to insure an applicant is based on a short questionnaire with no detailed medical statement or physical examination.

Some of these short form applications limit the inquiries to whether you are now in “good health” and/or have been diagnosed or treated for certain medical conditions within a specified period of time. Sometimes an insurance company’s investigation of you is limited only to information such as “character, general reputation, personal characteristics and mode of living,” with no procedure to determine your medical status. Only after you file a claim does the insurance company make inquiries and conduct an extensive investigation into your medical history. These inquiries were not a part of the initial underwriting at the time you completed your application.

Some insurance companies that do not conduct a thorough health history investigation at the time of application attempt, after the fact, to underwrite your insurance policy after you file a claim. This is referred to as post claim underwriting and is done by the insurance company to try to avoid the consequences of its deliberate marketing decision to forego initial underwriting in order to increase sales and profits. Obviously, the insurance company should be held to the logical consequences of its inherently unfair marketing decision. You should not lose coverage as an alleged bad risk to protect the company from its own deliberate decision to increase sales and profits by extending insurance coverage without careful underwriting.

If your insurance policy has been cancelled by your insurance company for alleged prior medical history that you did not tell the company about at the time of your application , contact an attorney knowledgeable in this area of the law. You may be able to get your policy reinstated.