Thread by @peter_castleden

A lot of people have been asking why insurers don't do full medical checks upfront before they issue a policy, rather than at claim stage. Sorry, another thread.

1/ The primary job of initial underwriting is to determine if an applicant can get insurance, and on what terms. The outcome can be either an acceptance on standard terms, a decline in cover or an acceptance with a premium loading or exclusions

2/ The general idea is to ensure everyone pays a fair price for their individual policy. By declining cover to uninsurable people, the "healthier" clients can have cheaper insurance premiums which are correct for them.

3/ Insurers will normally ask some questions about your medical health as well as do some actual medical tests. Some tests will be standard (e.g. HIV) while others will depend on the answers to the questions

4/ Insurers rely on people providing accurate information to the questions, since the answers themselves are also used to determine the underwriting outcome

5/ It's worth noting that the vast majority of insurance applicants are acting in good faith in this process, and insurers try to make the process of buying cover as easy and hassle free as possible

6/ The question which comes up is why don't insurers do all the possible checks and medicals before the policy is issued (rather than rely on the accuracy of the information provided by the potential client). It's a good question

7/ The simplest answer is the economics of it. Let's assume only 5 out of 100 applicants are trying to game the system, and get cheaper premium rates (when they should either pay more, or they shouldn't get cover at all)

8/ If insurers did full medical tests on every client upfront (essentially assuming everyone is acting in bad faith), the implication would be that the 95 other applicants would pay more for their cover and have to really hassle to get cover

9/ A full set of medical tests per applicant can run into thousands of Rands. This can be thought of as a manufacturing cost in producing a policy, and hence would impact the price of insurance

10/ The net result it that premiums would be significantly higher for everyone, and the group impacted the most are those who are acting in good faith to start with. This would mean fewer people could afford the cover they may legitimately need.

11/ So insurers need to find a balance between achieving good prices and convenience, while at the same time discouraging and catching fraud when it occurs

12/ They do some of this through claims underwriting. When a claim is submitted, insurers usually do reasonable and logical checks as to whether there was potential non-disclosure