Page 13 - Life Insurance underwriting Ebook IC 22

d) Favourable factors cam debits (reduction in mortality rating) and

unfavourable factors mandate credits (addition / enhancement of
mortality ratings

e) Risk classification of the applicant

Once all the factors are debited or credited, they are then totalled to get a final

rate, which would then classify the applicant as standard risk, sub-standard risk
or highly sub-standard risk. The total accumulation of debit and credit is
rounded off to the nearest 25%.

1.6 Advantages of the numerical rating system

 It establishes a standard method of underwriting which can be

referred to by every underwriter.
 The factors are rated on the basis of documented manuals: hence
all the factors are uniformly rated by all underwriters.
 It eliminates personal judgment of the underwriters to a large

extent.
 It helps in assessing the combined effect of multiple adverse
factors together.

 It increases speed and efficiency in handling large volumes of
business and also maintaining consistency in decision making in
the underwriting process.

1.7 Disadvantages of the numerical rating system

 This method involves charging level extra sub standard lives

throughout the term of the policy contract. This would be unfair
for the persons whose category of extra-risk is of decreasing type,
i.e. where the extra risk diminishes over a period time. Hence,
charging of level extra premium for the entire term to these

individuals is not justifiable.
 The method of charging for the extra risk in the initial year of the
policy but which decreases with the passage of time, a temporary

extra is imposed for a short period along with the normal extra
mortality rating. This extra is generally expressed like Rs 3/- per

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