Page 97 - Ebook health insurance IC27

Sashi Publications

Q5. State the basic principles of underwriting.
Ans. There are several principles of underwriting, based on common law and specific

insurance laws. Health insurance is equally governed by such principles, and form
an integral part to any insurance contract.
(a) Utmost Good Faith ( Uberrima Fides) - When one enters into a contract, it is
generally in good faith. Even in insurance contract, both the parties entering into
contract in good faith ( insured and insurer), are obliged to disclose all material
information which may be of importancewhether requested, or not. Without utmost
good faith, an insurance contract would take the form of a wager or a gambling
transaction.

The reason being that the insurer, who undertakes to cover the risk, should be in
a position to properly understand the risk. Any Non disclosure or misrepresentation
of a material fact by the proposer would make the contract 'voidable' and the
insurer can cancel the contract. This is because the understanding of the actual
risk status would be different from the one made to perceive. Materiality of
information is judged by its relevance to the underwriting of the risk.

The duty of 'Utmost Good Faith' has to be followed by the insurer too. During a
claim, the insurer has to be clear and transparent with his proceedings and
answerable to the insured. Both the parties involved must showgood faith, absolute
and perfect candor or openness, and honesty.

(b) Insurable Interest - A person is deemed to have an unlimited interest to himself.
The principle of insurable interest is the legal right to insure, and it means that the
person effecting the insurance has legally recognized relationship to the object or
person of the insurance. Eg, employers have insurable interest in the health of their
employees.

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