IIQE Paper 3 English Quiz 19

Underwriting is considered a technical exercise. In connection to this, risk assessment is the technical matter of risk selection, rating, and imposing terms, as necessary. It is the methodology used by insurers for evaluating and assessing the risks associated with an insurance policy. The same helps in the calculation of the correct premium for an insured.

General rules for application procedures include:
• All material facts should be given – “Yes” answers in response to inquiries on health and other matters must be accompanied by full explanations.
• Normally the applicant should complete the form personally. Sometimes the insurance intermediary is asked to assist by writing things at the client’s dictation.
• All questions should be answered, as fully as required and failure to observe this rule can only result in a delay.

Supplementary requirements
The insurance intermediary should therefore take great care in his advice and general assistance to the client when the form is being completed and it includes supplementary requirements. Supplementary requirements may involve a number of issues, detailed instructions about which will be supplied by the insurer.

Some areas likely to be involved, however, include such matters as:
• Life underwriter’s report
• Mode of premium payment
• Proof of insurability
• Underwriting forms

Client Service
Client service has been described as the range of activities a company engages in to keep its customers satisfied. It is a set of procedures that guide the overall customer service approach and attitude. It provides a valuable connection between insurance customers and policy providers. Their job is to handle all customer queries and complaints. They also provide prospective customers with detailed information about company products.

The Importance of Client Service may have a number of considerations, including the following:
• Customer loyalty
• Customer “prospecting”
• Productivity/Profitability

Customer “prospecting” may be described as the search for new customers. If existing customers are happy with you, they immediately become your “unpaid prospectors” with their friends and families.

The importance of client service may have a number of considerations, including the following:
• Corporate culture
• Systems
• Delegation
• Training

This is a very important document which an insurance intermediary must help an applicant complete before the applicant agrees or makes a decision in relation to the purchase of a New Policy. Prepared in conjunction with the CPD Form, the “Explanatory Notes to Customer Protection Declaration Form” explains in detail the duties of the insurance intermediary regarding the completion of the CPD Form and how to complete it.

The Hong Kong Federation of Insurers (HKFI) has issued a code of practice called the “Cooling-off Initiative” for compliance by its life insurance members (LIMs), with the following major provisions. It includes:
• Policyholders are given a period during which they may reflect and if they wish change their mind about a life insurance policy that they have purchased or applied for.
• Such rights apply to purchases of new individual life insurance policies, whether linked or non-linked.
• The Cooling-off Period is 21 days after the delivery of the policy or issue of a Notice to the policyholder or the policyholder’s representative, whichever is the earlier.

Cooling-Off Period
Policyholders are given a period called a Cooling-off Period during which they may reflect and if they wish change their mind about a life insurance policy that they have purchased or applied for. The right to cancel during a cooling-off period does not apply to travel insurance that lasts less than one month.

The purpose of the notice informs the policyholder of the availability of the policy and the expiry date of the Cooling-off Period. It reminds the policyholder that he has the right to re-think his decision to purchase the life insurance product. It also reminds the policyholder to contact the Customer Service Department of the insurer directly if he does not receive the policy within 9 days from the issue date of the Notice.

The code of practice for life insurance replacement requires life insurance members (LIMs) to provide training to help their insurance agents to get familiar with the contents of the CPD Form.

Incontestability Provision
Incontestability Provision has been held by the English courts to be incapable of preventing an insurer from avoiding liability on grounds of negligent misrepresentation on the part of the insured unless the clause expressly mentions negligence or the clause does not otherwise make sense.

The life insurance members (LIMs) have to keep a copy of the Notice or acknowledgement of receipt of policy delivery. They have to keep a copy of the Notice or acknowledgement of receipt of policy delivery. They have to specify in their training materials for insurance intermediaries and internal guidelines.

For non-linked single premium policies, potential policyholders have to be made aware that the insurer has the right to apply an MVA before they sign the application.

Policyholders have the rights to cancel new policies within the Cooling-off Period and obtain a refund of the premium(s) paid. It includes:
• For all non-linked policies other than non-linked single premium policies, the refund is 100% of the premiums paid.
• For all linked policies and all non-linked single premium life insurance policies, the insurer has the right to apply a “market value adjustment” (MVA) to the refund of premiums.
• Any such MVA has to be calculated solely with reference to the loss the insurer might make in realizing the value of any assets acquired through investment of the premiums made under the life policy.

The Code of Practice for Life Insurance Replacement
The HKFI has issued the “Code of Practice for Life Insurance Replacement” (the Code), which we should study in some detail, to prevent ‘twisting’ by insurance agents, insurance brokers, and their responsible officers/chief executives and technical representatives.

For non-linked single premium policies, potential policyholders have to be made aware that the insurer has the right to apply an MVA before they sign the application. This may be done by letter, or within the product brochure.

With a competitive and innovative market, obviously, there can be genuine and quite legitimate cases where an insurance intermediary can in all conscience recommend a client to change his present life insurance policy to one offering better terms or prospects. In connected in this, policy switching includes:
• Replacement
• Twisting
• Identifying twisting
• Subsequent actions

In the Code of Practice for Life Insurance Replacement, twisting is the making of inaccurate or misleading statements or comparisons to induce a policyholder to replace Existing Policy with other life insurance policy to the policyholder’s disadvantage.

An existing life insurance policy or a substantial part of the sum insured of its basic life coverage:
• Has lapsed/will lapse
• Was/will be surrendered
• Was/will be converted to reduced paid-up or extended-term insurance under the non-forfeiture provision of the policy

New policy
New policy refers to any transaction involving the purchase of life insurance that is construed as a replacement if within 12 months before or after a new life insurance policy. Any transaction involving the purchase of life insurance is construed as a replacement if within 12 months before or after a new life insurance policy.

Customer Protection Declaration (CPD) Form
This is a very important document which an insurance intermediary must help an applicant complete before the applicant agrees or makes a decision in relation to the purchase of a New Policy. Prepared in conjunction with the CPD Form, the “Explanatory Notes to Customer Protection Declaration Form” explains in detail the duties of the insurance intermediary regarding the completion of the CPD Form and how to complete it.

The Code requires LIMs to provide training to help their insurance agents to get familiar with the contents of the CPD Form, of which the most important features can be found below:
• The form is designed to discover any replacement being recommended.
• The insurance intermediary is required to explain and discuss with the applicant the full implications of his replacement.
• The insurance intermediary has to give reasons and/or justifications wherever required in the CPD Form in writing as fully as possible.

The insurance intermediary has to give reasons and/or justifications wherever required in the CPD Form in writing as fully as possible. It includes:
• Financial implications
• Insurability implications
• Claims eligibility implications

Financial implications are the, implied — or realized — outcomes of any financial decision. And while the phrase often carries a slightly negative connotation, financial implications can be either good or bad. The examples of financial implications include:
• Guaranteed cash values
• Estimated loss
• Annualized premiums

Insurability implications
The new insurer may review the life insured’s current state of health, occupation, life style/habit and recreational activities. If any significant change has occurred, the insurer may deny some coverage or charge a higher premium. Such implications must be explained to the client.

Estimated loss is stated on the CPD Form for reference only that the policy set-up cost is usually two years’ premiums or 10% of single premium of the basic life insurance policy replaced or to be replaced. No reason is required if the estimated loss stated is equal to or higher than this reference. The insurance intermediary may use other reference for the estimated loss provided he could reasonably justify the estimation.

Suicide clause and contestability period
The new life insurance policy may have different policy provisions and also may result in a new start of the period in the suicide clause and of the contestability period. This could result in a claim being denied that would have been paid under the existing life insurance policy. The insurance intermediary has to help the applicant fill in the respective expiry dates of the suicide exclusion period(s) and contestability period(s) of the existing life insurance policy(ies) and the new life insurance policy.