Basics of Underwriting

10 06 2009 Autor: Administrator

In all forms of insurance, not just health insurance, underwriting is a common practice. It is important to understand the reason why insurers underwrite. Basically there are two main considerations governing the behavior of insurance companies. First people buy insurance if they believe that there is a possibility that they will incur high losses in the future and need to protect themselves from that event. This is commonly known as adverse selection phenomena. Secondly is that a small portion of the uninsured actually accounts for a huge share of the total costs of claims paid out by insurance companies. It is virtually impossible to outright identify who among the insured will actually have high costs because sometimes even low risk categories can be more costly than high risk ones.

 Posted on: Wednesday, June 10, 2009 at 2:17 pm and is filed under the category Basic Information.
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