If you have had an insurance policy cancelled for reasons other than not paying your premium, you may have seen the phrase Underwriting Reasons as the reason for the cancellation. Just what is underwriting and why did it cause your policy to cancel?



In simple terms, underwriting when it applies to insurance is the process of determining whether a risk (namely, you) is insurable and, if so, deciding on the appropriate premium (cost). For the two main personal lines policies (auto and homeowners) that process is largely predetermined by executives. The premiums are set by actuaries (ubrmathmaticians) based on the past (and projected) history of losses for classes of risk.





A Class may be the age, sex and marital status of the driver of a vehicle, the year built and construction class of a home or some similar homogeneous grouping. Sub classifications, such as driving records (driving experience, tickets and accidents), credit histories, vehicle types (sports cars, SUVs, etc) and home upgrades, to name a few, may also have an impact on the desirability of a risk.



Back to the topic: You may become a victim of the Underwriting Cancellation if your credit history has declined of late, your driving record is showing violations you did not disclose, or, for homeowners, you have a trampoline or high risk animal (pit bull, Rottweiler, etc) you did not disclose. Unfortunately, lack of disclosure is the main reason for such cancellations. The selection process is usually highly automated these days so mistakes by your agent are almost never the reason for such cancellations.



It is extremely important to be candid with your insurance agent when you are purchasing insurance. Your agent will place you with the best carrier (the most coverage for the lowest premium) he or she can based on your answers. If you do not provide an accurate picture for the agent they may be placing you with the wrong company for you (they do not accept you at all or will accept you but at a much higher price). Once the selection is made and the initial premium is paid, it becomes costlier to you to either pay the additional premiums or worse, re-write the policy. When you have to replace your coverage you will be required to provide and additional down payment while the returned funds (if any) for the original will usually take 30 days or more to reach you.



To make the insurance buying process as painless as possible (everybody suffers a little pain when they have to buy insurance) be sure to provide your agent with complete and accurate information. Bring documentation (copies of registrations, licenses, liens and mortgages, prior coverage declarations, etc) whenever possible. And, by all means, discuss your concerns and questions with your agent. Your agent is not just a salesperson, but a trusted advisor and source of information about the insurance process.



Thomas A. Green, ARM has been an insurance agent and executive for over 19 years.