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Post-Claim Underwriting: How Insurance Companies Plan Not to Pay You

Accidents are inevitable. And because they’re unforeseen, accidents are difficult to plan for. This idea of the unknown is enough to induce anxiety for anyone, but most of us find solace by preparing for the fallout from an accident by purchasing insurance. Most of us select some form of coverage we feel we need, be it auto or life or health insurance, and we pay a premium for that coverage. We pay for the coverage—usually hoping we will never have to use it—thinking that if we do need it, we will receive it. But the reality is, you don’t always get what you pay for. When it comes time to use your insurance, insurance companies will often pay you far less than the coverage you purchased—if they pay at all.  Insurance companies have an arsenal of excuses they use to justify not giving you what you pay for, but one tactic has become increasingly utilized: post-claim underwriting.

What is Underwriting?

To understand post-claim underwriting, you must first understand how insurance companies operate. Insurance companies operate in the realm of risk, not simply because they insure against risky situations like driving, but because they are taking a risk that they may lose money by having to pay a large sum if a claim is filed. Recognizing the risk of potential claim payouts is an important step in the insurance company’s decision to provide coverage. To recognize this risk, insurance companies engage in what is known as underwriting.

Through the process of underwriting, an insurance company attempts to reduce the role played by guesswork in assessing the risk it agrees to assume. They can do this any number of ways which include questions on an application for insurance or investigating an individual’s health history. Effective underwriting eliminates applicants who are bad risks, which increases the amount of potential profit from the low-risk people it insures.

But underwriting and risk assessment are expensive operations which ultimately eliminate the amount of potential profit. To avoid the cost associated with underwriting, insurance companies will engage in what is known as post-claim underwriting.

What is Post-Claim Underwriting?

An insurance company engaged in post-claim underwriting doesn’t attempt to recognize the risk posed by an applicant before agreeing to insure them. Rather, the insurance company simply issues a policy with little to no investigation or inquiry into the client. This allows the insurance company to immediately collect profits on the premium paid by the applicant. They will continue collecting these profits, having expended very little effort, until a claim is eventually filed for by the insured. It is at this point—post claim—that the insurance company will launch an all-out investigation searching for any reason to deny the claim. This is how post-claim underwriting works to prevent deserving, paid-in clients from reaping the benefits they have been paying into.

How Does Post-Claim Underwriting Occur?

The post-claim underwriting investigation usually begins and ends with the application you filled out for the insurance. Insurance applications can be a trap for unsuspecting consumers. If you’ve ever filled out an application for insurance, your instincts may have told you something did not feel right. The reality is, insurers often require their customers to answer questions that are deliberately confusing and designed to induce mistakes.  The insurers do nothing to ensure that customers understand what these questions are asking, which often leads to answers that are improper or inadequate. What the post-claim underwriting investigation is aimed at uncovering is any discrepancies between actuality and your answers on the application. Any discrepancy is usually enough to justify denying your claim.

Take for example an application for health insurance. An application for this type of coverage could ask a question as vague as “are you in good health?” The application may then be limited to a simple “yes” or “no” answer. The applicant may select “yes” thinking they are in good health because they haven’t had any health problems for a while. Say some time later, the applicant has a heart attack, survives, and attempts to file a claim with their insurance company to cover the medical costs incurred. What the insurance company will then do—post claim—is investigate whether the applicant was truly in “good health” when they filled out the application. They will review the applicant’s medical records searching for any medical ailment which could be subjectively seen as an indication of bad health. In the case of the heart attack victim, it could be as minor as medical records indicating a short stint of high blood pressure. The insurance company will then use this information to deny coverage.

How do I Protect Myself Against Post-Claim Underwriting?

It is important to remember that insurance companies are a business, and just like any other business out there, they must make money to survive. To do this, they will stop at nothing. Laws have been passed in an attempt to stop post-claim underwriting, but the reality is that it still happens. You can protect yourself against post-claim underwriting by becoming involved in the insurance application process. Ask questions if you don’t understand the application. Make the insurance company do their job. But sometimes this may not be enough. If you find yourself involved in a post-claim underwriting situation, it may be best to contact an attorney who is experienced in dealing with insurance companies.

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