The term “underwriting” has a double connotation in life insurance. Originally, the word “underwriting” came from the practice of wealthy individuals and firms assuming certain risks, usually maritime (marine) risks. When accepting these risks, the practice was for these individuals or firms to sign under the terms of the contract, hence the name “underwriter.”
In life insurance, individuals who market life insurance are called underwriters, or “field underwriters.” Those individuals who have taken a series of examinations from the American College of Life Underwriters, and have prescribed experience in life insurance, are awarded the designation of “Chartered Life Underwriters.”
This chapter discusses the process by which an insurance company determines the risk of an application submitted by an individual and determines if the risk is acceptable to the insurer, and if so, on what basis. The individuals who do the risk selection and classification, are called “underwriters,” or “home office underwriters.” They have their own professional designation, “Fellow, Home Office Underwriters Association” which is awarded after a series of examinations and completion of experience requirements. Their primary responsibility is to assess the potential of loss of each applicant from information that they gather from various sources, and then determine what classification or “loss potential” is the closest of that of the applicant.
F The process of underwriting consists of two separate functions: Selection and Classification.
Selection is the process of determining whether the applicant meets the insurability criteria and standards of the insurance company, and to measure the risks involved. The next step is that of Classification, which is the process wherein an underwriter assigns the individual to a “class” of insureds, or group of insureds, who have approximately the same loss probabilities as that of the insured.
Underwriters deal more with probabilities than with certainties – although in life insurance there is a certainty of a loss if the policy stays in force long enough. The question of when the insured will die is not certain, but by the insured being assigned to a group of similar insureds with similar attributes and health history, whose life expectancies should approximate that of the insured, and to do so in a manner that is equitable to the insured and profitable for the company, the underwriter has performed his duties.
Group insurance is underwritten differently than individual, as described later, as each group is expected to contribute a premium that is sufficient to cover its loss potential. However, individual insurance is different, as each individual should pay an amount which is sufficient to cover the expected value of his/her losses. If some of the insureds pay premiums that are insufficient to cover adequately the expected losses (and expenses of the insurer) the other insureds must make up the difference, in effect “subsidizing” the other insureds.
Each insured in each “pool” would expect to receive a loss-payment in the form of a subsidy, from other members of a pool. This would mean that those who least expect to suffer a loss would drop from the pool, leaving only those that have greater expectations of receiving a loss payment from the “pool.” This creates adverse selection, and the underwriter’s function is to reduce adverse selection as much as possible.
Obviously, those persons applying for life insurance vary widely in various areas. Many are overweight (a few underweight), some are in ill health or at death’s door, others are in excellent health and the majority are in good health, and many do not have the slightest impairment. Those who are in good health and meet the standards for insurance of the company, are considered as “standard” risks. Those who do not meet the qualifications are called “substandard” risks.
If complete information on an individual was available, then underwriting would be straight-forward and there really would be no need for home office underwriters. Facetiously, if an applicant were able to furnish only accurate facts to the insurance company, the company could issue the policy and would be guaranteed of a profit. All they need to know are (1) the date of birth, and (2) the date of death.
Adverse selection starts when an applicant who is uninsurable or a greater than average risk, seeks to obtain a policy from a company at a standard premium rate. Life insurance companies carefully screen applicants for this reason, since their premiums are based on policyowners in average good health and in non-hazardous occupations. While this chapter discusses the application process, adverse selection also exists when existing insureds believe their premiums are too high in relation to their specific loss potential, and they can discontinue their insurance without penalty or without a significant penalty. In other words, the “best” risks leave the group and cancel their insurance, leaving behind those who believe that their premiums are accurate or inadequate (those of a higher risk), with the results that the premiums for the remaining group then become under-priced. But if the premiums are raised to meet this higher anticipated loss ratio, then the cycle repeats, where eventually the only ones who remain in the pool are those who are so large a risk that they must stay in the pool.
In life insurance, if the applicants know that an insurance company will offer them insurance without performing any underwriting, those who are in poor health or those who expect to have higher mortality than the average, will apply for the coverage in anticipation of a more favorable rate.
Conversely, if they know that the insurance company will investigate their insurability status, those who are in poor health or would be classified as substandard for other reasons, would either not apply or would submit truthful applications as they would be aware that the insurer will check on the accuracy of the answers.
Factors primarily used in the home office underwriting process and included on the application include age; sex; physical condition and personal health history; family health history; financial condition; use of alcohol or drugs or tobacco; occupation; avocation and military status. At times, aviation and residence location are also considered.
Since expected future mortality is correlated with age, the older a person, the higher the mortality risk. While many people are “young for their age”, or vice-versa, there is no way to measure the biological age of a person, so the underwriters (and actuaries) have to use chronological age only.
Age is not a key factor in whether a risk is acceptable, except in the very early years and in the later years, and some insurers will not insure a new born baby or a person of advanced years (such as age 75). For the older ages, the premium might be so high that it is not attractive to persons of that advanced age (or if it were available, adverse selection might rear its ugly head again). With the very young, the mortality rate is also very high for a short while. In any event, the insurance company would probably not insure enough people in those categories to have a sufficient spread of risk.
Proof of age is not required at time of application as few people misstate their age and verification of age is relatively easy, if necessary. Besides, the “misstatement of age” provision in the policy takes care of adjusting the premiums or risk accordingly.
Sex, like age, by itself, is rarely used for selection of risk, but is a classification as mortality tables show that the mortality of males and females are different – the mortality of females are better (lower) than that of males. Interestingly, this was not always true as insurance companies used to charge the same premiums during child-bearing years, as they felt that the increase in mortality because of the hazards of childbirth offset any other mortality advantage of females. Today the childbirth-hazard has diminished to where it generally is no longer a factor.
Since females should be charged lower premiums for life insurance based on lower mortality, it also then follows that females should be charged higher premiums for annuities. While this is true, the question arises whether it is socially acceptable for males and females to be charged different rates, which has led to “unisex” rates, i.e., there is one premium for both male and female.
In underwriting, the most important factor is that of the physical condition of the insured. There are several primary factors of the health of the applicant that are carefully scrutinized. Health information about the applicant comes from several sources, as discussed later, but primarily from the statements of the insured on the application and from physicians statements regarding past health history admitted by the applicant. (Sources of underwriting information are discussed in detail later)
Build includes height, weight and the distribution of the weight. Everyone is aware that being significantly overweight can cause an early demise, but an underwriter also has to be aware of how even moderate overweight can affect other physical conditions, such as diabetes or a heart condition.
The mortality experience of an applicant will depend upon certain physical abnormalities as they affect the important parts of the body, such as the nervous system, digestive, cardiovascular, respiratory or genitourinary systems and other glands. It is outside the scope of this text to go into detail as to how various problems in this area affect mortality, but some of these are obvious.
Problems with the circulatory systems, such as high blood pressure, a heart murmur, or fibrillation’s of the heart (irregular or erratic heart beat) are of considerable interest as they can lead to higher than normal mortality. A urine specimen can discover internal problems, particularly with the blood and/or kidneys. Conversely, low blood cholesterol; normal or lower-than-normal blood pressure and non-use of tobacco are “plusses.”
There is always concern about AIDS because it spreads so easily and it has a fatal effect. When AIDS first was diagnosed, there was a lot of concern about privacy of medical records and unfair discrimination. Today most of the issues about privacy, confidentiality and discrimination have been resolved, and insurers now treat AIDS like any other disease, but the right to test individuals for AIDS is still controversial and in some jurisdictions, testing is prohibited.
Insurance companies inquire into the background of their applicants in those areas that would have an impact on future mortality. This includes the individual’s health records and other non-health area, such as driving records and possible overinsurance.
As indicated earlier, most of the health history comes from the application and from attending physicians and/or hospitals. The applicant for life or health insurance signs a
form (usually at the bottom of the application) which gives any doctors or hospitals permission to furnish medical records to the insurer.
In many cases, if an individual has not had a physical examination for a significant number of years, the insurance company can ask the applicant to submit to a physical examination, usually, but not always, at the expense of the insurance company. Para-medical examinations, which are performed in the applicant’s home or business office, are quite common. If the underwriter requires a more detailed examination, such as a stress test, these are usually performed at the expense of the applicant.
If there is or is suspected of being, a cardiovascular problem, an electrocardiogram (EKG) may be requested and copies of past EKG’s may be requested also. Insurers either have a medical director on staff, or the application and medical records may be sent to a reinsurer for their interpretation and evaluation. (Reinsurers have expert medical underwriting staffs.)
Overinsurance discovered through insurance history is important. If an applicant has more insurance than normal, and perhaps more than is financially justified, the underwriter has to ask himself, “What does he know that I don’t?” Records from other insurance companies can be requested, however in most jurisdictions an insurer may not render an underwriting decision based upon only the records of another insurer.
The magic word here is “heredity.” Many diseases can be transmitted from generation to generation and family health history is heavily influenced by inherited genetics. If the parents of an applicant lived to a “ripe old age,” then genetically speaking, there is a good possibility that the applicant will also. Conversely, if both parents died of heart conditions at an early age, then the underwriter will pay particular attention to any coronary problems, overweight, cholesterol, etc.
Insurance companies are now well aware that smoking and other tobacco use causes mortality experience to worsen, even in the absence of other physical factors. In addition, smoking can aggravate many other health problems.
Most insurance companies now have smoker and non-smoker rates. Even though the smoker rates will be considerably higher, in many cases they are not adequate, particularly if the person is a heavy smoker. Actually, female smokers have higher mortality than the nonsmoking male. Where there is no differentiation, most insurers consider the “standard” grouping as 75 percent nonsmokers who have about 85% of expected mortality, with the remaining 25% having about 150% of expected mortality. This differs by age and as an example, those ages 40-49 who are tobacco users have about twice the mortality rate of the nonsmokers.
It should be understood that the nonsmokers are not a “superstandard” class, and because of the continuing decline in smoking in the U.S., the nonsmokers will soon be (and in some cases, already are) the “standard” classification. The smokers will be (or are) considered “substandard” and will pay additional (substandard) premiums.
The reputation of the applicant in meeting financial obligations can indicate the moral risk involved with the applicant. Financial condition, which includes personal net worth, size of income, sources of income, and permanency of the income, are very important underwriting factors.
The relationship between the income and financial worth of the individual and his life insurance coverage, in force and applied for, can indicate good or bad financial and estate planning. However, if the amounts are quite large, then the underwriter must start questioning as to the reasons for the difference in amount. Again, what does the applicant know that the underwriter does not know?
CONSUMER APPLICATION
In the early 1970’s, a cattle rancher from Oklahoma applied for life insurance in the amount of approximately $15 million, at that time considered as a huge policy. While the applicant actually wanted more insurance, this amount was all that was available anywhere, and even reinsurers worldwide kept their maximum amount (retention). The inspection company did not fully verify the finances of the applicant, and they accepted the word of the applicant as to his net worth without precise verification, as he was very well known and influential in Oklahoma, he had a huge ranch, and his wife was wealthy in her own right.
13 months later, the insured was found in the basement of his home, stabbed and bludgeoned to death. Nearby was his injured “bodyguard,” an ex-convict who claimed that the “assailant” had stabbed him.
Claims investigations discovered that the insured was on the verge of bankruptcy and it was suspected, but not proven, that he owed a lot of money to the Mafia. It was also discovered that the partner of the General Agent who had written the policy, was discovered to be a former “Mafia hitman” and was found murdered in a rural area in Canada, not far from the body of another known hitman.
The murder was never solved. The insurers settled for a little over 50% of the face amount of the policy. (As an aside, apropos to nothing, the widow married the bodyguard, then divorced him and married her attorney.)
If the underwriters (and each reinsurer underwrote the case in addition to the company underwriter – there could have been as many as 25 or more underwriters review the application and records) had been aware of the financial difficulties, it is extremely doubtful that this policy would have been issued, at least for that amount. At time of claim, it was reported to be the largest claim in U.S. life insurance history.
(Incidentally, there is a movie and a book about this actual case.)
If the applicant is known to be an excessive user of alcohol, they can be either given a substandard rating or declined. Participation in a support program or alcohol treatment program can cause the application to be accepted or declined for a specific number of years without use of alcohol. The use of alcohol will severely affect the health of the applicant in any event, and such tests as liver function tests, may be required.
For other drugs, if there is use of “hard” or illegal drugs, then the applicant is declined. If the drugs have been prescribed by a physician, then the underwriting concern is the overuse of the drugs, and the reason for the drug treatment. A person who has used occasional or recreational use of drugs, and has not used them for an extended period of time since the last usage, and can show reliability and responsibility, etc., is probably insurable, depending upon the time frame.
Occupational hazards used to be much more significant than they are today, thanks to safety measures taken by various industries. The hazards today are still present in three specific areas.
The occupation may create an occupational hazards, such as working where drugs and/or alcohol are sold &/or used. The occupation may have an effect upon the health and well being of the individual because of environmental or other factors, such as inhaling chemicals or whose working conditions may be of such a nature that diseases are rampant or frequent, such as close, dusty and cramped quarters. There is also a risk from accidents, and people who are susceptible to accidents are carefully scrutinized, such as racecar drivers, crop-dusters, etc. Years ago, private pilots could not get life insurance or the rates were prohibitive. Now, insurance is available and the rates depend upon the experience of the pilot.
A person who is rated because of occupation, may change occupations to one that is safer. As a general rule, the insured would have to remain at the new safer job for a certain period of time, then apply for a rate reduction. In initial underwriting, the practice is usually to ignore a hazardous occupation if the applicant has been away from that occupation for a year or more.
With a higher standard of living than previous generations, many of the newly rich (and those not so rich) spend more time and money than ever before in the pursuit of exhilaration. This has shown an increase in such sports as scuba diving, rock climbing, parachute jumping (sky diving), hang gliding and competitive racing. These activities can often be considered hazardous and should be considered in the underwriting process. Many times a flat extra premium will be added to cover the added risk and in some situations, the applicant will be declined.
When the country is at peace, insurance is usually offered to military personnel. However, when the country is at war, then the problem of adverse selection arises, particularly when a serviceman has just been issued orders to join a unit in combat. In these cases, either the application is declined, a limit on the amount of insurance is offered, or a war exclusion clause which limits the payment to return of premiums if the insured is killed in a military action, but pays the full face amount if death is caused by other than military action.
The war exclusion clause was used in WWII and in Korea, but not during the Vietnam War. An interesting feature of this clause is that when war or hostilities cease, these war clauses are routinely cancelled and they cannot be brought up again.
It is too early to tell what the response to the present (2001) war against the terrorists will be in respect to the war clause, but the thinking at this time is that if the “war” is contained as anticipated, public opinion would be so solidly against any such restriction that the insurance companies would probably not even consider such a clause.
There are two other areas of concern to an underwriter, but they do not arise often. Aviation risks apply to private pilots, but can also apply to commercial pilots and military pilots. Where there is a definite aviation hazard, the applicant will be asked to complete an aviation questionnaire and based upon these answers – which are concerned primarily with experience, type of aircraft and frequency of flying as a pilot – an additional premium may be charged. Flights by fare-paying passengers are not considered as a hazard and there are no extra premiums charged. Most scheduled airline pilots and experienced private pilots are issued insurance with no aviation restrictions.
The other area is that of residence. If a resident of the U.S. is going to take up residence in a foreign country, depending upon the living standards of the country and the political atmosphere, there may be an extra premium charged, and in some cases, the application may be declined. For a foreign resident moving to the U.S., the big problem is developing underwriting information. And then if a claim should occur, obtaining claims information is a problem. The currency problem in other countries can come into play also.
As mentioned earlier, sources of information used in underwriting comes from a variety of sources, but primarily from the following:
There cannot be enough stress placed on the importance of the application.
Nothing can compare to a completed and accurate application.
Part I of the application contains questions about personal information, such as name, addresses, business addresses, occupations, sex, date of birth, relation to beneficiary, etc. It also asks about type of insurance applied for and in force, driving record, past declination or modification of insurance in force or applied for, aviation, avocations, foreign travel, etc.
Part II is the medical history of the applicant, with details and names of doctors and hospitals in attendance, both present and within the past 5 years (or more), questions regarding the physical well-being of the applicant, use of alcohol or drugs, and family history.
A copy of the application becomes part of the insurance policy.
As discussed earlier, if a physical examination is necessary, the doctor or paramedic conducting the physical will complete a form prescribed by the insurance company. Copies of X-Rays, EKG’s, EEG’s and other test results may be required.
These examinations are very important and many medical conditions can be discovered through these exams, but they are not fool-proof as many applicants attempt to conceal health problems, and may come prepared for the physical by dieting and exercising prior to the exam. Paramedical exams are usually used for the smaller amount policies, but at a predetermined threshold, a “full” examination by a physician may be needed.
Laboratory testing became more common because of the exposure to AIDS and illegal drug use. With the public awareness of other health risks, such as cholesterol readings, laboratory tests are used more and more and have been found to be cost-justified.
Tests usually consist of blood and urine specimens, and urine testing is used for controlled substances, medications, and nicotine.
New genetic research finds that genetic testing can be invaluable for insurers. Presently insurance companies consider genetic testing as any other testing and genetic tests used by medical professionals for treatment and for preventative medicine are used as any other test. Insurance companies do not order genetic testing as part of the underwriting procedure.
If the application completed by the insured contains medical history, it is common practice (mandatory with some companies) to obtain copies of the medical records. These are called “Attending Physician’s Statements”, better known as “APSs.” In some cases, the agent or agency will request an APS at time of application. In some situations and with some companies, the company will pay for the APS (usually if the charge is within reason as some physicians have discovered that this is a good source of added income).
The medical records of an individual is legally confidential between the physician and the patient, therefore the application will contain, either as a “tear-off” part of the application, or on a separate form, an authorization for a copy of the insured’s medical records to be submitted by the physician or medical facility, to the insurer. The APS is generally considered as the most important underwriting source, but they can be subject to delay (the doctor’s offices are notorious for not being in a hurry to copy and mail the records) and on occasion, physicians have been known to refuse to submit records. The medical records of the patient, belong to the patient, and occasionally an agent or the underwriter must request of the applicant that they obtain their own medical records.
Underwriters order inspection reports from inspection companies which interview the insured (or in some cases, do not interview the insured or a member of his family, neighbors, employer and others, depending upon the request by the insurer. Inspection reports are now referred to as “consumer” reports, and the inspection companies are called “consumer reporting agencies.” Old-timers still frequently refer to them as “Retail Credit” reports, after the name of the largest inspection company until it changed its name. These reports are ordered routinely if the amount of insurance applied for exceeds a certain amount (such as $100,000), &/or over a certain age.
Consumer reporting agencies are strictly regulated by the U.S. Fair Credit Reporting Act, which defines a consumer report as “a written, oral or other communication of any information by a consumer reporting agency that has a bearing on the consumer’s creditworthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living, and which is used or expected to be used in whole or in part to establish eligibility for credit, personal insurance, employment or certain other purposes.” (Note that these reports are to be used for personal insurance.)
An “investigative consumer report” is a consumer report containing information on the consumer’s character, general reputation, personal characteristics or mode of living, and this information is obtained by personal interviews with the consumer’s neighbors, friends or associates.
When the amount applied for triggers an inspection report, the report may be ordered from the home office of the insurer, or in some cases, by a field office. The completed report is always submitted to the underwriting department of the insurance company. In most states, the applicant must be notified in writing that they may be investigated.
The type of report will usually depend upon the size of the insurance amount applied for. Insurers may require a short form that verifies the address, occupation and employment of the applicant, or an intermediate form that requires more information. For very large amounts, particularly if it is for business purposes, a very detailed report is requested and may require interviewing the applicant’s bank, accountants, and other business affiliations and are usually billed on an hourly basis. The insurer pays for inspection reports.
Insurers are becoming more comfortable with personal interviews and have discovered that underwriting information that would not otherwise be known, can be obtained by a personal interview in the hands of a professional. Some insurers of other lines, such as Long Term Care, use personal interviews frequently.
The Medical Information Bureau, “MIB,” is one of the most misunderstood organizations in the insurance industry. It is a membership organization with virtually all insurance companies as members, and even those companies who are not members (usually very small or new) often receive the benefits of the MIB through reinsurance underwriting on difficult or large cases. The MIB is a “repository” of confidential information, most of which is of a medical nature, on people who have applied for life or health insurance to the member companies. It is highly computerized and was formed to protect insurance companies against fraud by insurance applicants.
Information is coded and members are required to report certain medical impairments, obtained from a medical source or from the applicant directly. Contrary to popular belief, the underwriting decision of the member companies are not shown on MIB data and they do not state the type of size of the insurance applied for. Information other than medical impairments are reported also, such as driving records, aviation, hazardous sports activities and criminal activities or association.
F A member of the MIB may not make an unfavorable underwriting decision based solely or in part, upon the information contained in the MIB.
In most states, the applicant must be informed in writing that the insurance company may report information to the MIB, and how the applicant can obtain a copy of the MIB report and dispute the report. Authorization to the MIB to release information on the applicant is usually on the same form as the release of medical information authorization.
CONSUMER APPLICATION
Bruce, who lived in Seattle, applied for life insurance in 1998 with Ajax Life. He admitted on the application that he had recently been diagnosed with early stage multiple sclerosis. He was declined by Ajax and the information on his illness was coded and submitted to the MIB. Shortly thereafter, Bruce moved to Florida.
Being in the early stages of multiple sclerosis (MS), Bruce was aware that he was subject to sudden seizures that could affect various body movements or functions, but since he had not had any serious recent seizures, he never reported it to his regular physician in Florida, but found an specialist in treating the disease which monitored Bruce’s attacks. (Continued on next page)
In early 2001, Bruce applied for life insurance with Acme Life. On his application he never mentioned his MS or his treatment by the specialist.
The underwriter at Acme received an MIB report, filed by Ajax, showing that Bruce had MS. The Acme underwriter contacted Ajax who sent the details that they had in their files. Bruce was then contact by the Acme underwriter, but he denied any such illness and denied ever having had a diagnosis or treatment of MS.
Acme may not make an underwriting decision based upon MIB information, so they must obtain verifying information. Acme would require Bruce to submit to a medical examination and test that would probably show that he had MS, and they would decline the application. If they were not able to verify the MS diagnosis, for whatever reason, they could not decline or rate Bruce’s policy based on the MIB report.
It was mentioned earlier that life insurance underwriting consists of two phases, selection and classification. Up to this point, the discussion has focused on the selection process. At the next stage, the underwriter must determine whether the applicant is insurable, and if so, on what basis. If the applicant does not meet the underwriting criteria of the company, then the application is declined and the process ends.
The only other choices are whether the applicant is to be accepted at standard rates, at substandard rates (either temporary or permanent) or whether the application will be postponed for a period of time (in those cases where the effect of a medical condition can be better determined at a later date).
CONSUMER APPLICATION
Conrad is scheduled to have prostate surgery, non-cancerous, by an eminent urologist, in 3 weeks. He had been talking to his brother-in-law who is an insurance agent, about taking out a new life insurance policy to help pay off a mortgage on his new and expensive house, in case he should die. He resumes the discussion, and makes an application for insurance.
Conrad is in excellent health, in good financial condition, and meets the requirements of a standard policy from the insurer. However, the underwriting decision would be to postpone the application until a certain period of time after the surgery has been successfully completed, at which time the application will be reviewed again and if there are no changes, the policy can be issued.
In the early years of life insurance, decisions regarding medical difficulties primarily, were reviewed by the underwriter, a independent doctor or the company’s medical director (who was a doctor), the actuary, and anyone else that may have some expertise in the area. Basically, the application was either issued or declined, with little other classification. This “judgement” method of underwriting obviously left a lot to be desired, so the numerical rating system was devised.
The numerical rating system (or alphabetical system described later) starts with the “standard” rating of 100, i.e., a “standard” risk has a rating of 100. From this, any factor that has an effect on the mortality of the applicant is judged by debits or credits, generally in 25 “points” increments. The ratings range usually from 75 or less to a high of 500 or more, with 125 or less considered as standard. Any application with 500 of more rating is usually declined, or at least considered as experimental underwriting. Many companies consider ratings of 75-85 as “preferred,” 100 to 125 as standard, 150 to 500 as substandard.
Generally, underwriting decisions are in multiples of two, expressed as “Tables.” For instance, if the medical condition falls within 50 additional points, then the application would be classified as “Table 2.” If the conditions were more severe, then it would normally be rated at Table 4. There usually is no Table 3,5,7, etc. in normal underwriting practice with most companies, but they could be used if there were a combination of “positive factors”, such as an applicant who is slightly underweight but is active and other than a particular health problem, is in above-average condition. The rating might be a Table 4 for the health problem, but reduced by a Table for the good health, and the policy could be issued at a Table 3 – depending upon whether the company has Table 3 rates. Normally, however, the inclination would be to issue at Table 2 for competitive purposes with typical ordinary life insurance applications.
Some underwriters interpolate the numerical ratings into alphabetical ratings. For instance, a Table 4 would be Table D (the 4th letter).
Underwriters use Underwriting manuals which are either based upon their own experience on their own business (usually only the very large companies) or manuals provided by the reinsurance companies. Most illnesses, impairments and diseases are listed, with descriptions and with suggested ratings.
If an individual has more than one illness/disease/impairment or ratable condition, as happens very frequently, often the two rating are not added together, but an additional rating is added when there are multiple conditions. An overweight person who has a little coronary problem would be rated at more than the combination of the two, or could even be declined because of the two, but would have been accepted if it were only overweight or only coronary.
CONSUMER APPLICATION
Herbert applied for a life insurance policy. On the application he indicates that he is 37 years old, 5’10” tall, weight 215 pounds and he has had a “little high blood pressure” but is not under medication or treatment. He is a non-smoker, non-drinker and he is active physically. His parents both are alive, in there 60’s and his grandparents both lived into there 90’s.
A paramedical exam showed a blood pressure of 155/90.
(Continued)
Herbert would be rated for overweight by build tables used by the company.
Build-overweight: 25 points added; Blood pressure: 75 points added; and Family history: 10 points credited. In addition, the combined weight and blood pressure ratings would be increased by an additional rating as the combination places Herbert in a higher risk category.
Herbert’s total classification would be over 200 points (remember, everyone starts with the “standard” of 100 points) and definitely substandard.
Practically speaking, his history of weight and blood pressure would determine whether the underwriter would consider a lower rating for competitive reasons. If the total rating is Table 6 or lower, and there are no other health factors, another company may offer a Table 4, depending upon the plan, etc.
There is a large (huge, actually) market for impaired risks, i.e., substandard risks applying for life insurance. The life insurance industry continues to change, and as new medical advances appear, the industry takes them into consideration. Many of the standard or slightly substandard policies available today could not have been issued only a few years ago.
Thanks largely to computers, insurance companies are able to compile statistics that enable them to better understand the effect of an impairment on the expected mortality of a particular class of business. Many advances in impaired risk underwriting are a result of the influence of reinsurers. Reinsurers, and in particular, foreign (European mostly) reinsurers have been pioneers in underwriting impaired risks. Reinsurers have competed vigorously for impaired risk business, many of them accepting substandard risks with the understanding that they will also participate in standard business written by the insurer. Reinsurers have conducted seminars in underwriting, participated in industry underwriting and actuarial conventions and have created and furnished underwriting manuals for underwriters (most life insurance underwriters have at least one, and frequently several, reinsurance underwriting manuals) at no cost to the underwriters.
Reinsurers are generally able to accept business that smaller companies cannot accept, because of the large block of business that they have in force. Reinsurers “reinsure” among each other (technically called “retroceding”), so compared to a “regular” life insurance company, their number of insured lives is very large so they are able to base underwriting decisions upon their own experience.
Recent studies indicate that about 75% of all applicants for life insurance that have been declined have been declined for health reasons. Approximately 90 percent of substandard ratings have been related to physical impairments, such as heart murmurs, obesity, diabetes and hypertension (high blood pressure).
The most common method used for substandard ratings is the multiple table extra method, discussed above. Premium rates are based on mortality experience that corresponds to the average numerical ratings in each class. Taking it one step further, many companies use the same nonforfeiture values and dividends that they do for standard risks – a few do not. Some companies do not permit the extended term option on highly rated cases.
Companies vary premium rates for substandard risks by plan, with the extra substandard premiums being lower for the higher cash value plans because the net amount at risk decreases over the life of the policy so the insurer has less exposure. With the exception of level premium plans, substandard premiums do not increase in proportion to the degree of extra mortality expected, as the loadings in cash value policies do not increase proportionately to the mortality risk. In other words, the expenses, such as commissions, etc., do not increase significantly if a policy is substandard. It is typical for an insurer to pay commissions only on the standard premium and not on the substandard portion of the premium. If commissions were to be paid on substandard premiums, then the premiums would have to be raised to accommodate these commissions.
F Table ratings reflect the extra mortality expected for individuals with the same ratings. The substandard premium reflects a percentage of standard mortality, and does not include loading or other expenses.
The following is an example of substandard mortality classifications:
Table Mortality Numerical
(% of standard mortality) Rating .
1 125 120-135
2 150 140-160
3 175 165-185
4 200 190-210
5 225 215-235
6 250 240-260
7 275 265-285
8 300 290-325
10 350 330-380
12 400 385-450
16 500 455-550
Uninsurable Table 16 or rating over 550
The flat extra premium is used when the substandard risk is expected to remain static, regardless of age, permanently or temporarily. A flat extra premium is added to the regular premium and the policy is considered as “standard” for dividends and nonforfeiture values.
The flat extra premium is most commonly used for hazardous occupations and avocations as the additional mortality risk is considered as static, regardless of age. It is also used where the substandard extra risk is temporary in nature, such as after surgery, or where there is a single health event, such as a coronary rating which frequently consists of a table rating plus a temporary flat extra.
After a policy has been issued with a flat extra premium (or given a substandard rating in a few situations) the insured may apply to have the extra premium removed if the situation has changed for the better. If the extra premium was assessed because of occupation, then a change of occupation could eliminate this extra premium. However, the burden of change in status is the responsibility of the insured, and they must notify the insurer of the change and be able to fully document this change. Usually when a request for change involves occupation or avocation or change in residence, there will be a probationary period of 1-3 years before the premium is lowered. This is obviously a requirement so that an insured cannot revert back to the former occupation, avocation or residence as soon as the extra premium has been dropped.
CONSUMER APPLICATION
Bristol Life Insurance Company was a small, relatively new, life insurer that relied heavily upon services provided by their reinsurer. The Chairman of the Board and principal investor in the company, was 45 years old when he applied for a $1 million face amount life insurance policy with Bristol because of a business arrangement that required that he be insured for that amount. Because of the size of Bristol, they would keep (retain) only $50,000 on any one life, and therefore they sent the application to their reinsurer for underwriting assistance.
The reinsurer’s underwriter requested an APS, which disclosed that the applicant had an episode of hypertension where the blood-pressure readings were alarmingly high, about 3 years prior, but in two subsequent physical examinations, the blood pressure returned to normal. The underwriter followed the typical underwriting guidelines for a single episode of high blood pressure, which is to consider that a single episode will usually become the norm – i.e., the applicant’s blood pressure will increase significantly, even though it had not done so except for the one incidence. The application was declined by the reinsurer, who, as required, submitted these findings to the MIB.
When the President of Bristol was notified that his Chairman had been declined, he demanded a meeting with the reinsurance representative that serviced his company. The political ramifications were immense, in his eyes. Not only could his company not
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insure the Chairman of the Board, but because of the MIB, he felt the “whole industry” was aware of the problem and would not insure him. The reinsurance underwriter stated he could reconsider this application if additional information could explain the one-time high blood pressure reading. Otherwise they might agree to accept a $100,000 policy at increased premium, and with Bristol keeping $50,000. This, however, did not solve the needs of the Chairman.
The applicant contacted his doctor who had made the reading. By checking the date it was determined that on that day, the applicant, who was an experienced pilot who flew single-engine biplanes, was in the cockpit of his plane, and his sister, also a pilot, “spun” the prop on the plane to get it started. She fell into the propeller, killing her and her blood flew onto the cockpit. The applicant went into a state of shock, and his doctor came to the airfield and took a blood pressure that was “off the chart.” That accounted for the single episode of hypertension.
The reinsurance underwriter therefore agreed to accept the risk, but with a temporary extra for a period of three years. If there were no more episodes of high blood pressure during these 3 years, the rating would be removed. This was acceptable to all parties concerned, and the rating was removed three years later.
(This example was taken from the files of a large reinsurer. Name of the writing company has been changed.)
Companies usually provide a form at policy issue notifying the insured that after a specified policy anniversary, they may submit evidence of insurability or other proof satisfactory to the insurer, to have the rating removed. This helps to keep the policy from being dropped if the insured is able to purchase standard insurance elsewhere because of a change in their condition or situation.
As mentioned earlier, the graded death benefit contract is a method of rating substandard risks, as is the limited death benefit (for a period of 1-3 years usually). Before the table rating system was developed, it was common practice to limit the amount of insurance in certain health situations. This had the same effect as increasing the premium but was much less “scientific.”
Companies will often allow an individual who is not severely impaired to purchase a permanent insurance policy as the company is obtaining the interest in premiums “paid in advance,” or to put it another way, they are accumulating reserves which help to soften the blow of an early death.
As discussed earlier, anything above a table 16 is, in most situations, uninsurable. Many insurance companies, primarily the smaller companies, will only keep (retain) risks that are lower than table 10 or 12, but issue the policies by using reinsurance facilities as most reinsurers will accept substandard applicants rated Table 16.
Individuals who are uninsurable are often “desperate” as they realize that they may not be able to leave their families with funds for them to continue their standard of living, to say the least. An uninsurable individual can use annuities, if they have the funds, to set up an “estate,” with tax benefits to the survivors.
Several years ago, it was possible for an individual to be accepted for credit life insurance covering a loan amount, usually $10,000 maximum, but more in some cases. This was a guaranteed issue situation, regardless of health. The philosophy of some people that had good credit but were uninsurable, would be to borrow as much as possible that would be covered by credit life and set the borrowed money aside to pay off the loan. Therefore the “premium” for the life insurance would be the credit life premium (and sometimes the lending institution would pick up some or all of those premiums) plus the interest on the loan.
There is a documented case of an individual amassing $1 million in credit life insurance, and since it was his practice to pay off each loan at the end of a year and reinstate the full amount in a new loan, he was quite successful, leaving nearly $1 million in “paid-off loans” to his family when he died within 18 months after taking out the loans. The credit life companies complained bitterly when this was discovered, but there was nothing illegal about it at that time. Since that time, most states have issued regulations that will not allow this abuse of the system.
A much better course for an uninsurable, is to use a “substandard broker” who specializes in getting insurance on the substandard risk. Some insurance companies actually have arrangements with insurers who accept these substandard risks, so that their agents can automatically rewrite the application into the other company.
Usually an uninsurable is an uninsurable, but many with high ratings can find insurance if they search, or have their agent search, the market. A declination from one company is not necessarily a declination from all companies.
Reinsurance is a specialized field and there have been textbooks written about the subject, most of which is beyond the scope of this discussion. However, one should be aware of how the reinsurers function if they are to really understand the insurance business. It is safe to say that the life and health insurance would be completely different in the number of policies offered, the issue of other than standard risks, the number of insurance companies, the financial status of smaller insurers, the size of insurance policies, and even, in many cases where a smaller or newer insurer is involved, in the amount of commissions paid to the agents through financial reinsurance arrangements.
One very important fact about reinsurance that should be kept in mind:
F There is no legal relationship between a reinsurance company and an insured.
As discussed later, the reinsurance contract is only between an insurance company and the reinsurance company.
Simply put, reinsurance is the transfer of all or a portion of an insurer’s risk through an insurance policy, to another insurance company – insurance of an insurance company, if you will. But a reinsurer does so much more, as evidenced by the definition of Reinsurance in the Dictionary of Insurance Terms, Third edition (Harvey W. Rubin, Ph.D., CLU, CPCU) – “..a form of insurance that insurance companies buy for their own protection, a “sharing of insurance.” An insurer (the reinsured, ceding company, or “direct writer”) reduces its maximum loss on either an individual risk or a large number of risks by giving (ceding [“renting” or “leasing” is perhaps a more appropriate word]) a portion of its liability to another insurance company (the reinsurer).
Reinsurance enables an insurance company to (1) expand its capacity; (2) stabilizes its underwriting results; (3) finance its expanding volume; (4) secure catastrophe protection against shock losses; (5) withdraw from a class or line of business or a geographical area, within a relative short time period; and (6) share large risks with other companies.”
In all probability, all life insurance companies (worldwide) rely upon reinsurance. It is truly an international business, as most of the life reinsurance on policies sold in the United States and reinsured on one basis or another, is with foreign reinsurance companies. The oldest reinsurers are a Swiss company and a German company (for those who are curious, during WWII, the German reinsurers transferred their business to non-German companies, and became more-or-less dormant until after the war). Most reinsurance companies provide reinsurance for life and health exposures, and either are owned by or affiliated with, a property and casualty reinsurance company. Some reinsurers are reinsurance departments of “direct-writing” companies and at one time, most U.S. reinsurance was reinsured by the reinsurance departments of large insurers, such as Connecticut General, BMA, Lincoln National, Republic National, American United, Security Life & Accident, etc. Most of the reinsurance business has been transferred to “professional” (meaning they only do reinsurance, and is not a reflection on the professionalism of other companies) reinsurance companies, most of them foreign.
Retention is the amount of insurance that an insurance company is willing to accept in its own account. The excess over the retention is reinsured, and this is how Collapsible Life of Mississippi is able to compete with Metropolitan for a $1 million policy. (In the Consumer Application previously shown, where a $15 million policy was issued, the issuing company only had a $25,000 retention. $14,975,000 was distributed among reinsurers all over the world). If it were not for reinsurers, it is possible that there would only be a half dozen insurance companies in the U.S.
The retention is usually determined by the actuary as it is a function of the company surplus, i.e., what can the company stand to lose in case of a single death, without impairing their surplus. Actually, when a life insurance company is formed, a rather modest amount is kept by the company as there is no “spread of risk” or pool of insureds to cushion a sudden death claim. It is to the company’s best interest to keep as much as they can on their own books, as it costs the company to reinsure (reinsurers are profit-minded companies). In practice, when a company is formed, the Board of Directors makes the decision on how large a claim they feel comfortable paying, without hurting the company or causing a stockholder rebellion.
A few – very few companies, used to pride themselves on the fact that they did not need reinsurance as they had retentions of $1 million or more, and would not issue any policy above that amount. Today, with so many new types of policies on the market, even the very large company feels the need to spread the risk among reinsurers.
There are two “types” of reinsurance – proportional reinsurance and nonproportional reinsurance.
Proportional reinsurance refers to the arrangements where the reinsurer and the direct-writing company share the risk and the premium on some sort of pre-determined contract. Most reinsurance falls into this category.
Nonproportional is the simplest (by concept) type of reinsurance. In these arrangements, the reinsurer pays a claim only when the amount of the loss exceeds a predetermined loss limit. The effect of this type of reinsurance is to stabilize the claims of the direct-writer.
There are three forms of nonproportional reinsurance.
The direct-writer determines the total amount of claims that it can sustain (or wants to sustain) during a year. The reinsurer then pays for the claims above that amount. Premiums usually are adjusted annually to reflect actual claims experience. While this form or reinsurance is simple, it has not worked well to any degree as insurers that have tried this, almost always will practice a form of adverse selection with the reinsurer. The direct-writer will become more “flexible” with their acceptance of risks – after all, if they have too many claims the reinsurer will pay for the direct-writers mistakes. In property and casualty, it called “Excess of Loss Ratio” and as the President of a large property and casualty reinsurer stated at an industry meeting, “the fields are covered with the remains of reinsurance executives who promoted Excess of Loss Ratio reinsurance treaties.”
This is a common and successful type of reinsurance, where multiple insured losses which arise from a single accident or incident are covered. Many insurance companies have catastrophe reinsurance, particularly where they have a large concentration of risk, such as writing a lot of group or travel insurance.
Spread-loss is similar to Stop-loss, except if there are claims with the reinsurer, the claims are spread over a specific number of years which then allows the ceding company to spread its losses over several years.
The reinsurance contract traditionally is called a “treaty” and in the transfer of risk under proportional reinsurance, there are two types of treaties.
Facultative reinsurance is a method of reinsuring where each application is underwritten individually and reinsured individually. The reinsurer may or may not accept the application (risk), may rate the policy because of health or other reasons, or may accept it on the same basis as that of the ceding company. (As discussed in the previous Consumer Application.)
The ceding company may keep a retention on the case – which may vary by table rating – or cede the entire amount. Facultative cases are many times submitted to a reinsurer in order to obtain the expertise of the reinsurance underwriting department (which are well-experienced and technically trained, including a medical underwriting department), and after the reinsurer has rendered its decision, the ceding company decides how much of the policy they will keep, if any.
The ceding company may submit the case to more than one reinsurer simultaneously, or later if it wishes. If the amount is large, the reinsurer may reinsure some of the policy with another reinsurer (this is called a retrocession), or if the reinsurer is unable to find another reinsurer willing to accept part of the risk, then the reinsurer may restrict the amount it is willing to accept.
The disadvantages of facultative reinsurance is that it takes time to do all of the underwriting, particularly since most of them involve medical records, and therefore the applicant may purchase insurance elsewhere. Also, it costs money to reinsure, so there is less profit for the ceding company.
The Automatic Treaty requires the ceding company to reinsure a portion of all of its reinsurance in excess of its retention at the time the policy is issued, and the reinsurer must accept the reinsurance.
The treaty allows the ceding company to “bind” the reinsurer for only a certain amount on each life (a “cap”) – usually a multiple of the company’s retention, such as “three-times retention” - and there can be an agreement to distribute the excess to another company – usually a reinsurance company, but not necessarily. Many direct-writing insurance companies use more than one automatic reinsurer, and traditionally the business is split on an alphabetical basis. For instance, all surnames starting with letters A through M go to one reinsurer, those with letters N through Z go to another reinsurer (it may be split more than 2 ways by dividing up the alphabet, but generally, two automatic reinsurers are all that a ceding company wants, for administrative reasons, unless the ceding company has an unusually large amount of reinsurance).
The automatic treaty does affect the facultative treaty(s) as those cases are usually excluded from the automatic treaty. Some automatic treaties may require that they see the facultative cases also, but at the same time, allow other companies to review them also.
A “cross-breed” type of treaty “obligates” the ceding company to submit all facultative business to the reinsurer, who then reviews the case and may or may not accept the policy. Some of these treaties allow the ceding company to place the policy with the facultative-obligatory reinsurer if any other reinsurer has made a “better offer” on the case, in which case the “fac-ob” reinsurer must accept that underwriting decision also. but generally the ceding company must keep part of it also.
To reiterate
F A policyowner must look only to the direct-writing company for any payments that the policyowner is entitled to under the policy. The direct-writing company is responsible for these payments, regardless of the types and terms of any reinsurance agreement between the insurer and reinsurer.
There are three types of reinsurance plans that can be used for either automatic or facultative reinsurance.
Yearly Renewable Term is used almost exclusively for facultative reinsurance, and for most automatic treaties. Under the YRT basis, the ceding company reinsures the net amount at risk of the reinsured amount, paying the premiums from a table of reinsurance premiums (broken down by age, sex and table ratings). As the reserves increase each year, the net amount at risk decreases, until eventually the ceding company would “recapture” the entire amount. The treaties usually establish a minimum time period for the reinsurance on each case to be in effect, after which the company can start “recapturing” reinsured policies, thereby reducing their reinsurance costs. The YRT premiums are completely different and separate from those premiums charged by the direct-writer to its customers as the reinsurers do not have to establish reserves and they do not have the expenses – particularly first year commissions – of the ceding company.
As the term implies, each individual case is “co-insured” which is accomplished by the ceding company and the reinsurer sharing a proportionate part of each risk, and under the terms of the policy. The reinsurer then becomes liable for death claims which is determined by the size of the policy in relation to the percentage reinsured.
If, for instance, the reinsurer is responsible for one-half of each risk, in case of a death claim the reinsurer pays for ½ of the claim. For this service, the reinsurer receives a certain percentage (pro-rata share) of each original premium, less an agreed-upon amount for a ceding commission and allowances (used for agent’s commissions and other expenses, sometimes for premium taxes also, but generally they are paid to the ceding company separately each year).
The reinsurer must establish the necessary reserves on the amount that is reinsured; therefore the ceding company must pay the increase in reserves on the amount reinsured each year, to the reinsurance company.
Coinsurance has worked for reinsurance for decades, however companies started asking why they could not keep the reserves for investments, themselves? Under the Modified Coinsurance plan, the reinsurer pays to the ceding company a “reserve adjustment” each year which is equal to the net increase in the reserve during the year, less one year’s interest on the total reserve held at the beginning of the year (as otherwise the reinsurer would not be receiving any interest on funds held, which is an important part of the profit). The effect of this arrangement is that the ceding company receives the bulk of the funds developed by its policies.
Policyowners and Life insurance agents may be familiar with this transaction if a policyowner has ever received a notice that thereafter they would be insured by another company. Unfortunately, sometimes the policyowner will become upset and change companies or just cancel the insurance policy as they do not know exactly what is going on. If the reason for the assumption is the financial difficulties of the original company, policyowners can start to doubt the financial stability of the entire industry.
A professional reinsurance company would not be involved in assumption reinsurance as far as the policyowner is concerned, but it is method of transferring insurance business from one insurer to another. Many insurers have made the decision to withdraw a policy form or from a geographical area. Assumption reinsurance has also been used when an insurance company suffers financial difficulties and goes into receivership. Many times, the Department of Insurance will dictate the transfer of business or will agree to the transfer.
Policyowners must be notified prior to such assumption, and under an NAIC model bill covering assumption reinsurance, a policyowner has a right to consent to or reject the transfer of their policy for a period of 25 months. Some states have shortened this period from 30-days (Washington) to 12 months (Missouri).
Surplus relief is a technical method of financial reinsurance, where the principal object of the reinsurance arrangement is not just to transfer risk, but in effect, to finance the writing of new business or otherwise the development of the company. This method is used if a smaller company wants to write a lot of new policies, and the coinsurance or modified coinsurance agreement (which reinsures only newly written business) does not help the surplus drain sufficiently, and where the company has a block of business in force.
The technical aspects of this type of reinsurance is outside the scope of this text but basically, the reinsurer evaluates the profitability of the block of business, and in effect, “leases” the block of business, paying the direct-writing company commission and expenses equal to the anticipated profits on the block of business (less the reinsurer’s profit). This frees up funds that the ceding company can use to develop new business.
Later, the ceding company may make enough profit on the new business written, or use the rapid growth of the company to entice new stockholders, or in some other fashion attain enough funds so that they can recapture the reinsured block of business and pay the reinsurer a reasonable amount for the use of the reinsurer’s money during that time.
This form of reinsurance has its critics who fear that insurers are “propping up” impaired companies and “forestalling the inevitable” as the company finally goes into receivership, leaving the Department of Insurance to scramble around to find a company that will assume this business (and the formerly-reinsured block does not have much profit left). However, there are substantial companies that have used this type of reinsurance to allow them to explore new areas and keep up with their “better-heeled” competition.
STUDY QUESTIONS
Chapter 9
1. “Underwriters” or “home office underwriters”
A. are individuals that do the risk selection and classification.
B. are individuals who market life insurance.
C. deal with certainties.
2. Individuals who are in good health are considered
A. a substandard risk.
B. a standard risk.
C. are the only individuals that apply for life insurance.
3. Adverse selection
A. starts when an applicant is uninsurable.
B. keeps life insurance premiums high for all insureds.
C. stops the “substandard risks” from obtaining life insurance.
4. A factor primarily used in the home office underwriting process is
A. the spouse’s occupation.
B. the size of the applicant’s house.
C. the applicant’s physical condition.
5. The reputation of the applicant in meeting financial obligations
A. is not part of the underwriting process.
B. only shows that the applicant can pay the premiums.
C. can indicate the moral risk involved with the applicant.
6. If the applicant discloses that he/she goes sky diving on the weekend, the insurance company
A. will issue the policy at the standard rate.
B. many times will add a flat extra premium.
C. will not know about it.
7. The first source of information, about the applicant, the underwriter looks at is
A. the application.
B. inspection reports.
C. the Medical Information Bureau (MIB).
8. Authorization to release information to the Medical Information Bureau (MIB)
A. can be obtained over the phone.
B. must be in writing.
C. comes from the applicant’s insurance company.
9. If an applicant does not meet the underwriting criteria of Insurance Company A
A. the applicant can be denied.
B. the applicant can apply to Insurance Company B without telling them about Insurance Company A .
C. will inform the Medical Insurance Bureau (MIB) the application was denied.
10. Reinsurance creates a relationship between the reinsurance company and
A. the insured.
B. the “direct writer” insurance company.
C. the life insurance policyowner.
11. A field underwriter
A. is an individual who sell life insurance.
B. determines what the premium should be for a specific risk.
C. decides if an applicant is insurable.
12. The home office underwriter considers and applicant’s __________________, as an important factor when considering an applicant for life insurance.
A. address.
B. favorite sports team.
C. physical condition.
13. The use of tobacco by an applicant
A. means the applicant is uninsurable.
B. may cause mortality experience to worsen.
C. will result in lower premiums.
14. Once an individual is “rated” because of their occupation
A. they will always pay the higher premium.
B. a change in jobs will not affect the premiums.
C. their premiums are higher than an individual in a non-hazardous job.
15. Information used in underwriting
A. only comes from the applicant.
B. can come from the application.
C. can, without authorization be shared with other.
Answers to Chapter Nine Study Questions
1A 2B 3A 4C 5C 6B 7A 8B 9A 10B 11A 12C 13B 14C 15B