Applying for insurance can feel like a test you didn't study for. You fill out a long form, answer intrusive questions about your waistline and your grandmother's heart history, and then wait for a verdict.
For many New Zealanders, this process, (known as underwriting) is a mystery. Why did your healthy friend get loaded premiums? Why does vaping count as smoking? And why do they care about a back injury from 2018?
Understanding how insurers assess risk doesn't just demystify the process; it can help you present your application in the best light and avoid the permanent record of a declined application.
What Is Underwriting?
At its core, insurance is a gamble. You are betting that you might get sick or pass away; the insurer is betting that you won't. If the insurer accepts your application, they are potentially signing up to pay out millions of dollars over the next 30 years.
Underwriting is the process of calculating the odds of that bet.
Insurers do not make these decisions based on moral judgment or personality. They rely on actuarial data, (statistics derived from millions of lives over decades. If the data shows that people with a specific Body Mass Index (BMI) are 40% more likely to suffer a heart attack, the insurer must account for that risk.
The Duty of Disclosure: Honesty is Non-Negotiable
The foundation of every insurance contract is utmost good faith. In simple terms, this means you must tell the truth.
In New Zealand, your duty is to take reasonable care not to make a misrepresentation. You must answer every question on the application form accurately and completely.
This is where many people trip up. They might forget to mention a visit to a specialist because nothing was found. To an underwriter, the fact that you *went* to a specialist is relevant, even if the result was clear.
Why it matters: Non-disclosure is the number one reason insurance claims are declined in New Zealand. If you don't tell the insurer about your history of asthma now, they may refuse to pay out for your lung cancer claim in 20 years, even if the two seem unrelated to you.
The Three Pillars of Assessment
Underwriters look at three main areas of your life:
1. Medical History
This is the big one. They look at your BMI, cholesterol, blood pressure, and mental health. Crucially, they also look at your family history. If your parents or siblings suffered from heart disease, cancer, or stroke before age 55, insurers view you as having a higher genetic risk.
2. Occupation
Your job determines your risk of injury and your ability to work.
- •Life Insurance: An office worker and a logging truck driver might pay similar rates because death is the only trigger.
- •Income Protection: The truck driver will pay significantly more (or have a longer wait period) because the risk of a back injury or accident preventing them from working is much higher than for an accountant.
3. Avocations (Hobbies)
If your idea of a weekend involves knitting, you are fine. If it involves amateur motor racing, scuba diving below 30 metres, or aviation, you will face extra questions. Insurers love active clients, but they have to price for the risk of hazardous pursuits.
The Verdict: The Four Outcomes
Once the underwriter has reviewed your file (and perhaps a report from your GP), you will receive one of four outcomes:
1. Standard Terms (The Clean Skin)
This is the gold standard. You are accepted at the standard price with full cover. About 70-80% of applicants achieve this.
2. Loadings (The Price Bump)
The insurer accepts you, but charges a higher premium to offset your higher risk.
- •Percentage Loading: e.g., +50%. You pay 1.5 times the standard price. This is common for BMI issues or well-controlled conditions like high blood pressure.
- •Per Mille Loading: A flat extra cost per $1,000 of cover. This is often used for hazardous hobbies (e.g., an extra $2 per $1,000 cover for amateur aviation).
3. Exclusions (The Gap)
The insurer covers you for everything *except* a specific condition.
- •*Example:* You have a degenerative disc in your lower back. The insurer offers Income Protection that covers cancer, stroke, and mental health, but specifically excludes the lumbar spine and related conditions.
- •*Strategy:* Take the cover. It is better to be 95% insured than 0% insured. Plus, ACC still covers you for accidental injuries to that back; the insurance exclusion mainly applies to illness/degeneration.
4. Deferral or Decline
- •Deferral: The insurer pauses the decision if you are currently undergoing tests, waiting for surgery, or have just started a new medication. They may wait 6-12 months to see how your health stabilises.
- •Decline: The risk is too high. This is rare but happens with severe chronic conditions or combinations of multiple risk factors.
The Smoker Definition
In New Zealand insurance, there is no middle ground. You are either a Non-Smoker or a Smoker.
To qualify for Non-Smoker rates (which can be 50% cheaper), you generally must have been completely smoke-free for 12 months. This includes the occasional social cigarette.
What about Vaping?
Most New Zealand insurers currently classify vaping (with or without nicotine) as smoking. If you vape, you will likely pay smoker rates. However, this is an evolving area, and some specific insurers may treat non-nicotine vaping differently. It pays to check.
The Power of Pre-Assessment
One of the biggest risks of applying directly to a bank or insurer is the decline mark. If you apply and get declined, you must answer yes to the question about whether you have ever been declined insurance on every future application for the rest of your life.
This is where working with an adviser is valuable. Advisers can run a Pre-Assessment. They send your medical notes to an underwriter anonymously or informally to ask how they would view a 45-year-old male with Type 2 diabetes.
If the answer is a decline, you simply don't submit the application. You avoid the permanent black mark on your record and look for other options.
Terms Can Change
Finally, remember that underwriting is a snapshot in time. If you receive a loading or exclusion, it doesn't have to be forever.
If you lose weight, quit smoking for 12 months, or have your back exclusion-free for three years, you can apply to have your terms reviewed. We frequently help clients remove loadings and reduce their premiums simply by proving their health has improved.
Insurance is a dynamic contract. Don't be afraid to ask for a better deal when you've done the hard work to earn it.
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