Why underwriting is important, how it works and the difference it makes

Underwriting enables providers to build an accurate picture of your client’s circumstances.

Everyone’s health and lifestyle information is individual to that person, and is used to give a better view on how long someone is likely to live for. This in turn means a provider can offer a tailored level of Guaranteed Income for Life (GIfL) specific to that client.

In March 2018 the FCA introduced new annuity prompt requirements, these are set out in COBS 19.9. These rules require firms to provide their annuity quote in a prescribed template when a guaranteed annuity quote is provided to a customer.

These rules also require that when a market leading quote is not being provided to the customer that a visual comparison is made between the market leading quote and the actual quote provided.

These rules were strengthened further as part of PS19/1 which was introduced in November of 2019. Firms are now also required to ask customers who express an interest in buying an annuity questions to determine whether they are eligible to buy an enhanced annuity rather than comparing purely on a standard, non-underwritten basis.

They also require firms to use the enhanced annuity information, where relevant to generate a market leading quote.

Changes in underwriting

Underwriting techniques have evolved over many years, and with developments in medical science and a wealth of data and expertise, we can say that everyone has their own personalised rate of income.

Previously, there was either a ‘standard’ annuity or if a client ‘qualified’ due to health and/or lifestyle conditions, they achieved an ‘enhanced’ annuity.


Now, you don’t have to be ill to get a personalised income. COBS 19.9 provides examples of the sorts of health and lifestyle circumstances that may indicate eligibility for an enhanced annuity. These include:

  • Whether the customers smokes
  • Their height, weight, waist size and whether these are outside of normal ranges
  • The units of alcohol consumed per week
  • Whether they take medication for high blood pressure or high cholesterol
  • If they take medication for a serious health condition

Therefore, you can start by simply providing height and weight measurements, alcohol consumption, smoking habits, and blood pressure readings (if known). This provides a more tailored figure than simply providing a postcode, and reflects how seemingly unimportant measures make a difference.


 Personalised underwriting

How it works

Underwriting information generally falls into two main areas, lifestyle and medical:

  • Lifestyle – These are simple things like Body Mass Index, which can be used to determine if someone is underweight or overweight, which over time can have an impact on someone’s state of health. High blood pressure and cholesterol, respiratory conditions and even marital status all have an effect on life expectancy.
  • Medical – these tend to be what would be recognised as illnesses, such as diabetes, heart conditions, strokes and cancer.

Underwriting uses the information gathered to determine the likely life expectancy of an individual. Of course no two people are the same, and so underwriting enables a bespoke income rate for everyone.

The difference that personalised underwriting makes

As the examples in the chart demonstrates, all health and lifestyle information can make a difference by comparison to a GIfL that has not been underwritten.

Client aged 65, £100k net fund, single life, no escalation with a 5 year guarantee period, monthly in advance*.


The actual level of income will depend on the individual’s personal circumstances. There will be no return of capital to their estate from their annuity when they die, unless they include death benefit options.

*Just rates 04.08.2020 based on individual being married, 5ft 10in/13st 10lb, 7 units of alcohol weekly unless otherwise stated. Allows for 2% adviser charge.