In accident and health insurance, why is field underwriting considered important?

In accident and health insurance, field underwriting is important primarily because it addresses the risk of moral hazard. Moral hazard refers to the potential for individuals to take greater risks or engage in riskier behavior because they are insulated from the consequences, typically due to having insurance coverage. By conducting field underwriting, insurers can gather critical information about applicants' lifestyles, backgrounds, and health conditions before issuing a policy. This process helps identify potential moral hazards by assessing whether the applicant might have a tendency to engage in behaviors that could lead to greater claims, thereby allowing the insurer to make informed decisions about coverage and pricing.

Additionally, while reducing costs and ensuring legal compliance are significant aspects of underwriting, they do not directly address the nature of moral hazard. Field underwriting helps mitigate the risks associated with providing coverage to individuals who may not behave responsibly, ultimately protecting the insurer's financial stability. It acts as a proactive measure to ensure that policyholders are less likely to misuse their insurance, which contributes to a more sustainable insurance model.