What Does Inspection Report Mean?
An inspection report is a report generated by an insurance company regarding the details of a specific risk. Inspection reports are designed to examine the risk from a moral, physical, and financial perspective. In terms of life insurance, for example, the older a person is, and the more health problems they have, the riskier they can be to insure.
When an insurance company evaluates a piece of potential business, they go through a fairly thorough due diligence process to ensure they fully understand the risk they are taking on and think about ways to mitigate or manage that risk. There are many tools an insurance company might use to achieve this including the application form you fill in when trying to purchase insurance, notes from your broker or advisor, and inspection reports.
In the life or health insurance context, inspection reports generally mean a medical examination of the applicant conducted by a doctor or medical professional. The process can range from a quick physical examination to a more detailed workup including blood and urine tests. In more severe cases where the person applying has some troubling pre-existing medical conditions, this might mean examining the medications they take and doctor’s notes on their condition.
In the case of home or business insurance, an insurance company might call for an inspection report to be completed within a certain time period (usually 30-60 days) of binding a policy. In these situations, the policy might be contingent on the inspection not turning up anything that might alarm the insurance company.
Insuranceopedia Explains Inspection Report
Inspection reports are used in many contexts from life insurance, health insurance, to property and liability insurance (i.e. home or business insurance). Regardless of where they are used, the purpose of an inspection report remains the same. Insurance companies will request an inspection report in order to get a deeper understanding of the risk they are taking on, identifying potential risk factors, and, in some cases, coming up with recommendations on how to manage the risk factors identified.
Both life insurers and health insurers commonly commission inspection reports which involve medical examinations, testing of blood or urine, and even a detailed review of medications taken and medical records. An inspection report may also contain information about the applicant’s financial state, occupation, moral character, sports participation, driving history, other insurance, habits, and other lifestyle information. Oftentimes, these reports will also involve an interview with the applicant.
It is important for these companies to do this because if they assume too much risk for too low a price, they could experience significant losses. Inspection reports of this nature will likely contain sensitive medical information and are therefore kept strictly confidential, to respect the privacy of the person involved.
In the context of property and liability insurance, inspection reports are often used by insurance companies to manage risk. Many will issue a policy contingent on a satisfactory inspection report to be completed within a specified time frame, generally between one and two months. The insurance company will coordinate with the insured to arrange a reasonable time for an inspector to visit the risk location in question.
During this visit, the inspector will perform a walk-through of the location, evaluate the risk management measures currently in place (things like monitored alarms, sprinklers, general housekeeping) and come up with recommendations for the insured to implement.
Recommendations are categorized into mandatory and recommended. Mandatory changes must be implemented or the insurance company may choose to rescind the policy, while recommended changes should be implemented by the insured in an effort to reduce the chance or severity of a loss. An example of a common recommendation that might come out of an inspection report is to install railings on staircases that are too long or on balconies/raised areas that are too high.
In addition to insurance companies, these reports are also produced by companies who specialize in inspection report services.