Underwriting in insurance is the method used to choose the persons and objects covered in a policy. The persons/objects to be insured, the amount of insurance premiums, the sum of the coverage, and the persons/objects not accepted to be insured are the subjects accomplished in underwriting. It as well involves the assessment of risks associated in a plan. Thus, the exposures and risks of prospective clients are evaluated.
The underwriting guidelines vary for each insurance company. These become the basis for the insurance underwriter in establishing policies. The coverage type is the main foundation in the formulation of risk evaluation for an applicant. For instance, a critical aspect in the coverage for automobile insurance is the driver’s driving record, while for health or life insurance is the person’s health status, occupation, and age. Other factors may include the applicant’s dangerous hobbies that are most likely to result to death or illness. Generally, individuals are classified as standard risk or substandard risk. Individual health or life insurance requires more underwriting analysis than group policies.
The underwriting practices are contained and detailed in the underwriting guide. Other names for this is underwriting guidelines, underwriting manual, or manual of underwriting policies. This provides accurate guidance for underwriters in analyzing the different kinds of applicants.
To illustrate the role of underwriting, assume Mr. X went to an insurance company or insurance agent to obtain a car insurance policy. He then described that he has been in jail 5 times due to careless driving, and likewise admitted that he has been driving with the absence of a license for the last 3 years. Here, the insurance company or agent can restrict the admission of Mr. X because his previous transgressions may be included in the company’s forbidden circumstances for the insured, as specified by the company’s insurance underwriting department.
The one who does the underwriting job is labeled as the insurance underwriter. The main role of an insurance underwriter is to “write” or acquire business to provide money to the insurance company. They likewise serve to secure the company from risks that are likely to result in loss. Thus, their primary job is to create the insurance policies.
An underwriter functions as the one analyzing insurance applications whether to be agreed upon or discarded. Independent brokerage firms and insurance companies or carriers are typically the ones hiring insurance underwriters. In most cases, insurance underwriters work as back-ups to insurance agents, though they are sometimes allowed to go together with agents during client sales calls.
Analytic persons are ideal to become insurance underwriters. The career can also pave a way to becoming a general manager in insurance businesses.
In general terms, the job of an underwriter is to administer the distribution and public issuance of securities owned by an issuing body, such as a corporation. An underwriter could be any entity including a company. Establishing a security’s offering price, buying them from issuing companies, and selling them to stakeholders and investors through its distribution network, are the main responsibilities of an underwriter.
Underwriting is also pursued in real estate, forensic, and sponsorship activities.