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What is an insurance underwriter, and what do they do?

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What is an insurance underwriter, and what do they do?

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Have you ever wondered who decides the premiums for your insurance policy? That’s what an underwriter does. You may have heard this term used in insurance jargon often, but what is an underwriter anyway? 

Who is an insurance underwriter?

An underwriter is any professional entity that assesses the level of risk involved in each insurance contract. Whenever an insurance company receives and accepts an application for cover, there is a transfer of risk from the insured party to the insurance provider.

For instance, say you want to insure your car. When you purchase a car insurance plan, your insurer gives you financial cover to cover the costs of repairs or losses related to your car. So, if your car is damaged during an accident or if you accidentally injure another person with your car, you need not pay for these liabilities out of pocket. Instead, your insurer takes on these costs. In other words, the financial risk is not yours to bear but your insurer’s.

Duties of an underwriter

Insurance underwriters may specialise in different types of insurance, like life insurance, property insurance and home insurance. But irrespective of the kind of insurance involved, the duties of an insurance underwriter are fairly similar. Here is a closer look at some of the key responsibilities of an underwriter.

  • Analysis of insurance applications
  • Identifying the key risk factors involved in insuring interested parties
  • Screening of applications based on certain predetermined criteria
  • Making a decision regarding acceptance or rejection of the insurance application
  • Assessing the risk levels and identifying the appropriate premiums for each kind of coverage
  • Gathering data from field representatives, agents and other professionals in healthcare, automobile or real estate sectors
  • Review of underwriting software from time to time

Factors evaluated in underwriting

Underwriters look at different factors to understand how likely it is that the insured incident may occur. In the case of life insurance, the insured incident is the death of the policyholder. 

So, if an applicant is already in their late 50s, their mortality risk is higher, and the insured incident may occur sooner than later. But in the case of a younger applicant — say in their 20s — the mortality risk is much lower. This is why underwriters adjust the premiums according to age, which is a major factor involved in underwriting life insurance.

Let’s take a closer look at some of the key factors that insurance underwriters consider while evaluating risk based on the kind of insurance involved.

Factors evaluated in life insurance underwriting

  • Gender of the applicant
  • Age of the applicant
  • Extent of coverage purchased
  • Medical history of the applicant
  • Pre-existing conditions, if any
  • Lifestyle factors like smoking or drinking habits

Factors evaluated in health insurance underwriting

  • Age of the applicant
  • Medical history of the applicant
  • Family medical history
  • Extent of coverage purchased
  • Pre-existing conditions, if any
  • Lifestyle factors like smoking or drinking habits

Factors evaluated in motor insurance underwriting

  • Age of the vehicle
  • Type of the vehicle
  • Extent of coverage purchased
  • Driving history of the applicant
  • City in which the applicant lives
  • History of claims made by the applicant

Factors evaluated in home insurance underwriting

  • City in which the house is located
  • Likelihood of natural disasters or fires in that city
  • Extent of coverage purchased
  • Security measures installed in the house 
  • Costs involved in constructing the house
  • History of claims made by the applicant

Factors evaluated in travel insurance underwriting

  • Age of the traveller or travellers
  • Destination to which they are travelling
  • Any pre-existing health conditions the traveller(s) may have
  • Nature of activities to be undertaken during the trip
  • Duration of the travel
  • Extent of coverage purchased 

The importance of insurance underwriting

If an insurance cover is underpriced, it may eventually lead to solvency issues for the insurance provider. And they will not be able to honour their insurance commitments. On the other hand, overpriced insurance coverage is neither beneficial nor fair to the insured party. This is why it is essential to find the right premium for each cover offered. And underwriters perform this essential task. 

Frequently Asked Questions (FAQs)

1. What is an underwriter in simple terms?

When you buy an insurance cover of any kind, you pass on the risk of financial losses or contingencies to your insurance provider. Depending on the nature of the asset and your personal habits, the level of risk may be high or low. In the simplest of terms, an underwriter is a professional who evaluates this risk. And based on the risk involved, they decide the pricing of the insurance cover provided for an asset.

2. What is the difference between an insurer and an underwriter?

An insurer is an entity that provides you with insurance coverage and takes on the risks involved in insuring your asset. An underwriter helps assess the risk levels in each insurance contract on behalf of an insurer. Underwriters do not offer insurance coverage themselves.

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