Insurance Underwriter: Meaning, Roles, Responsibilities

Have you ever wondered who decides the premiums for your insurance policy? That’s what an insurance underwriter does.

You may have often heard this term used in insurance jargon, but who is an underwriter anyway?

Who is an Insurance Underwriter?

• An insurance 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, risk is transferred from the insured party to the insurance provider.
• When you buy car insurance, your insurer covers the costs of repairs or losses related to your car. This means that if your car is damaged in an accident, or if you injure someone with your car, you don't have to pay for it yourself. Your insurer takes on these costs, so you don't have to bear the financial risk.

What is the Insurance Underwriting Process?

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 the process and some of the key responsibilities of an insurance underwriter:

• Analysis of insurance applications
• Identifying the key risk factors involved in insuring interested parties
• Screening of applications based on certain predetermined criteria
• Deciding on 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 Insurance Underwriting

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

Different kinds of factors are evaluated for different types of insurance. Let's explore each of them in detail.

‍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

Example of Insurance Underwriting

Dave works as an insurance underwriter. His primary responsibility is to assess an applicant's eligibility for insurance. For instance, if someone wants to obtain home insurance, Dave evaluates the person's credit history, the value of the house, and any criminal records related to insurance fraud, if necessary. 

This is because an applicant with an unsatisfactory credit score poses a high risk. Dave can either reject the application or provide the applicant with an insurance policy with a high premium as a risk-reward.

Frequently Asked Questions (FAQs)

1. What is the underwriting process?

Financial institutions and insurance companies conduct an underwriting process to evaluate loan or insurance applicants' eligibility and risk based on their financial history, creditworthiness, and other relevant factors.

2. Why is it called an underwriter?

The term "underwriter" originated from the practice of having individuals write their names under the risks they were willing to accept on insurance policies. These individuals, known as underwriters, would assume financial responsibility for the risks they underwrote.

‍3. What is an insurance underwriter in simple terms?

An insurance underwriter evaluates risks and sets terms for insurance policies.

4. What is the difference between an insurer and an insurance underwriter?

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

5. What is an example of underwriting in insurance?

Insurance underwriting involves assessing an applicant's health, medical history, lifestyle, and other relevant information to determine risk for a life insurance policy. Based on this evaluation, the insurer decides whether to approve the application, the premium amount, and any specific terms or conditions.