The term “insurance underwriting” is a common, but unclear phase referring to the process of determining risk factors for potential clients.
It is mostly a behind the scenes process; agents and brokers typically use the terms set by insurance underwriters and present them to customers.
The Role of the Insurance Underwriters
It is the job of the insurance underwriter to assess risk and exposures of potential clients and to determine how much coverage the client should receive, how much they should pay for it, or whether even to accept the risk and insure them.
A Technical Definition of An Insurance Underwriter:
“A financial professional that evaluates the risks of insuring a particular person or asset and uses that information to set premium pricing for insurance policies. Insurance underwriters are employed by insurance companies to help price life insurance, health insurance, property/casualty insurance and homeowners insurance, among others.”
How Underwriters Determine Insurance Risk
Typically, an insurance underwriter will use computer programs and actuarial data to determine the likelihood and magnitude of a payout over the life of the policy.
Higher-risk individuals and assets will have to pay more in premiums to receive the same level of protection as a (perceived) lower-risk person or asset.
This helps better explain why obeying the speed limit is a good idea. Essentially it lowers your risk to the insurance provider, thus lowering your insurance premium rate.
Why this term is important to know
Not all life insurance policies are underwritten, however, since some are it is an important insurance term to understand in definition, and impact..
Insurance Underwriting As Profession
Insurance underwriting is big business. According the the U.S. Bureau of Labor Statistics here’s what beginning an insurance underwriter looks like across the country.
Job Duties Are Not Equal
Most insurance underwriters specialize in one of three broad fields: life, health, and property and casualty.
Although job duties are similar, the criteria that underwriters use vary.
For example, for someone seeking life insurance, underwriters consider age and financial history.
For someone applying for car insurance (a form of property and casualty insurance), underwriters consider the person’s driving record.
Assessing Risk and Balancing Opportunity
Insurance companies walk a tightrope between being too aggressive or too conservative in their underwriting duties.
If they are too aggressive, greater-than-expected claims could cut into company earnings; if they are too conservative, they will be out-priced by the competition and lose business.
To learn more about what type of potential risk you bring the underwriting process, and what you can do to reduce it contact your Cass County insurance agency Mahar Insurance of Dowagiac.