WHAT IS AN INSURANCE UNDERWRITER ALL YOU NEED TO KNOW

When it comes to insurance there needs to be someone to advise the insurer as well about risks, people, and assets. So, who does that? The answer is an insurance underwriter. Insurance underwriters are professionals who evaluate, analyze and identify the risks involved for the insurance companies in insuring people or assets. Insurance underwriters basically establish pricing for accepted insurable risks. Underwriting means receiving compensation for the willingness to pay a probable risk. An insurance underwriter ascertains whether or not the insurance company would like to continue providing insurance coverage or if it needs to establish new insurance terms with any client.

Insurance underwriters typically specialize their expertise in one particular area of insurance, say for example in health insurance, vehicle insurance or real estate. Depending on their area of insurance, underwriters work using certain pieces of information about an individual in order to understand whether or not they should be offered any coverage by the insurance company. Many underwriters employ specialized software and even actuarial data to determine the scale of risk. Let’s take a detailed look into Insurance Underwriters and their function.

Role of an Insurance Underwriter

The role of an insurance underwriter includes responsibilities like;

• Assessing information such as age, medical history, marital status or driving record of the potential client
• Analyzing the risk related to any potential client
• Making decisions on whether to offer insurance coverage to potential clients or not
• Calculating costs if coverage needs to be provided
• Establishing the pricing for any potential coverage premium
• Developing solutions to decrease the risk of paying any future insurance claims
• Evaluating actuarial tables and data required for analysis

Even with automation in the process, insurance underwriters do have to work towards checking on the risk involved with a potential client. To identify if any change in risks or change in the conditions of the insurance policy needs to be done.

How do Insurance Underwriters Work?

Insurance underwriters have to assume the risk concerned in a contract with an individual or entity. For instance, an underwriter may assume the risk of the cost of a fire in a home. This shall be done in return for a premium or a monthly payment. Evaluating an insurer's risk before the policy period as well as at the time of renewal is the chief function of an underwriter.

For instance, if insurance underwriters are specializing in real estate need to consider several parameters while rating a homeowner’s policy like inspecting homes or rental properties for conditions of deteriorated roofs or foundations that simply pose a risk to the carrier. Such hazards including liability claims need to be reported and recorded for the decision towards providing coverage or not. Other hazards include unfenced swimming pools, the presence of any dead or dying trees on the property or even cracked sidewalks. All these pose a risk to the insurance company in the event of accidental slip and fall injuries. With all these factors taken into account; underwriters analyze an applicant’s credit rating as well as the pricing of an insurance coverage plan for them.

The Importance of Insurance Underwriting

Insurance companies need underwriters to balance their approach, for example, if too aggressive, greater-than-expected claims could end up compromising earnings. On the other hand, if too conservative, they shall be outpriced by competitors and the insurer could end up losing market share. Therefore, the role of insurance underwriters is vital in determining the right policy conditions and pricing towards the right risk of a potential client for the insurance company.

Insurance underwriters are important for every insurance company as if an insurance cover is under-priced, it may eventually lead to solvency issues. On the other hand, overpriced insurance coverage is neither fair, righteous nor beneficial to the insured. This is why it is crucial to find out the right premium for each insurance cover offered. And insurance underwriters are the ones who perform this task.

‍Factors Evaluated in Insurance Underwriting for Life:

• Gender of applicant
• Age of applicant
• Extent of coverage
• Medical history of an applicant
• Pre-existing conditions
• Smoking or drinking habits, if any

‍Factors Evaluated in Insurance Underwriting for Health:

• Age of applicant
• Medical history, of applicant and family
• Extent of coverage
• Pre-existing conditions
• Smoking or drinking habits, if any

‍Factors Evaluated in Insurance Underwriting for Vehicles:

• Age of vehicle
• Type of vehicle
• Extent of coverage
• Driving history of an applicant
• City of applicant
• History of claims of the applicant

‍Factors Evaluated in Insurance Underwriting for Homes:

• City of home
• Likelihood of natural disasters or fires in the vicinity
• Extent of coverage
• Security measures in the home
• Costs involved in constructing a home
• History of claims of the applicant

‍Factors Evaluated in Insurance Underwriting for Travel:

• Age of applicant
• Travel destination
• Any pre-existing health conditions
• Nature of activities on the trip
• Duration of travel
• Extent of coverage

Difference Between an Insurance Agent or Broker and an Insurance Underwriter

An insurance underwriter is frequently mistaken for an insurance broker or advisor. However, they are a lot different from each other. Let’s take a look at their major differences;

Insurance Underwriters have excellent decision-making and strong analytical, mathematical and computer skills along with good interpersonal talents. They are also detail-oriented as they extract and evaluate every piece of information on a potential client to determine whether to provide them with insurance coverage or not. Unlike insurance agents or financial representatives, insurance underwriters do not need any license. They do not sell any insurance or investment either. Insurance underwriters basically understand the risk and advise on the conditions and coverage of an insurance policy towards a potential client for an insurance company. Insurance underwriters are simply risk identifiers for coverage.

FAQs – Frequently Asked Questions

Let's take a look at some frequent queries on Insurance Underwriter;

Q1. Is there a difference between an insurer and an underwriter?

Yes, insurance underwriters do not offer insurance coverage themselves, they only help assess the risk in each insurance policy on behalf of the insurer. While an insurer provides you with insurance coverage and takes on the risks involved.

Q2. What generally happens at the completion of the underwriting process?

Once an insurance underwriter has extracted and analysed data while identifying risks involved towards coverage of a potential client, they shall either approve the application towards insurance, modify to reduce insurer risk in the insurance policy or even reject or decline the coverage due to higher risks in the policy conditions.

Q3. How long does the underwriting process take?

The insurance underwriting process can take anywhere from a month to 6 months, depending on the amount of data that the underwriter needs to gather and analyse. On Average, the process generally takes about 3 months from start to finish.

Q4. Can an underwriter determine the insurance coverage level?

Generally, the coverage level depends on the value of the asset. However, in case of life insurance plans, the maximum coverage level which would be allowed is decided by the insurance underwriter only.