What is an Insurance Underwriter?
An insurance underwriter analyzes and assesses the risks in providing insurance to individuals and companies, and establishes the pricing of the insurance premium.
Underwriters use software, data from actuaries, and statistical analysis in order to evaluate the risk of a future event that would require the insurance company to compensate an insured individual. For example, an underwriter would analyze the risk of a fire damaging an individual’s home and calculate the cost associated with paying out an insurance claim.
Insurance underwriters play an important role in an insurance company because they determine whether or not the insurer should decline the risk of taking on an insurance policy if the chances of payout are too high. Using their analysis of risks, underwriters decide how much money they want to charge an individual for the insurance premium.
What Does an Insurance Underwriter Do?
The role of an insurance underwriter includes responsibilities such as:
- Evaluating information about the potential client (i.e., age, marital status, medical history, driving record, etc.)
- Using underwriting software to analyze the risk profile of the potential client
- Deciding whether or not insurance coverage should be offered to an individual
- Calculating costs to provide coverage and establish the pricing for the premium
- Developing solutions to reduce the risk of paying future insurance claims
- Analyzing actuarial tables, which is the data provided by actuaries
Although some of the work is automated and is carried out by insurance software, an insurance underwriter will still be involved with a potential client if there is a change in risks or change in the conditions of the insurance policy. The underwriter will determine whether or not the insurance company would like to continue with providing insurance coverage or if it will establish new insurance terms with the client.
Insurance underwriters usually specialize their expertise in one specific area in insurance, such as healthcare, property, or car insurance. Depending on what area of insurance they work in, underwriters will be able to use certain pieces of information about an individual in order to understand whether or not the client should be offered insurance.
Example of Insurance Underwriting
For example, an underwriter for health insurance would assess information related to an individual’s health background, such as age, family history, and any current illnesses. With such information, underwriters would then input the data into an underwriting software in order to analyze the health-related risks associated with the individual and to calculate how much the premium should be. If an individual with a longstanding history of an illness, they impose greater risk to the insurance company.
Different coverages would require the underwriter to look at different pieces of personal information. For auto insurance, details such as an individual’s credit score, driving record, and history of driving violations are taken into consideration when determining the risks in providing coverage to the individual.
Another example is underwriting in a homeowners insurance policy. If an individual is purchasing a new property, underwriters will take a look at the quality and condition of the property, such as the location, age of the property, and evidence of roof deterioration.
Underwriters also factor in hazards near the property that potentially cause injuries that could result in an insurance claim. Personal information is also taken into account when calculating the premium, such as credit history.
CFI is the official provider of the global Certified Banking & Credit Analyst (CBCA)® certification program, designed to help anyone become a world-class financial analyst. To keep advancing your career, the additional resources below will be useful: