What does underwriting mean in insurance?

by B.Lane » Thu May 24, 2007 08:00 am
Posts: 23
Joined: 21 May 2007

Insurance Underwriting is a process by which the insurance companies determine the type of risk that a potential client poses before the company. When you apply for an insurance policy, the insurers do a thorough check based on the information you provide. They also do their own evaluation and allow you coverage after they find you favorable enough. Thus, insurance underwriting is the basic process that every individual has to go through when he purchases an insurance policy.

Where is it applicable?

Any and every insurance application has to go through the underwriting process. However, underwriting finds special significance for certain types of insurance as:

How the process works?

Have a look at the below mention steps to understand how the underwriting process works:
  1. The potential client sends in an application to the insurance company with the necessary details.
  2. The insurance company sends the application to an underwriter for review.
  3. The underwriter verifies the information provided in the application, after scrutinizing previous records, credit history, employment status, monthly income, driving records, photographs of the property that will be insured etc.
  4. The underwriter determines the eligibility of the potential client, and accordingly approves or rejects the insurance application. Instead of rejecting an application completely, the underwriters may also approve insurance applications but with specified conditions like lower coverage limits or higher rates etc.
  5. After the application is approved, then it is forwarded to the policy processing department, then to the insurance agent and the customer for evaluation. If it's rejected, then the customer and the agent receive the rejection letter.

Why is it so important?

The underwriting process finds special mention since it's important for both the insurer as well as for the insurance applicants.

For the insurers:

  • The underwriters maintain a check on the risk factor of the insurance company, i.e. figures out the company's tolerance for risks.
  • They ensure the financial stability of the insurance company. They hold the responsibility of reducing the company's expenses and losses for the claims.

For the consumers:

  • The underwriters determine whether or not to approve the insurance application of a potential consumer.
  • They determine how much of a risk you are, and set the coverage limits and rates on your policy.

Who are the underwriters?

The underwriters are specialized personnel who determine the extent of an individual's risk when they apply for a policy. They review details of an insurance application to determine the accuracy of the information provided. Accordingly, they accept or reject a policy. They also decide on the premium structure for a consumer, if his/her application is approved.

Are there specific standards that have to be maintained?

Usually, each insurance company maintains their specific set of guidelines. The underwriters approve or reject the insurance applications based on the company guidelines or limitations.

Are there any specific eligibility criteria for an underwriter?

Insurance underwriting requires perfect analyzing skills, since an underwriter needs to manage, process and evaluate data. An insurance underwriter must have:
  1. A graduation degree, favorably in business or finance
  2. Knowledge of accounting
  3. Understanding of economics
  4. Know-how of the insurance industry
  5. Basic computer skills
Thus, it is essential to understand how the underwriting process works in the insurance industry before one tries to insure his valuables. A person with a fair driving record is likely to get auto insurance quickly and at affordable rates than one with a lot of traffic violations on his report. Similarly, life insurance is going to be cheaper for those with healthy habits. Past records apparently influence how the underwriters review your policy application.

Related Discussions

What does underwriting mean in insurance? What type of training or experience does it take to become an Underwriter?
I was just curious.

Total Comments: 39

Posted: Thu May 24, 2007 10:10 am Post Subject: what does underwriting mean ?

To become an underwriter one need to have a degree in finance or business administration with knowledge of accounting.
The job of an underwriter is to measure the risk involved in offering a policy to an individual. At the beginning, you will join as a trainee or asst. underwriter. You have to study the claim files to understand the facts associated with different types of losses.

Posted: Fri Jun 08, 2007 03:28 am Post Subject:

A lot of life underwriters come from a medical background. LPNs, RNs, EMTs.

Posted: Fri Jun 08, 2007 07:30 am Post Subject:

If I want to be a home Insurance Underwriter What I need to do?

Posted: Fri Jun 08, 2007 11:26 am Post Subject: what does underwriting mean ?


Underwriters evaluate the risk associated with offering you a policy. Every year the insurance companies are putting billions of dollars at risks trusting upon the decisions made by the underwriters.

One can become an underwriter for general insurance (auto, home, business, health) or for life insurance. Some underwriters may also choose to specialize in a particular type of insurance. However, the eligibility criteria remain same.

You should be a graduate to become an underwriter. Additionally, you should have

-knowledge in accounting,

-good understanding of economics

- idea about the insurance industry

-basic computer skills

A degree in finance or business can be an added advantage.

Hope this will help you. If you have any more queries, please feel free to ask us. We are always there to help each other.



Posted: Thu Jun 14, 2007 07:06 am Post Subject: Yeah!!

Yeah guys...you all are quite right at throwing light upon the different spheres upon which an underwriter works. I'd just like to mention over here that an under-writer has the duty to offer coverages on the basis of standard terms & conditions.
He may introduce additional conditions or charges as & when required. He is subject to overlook that part of the risk which may be termed as foreseen. He might as well share to insure a part of any specific risk with another insurer.
Thus we may clearly understand the fact that his main objective is to reduce the company's expenses or minimise the losses to be borne out of claims.
Hope that makes it a bit more vivid!

Posted: Thu Jun 14, 2007 08:47 am Post Subject: Workarea of an underwriter..


The basic work area of an underwriter may include the following functions:

# Analyze the different insurance propositions.
# Study the personal informations about prospective clients
# Ascertaining the risk factor associated with a prospective policy or a claim.
# Deciding about sharing a risk with a re-insurer.
# Take a call on premium-calculations on the basis of personal vision & actuarial informations.
# Deciding the conditions with the policyholders and the agents
# Designing a practical premium structure.
# Designing policies.

I'm sure the above mentioned piece of information would help you achieve better understanding about the facts related to underwriting. Thanks! Evan .T. Smith

Posted: Sat Jun 30, 2007 01:04 pm Post Subject:

What type of training or experience does it take to become an Underwriter?
He must be actuary. It's not so easy, but if for one underwriting you get 100 dollars - and it's frequently - you can even top working =)

Posted: Sat Jul 28, 2007 03:37 pm Post Subject: Becoming an underwriter

Hi experts,

I have an engineering background and I am currently working for a major european classification society in the field of technical risk assessment for large industrial projects and installations. In the future I would like to enter the (re)-insurance business and become an underwriter. Does it make sense to get an MBA in order to acquire background knowledge in finance, accounting etc. ?

Posted: Tue Sep 04, 2007 10:03 am Post Subject:

Hi sunrises,
Your post has been shifted here >> http://www.ampminsure.org/insuranceagents/about2961.html

Posted: Tue Sep 25, 2007 09:41 am Post Subject:

Hi sarika, your post has been shifted to this page >> http://www.ampminsure.org/insuranceagents/about3157.html

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