An insurance underwriter studies, assesses and measures risks for insurance firms. By utilizing tools such as statistics and actuarial tables, these risk-assessment experts figure out the risk level for losses and claims presented by prospective clients. Risk ranking enables firms to decide coverages and pricing for customers.
Evaluating the likelihood of claims by comparing prospective customers’ details against established information is the focus of an underwriting expert’s job. Their examination is crucial before an insurer issues a quote to a prospective client. They need to find out the following: Does a future client represent a reasonable risk – someone less likely to incur a claim? Or is the client more likely to suffer a loss and have a claim? Risk experts also take into account the sizes of possible claims. Risk analysis is essential to a company’s financial viability. Insurance companies need to make a profit. They need to manage risks to ensure total payouts for claims do not exceed the premiums collected.
Underwriters are essential because their work explores levels of exposure presented by customers. Once risk and possible claims are assessed, an insurer can decide what coverages will be offered and the premium charged. Suppose a driver with serious driving infractions applies for insurance, such as accidents and speeding infractions. This driver’s probability of encountering another problem is higher than a driver with no violations or claims, perhaps because he drives less safely. An underwriter knows the risk of a claim is higher for an accident or ticket-prone driver, and that person’s coverages will be more expensive.
Underwriting involves risk analysis to decide on coverages and prices for customers.
Risk is an ever-present reality of life, and assessing it is a foundational concept of insurance. An insurance policy is a legal document between an individual or a business and an insurance company that details how much an insured will pay in exchange for the company agreeing to pay for claims if insured losses occur.
In some cases, risks may be too high, and the company decides not to provide coverage or will request changes before coverage is provided. For example, a homeowner looking for coverage contacts their broker who completes an insurance application for them. This document asks various questions about the home and is submitted for review by an underwriter. Among the things the risk expert will ascertain is the likelihood of losses such as fire and water damage. Suppose a home has knob and tube wiring. This type of wiring is old and can result in a fire. The underwriter does not want to take on this high risk and advises they must replace the risky wiring before offering coverage. The broker communicates the assessment and discusses it with the customer. The customer must decide whether to upgrade the wiring for safety and to qualify for insurance or opt to accept the risks presented by knob and tube wiring and not be insured.
Underwriters work in all types of insurance – home insurance, car insurance, commercial insurance, life insurance, and more. They are integral to risk-assessment operations. Insurance companies cannot make knowledge-based underwriting decisions about coverages and premiums without well-trained underwriting experts. Underwriters are vital to ensure a company insures suitable risks to support the company’s financial wellbeing.
Underwriters look for positives and negatives when assessing risks presented by a customer.
Suppose a driver has been licensed for 20 years, never had an accident, never had a ticket and then has an accident. If this driver applies for insurance, an underwriter will review the driver’s application and determine the probability of future claims. The underwriter will review positive features, such as the driver’s long record of good driving. They will consider the likelihood of another loss. The review is used to decide coverage and premium.
Underwriting begins after a customer completes an insurance application. Underwriting professionals review the application and conduct a review of risks. If the application is for home coverage, underwriting experts look at details like the home’s age, plumbing and location. Is there monitored home security? Is fire protection, such as hydrants or a fire station, nearby? Answers inform the underwriter about risks the insurer would be assuming by insuring this homeowner.
There are many differences between a broker and an underwriter.
A broker is an expert who helps people obtain insurance and mitigate risks to reduce their costs.
A broker does not work for an insurance firm. Brokers work for their customers. They are independent, and their goal is to get the best protection and prices for customers. Because of their expertise, a broker can also advise customers how they may reduce their insurance costs. For example, a broker may suggest a customer replace their roof if it is aged and leaking. The broker is aware an insurance company will not want to insure a roof that leaks until repaired. Further, if they decide to provide coverage for the home, the company may exclude coverage for the roof or set a higher premium because of increased water-damage risks.
On the other hand, an underwriter works for insurers to alert them to risks and the probability of claims so the company can charge the correct premium. Their concern is protecting the insurance company from losses and claims.
This content is written by our Morison Insurance team. All information posted is merely for educational and informational purposes. It is not intended as a substitute for professional advice. Should you decide to act upon any information in this article, you do so at your own risk. While the information on this website has been verified to the best of our abilities, we cannot guarantee that there are no mistakes or errors.
