If you’ve applied for an insurance quote you may have encountered an “underwriter.” Well what is an underwriter? What do they do?
Underwriting in simple terms is the process of assessing risk so that an insurer can determine whether the cost of covering an individual or commercial entity is proportionate to the risks that person or entity represents. Similar risks would therefore attract similar premium rates.
An underwriter is the person tasked with doing this assessment. He or she prices insurance in accordance with the risks associated with the applicant for insurance. Using computer programmes an underwriter works out the likelihood of a claims payout over the life of the policy and how much that payout is likely to be.
Determining Risk
Insurers generally offer a variety of policies covering many types of perils. Working behind the scenes it falls on an underwriter to gather information about applicants based on which the underwriter then advises the insurance company who and what to insure and also what policy is most suitable for what type of peril the conditions under which coverage will operate and the cost of coverage.
The insurance field is wide and most underwriters target a specific segment of it such as health care homeowners corporate liability or car insurance. Whatever the segment underwriters have access to plenty of historical data which helps them make the right determinations as to risk price etc. When processing a car insurance application for instance an underwriter looks at the available historical data which may include driving history level of education and type of vehicle. They then use that information to gauge the level of risk posed by particular drivers. Or when a person with a history of heart disease applies for health insurance the underwriter will take that into consideration and likely advise the insurance company that the applicant is high risk.
What It Takes To Be An Underwriter
With risk assessment as their specialty underwriters need to have strong technical skills including the ability to understand and analyse qualitative and quantitative data. In fact data and statistics are their primary tools of trade. And because the determination of risk involves a detailed and sophisticated process the underwriter must be detail-oriented. Underwriters don’t need a specific bachelor’s degree but being good at math helps and courses like business economics and finance are beneficial. And of course they’d have to be good at using computers.
The Underwriter and You
In the course of their work underwriters are expected to know and understand underwriting rules and they protect their employers usually insurance companies by enforcing those rules. They have the discretion to apply rules alter conditions or make exceptions in order to lessen the riskiness of a situation. They also have the power to refuse to insure someone or something or cancel a policy altogether if the risks are too high.
It is obvious therefore that when it comes to buying insurance it’s not just your broker that’s involved; there’s lots that goes on behind the scenes. In fact even after you have bought a policy it is still possible for an underwriter to revisit and review your case. This happens when a change has occurred in insurance conditions or there has been very significant change in the insured risk. Under those circumstances an underwriter will review the situation to determine whether the company’s next course of action should be to vary the terms of the policy or let it remain under current terms. New policy terms would include increased deductibles limited or reduced coverage.
What does this mean for you? Simply that when you need to buy insurance ensure that you provide accurate information to your broker so that your policy can be based on proper assessment. Inaccurate or insufficient information could nullify your policy.