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What Is An Insurance Underwriter & How Does It Work?

insurance underwriter

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Aja McClanahan
Updated June 12, 2022
2 Min Read

Underwriting is the act of taking on risks for a fee. The underwriting process is centered around assessing that risk and making sure that it makes business sense to take on the risk. 

As a result, underwriters play an important role in many different financial transactions and sectors. They determine the acceptable level of risk for financial institutions like banks and insurance companies when issuing loans and insurance coverage. 

Aside from insurance, other types of underwriters may include:

  • Loan underwriters: A loan underwriter assesses the risks involved in giving loans like mortgages, auto loans, business loans, etc.
  • Securities underwriters: Investment banks buy shares from companies that go public and sell those shares to the public. Their underwriters assess the risk of this venture and determine the Initial Public Offering (IPO) price. 

So what exactly is an insurance underwriter, and how does insurance underwriting work?

What Is An Insurance Underwriter?

An insurance underwriter evaluates and analyzes the risk of insuring someone’s activities or assets. They are responsible for determining the price of the accepted insurable risks. 

The duties of an insurance underwriter include:

  • Analyzing insurance applications
  • Determining insurance premiums and coverage costs
  • Deciding to grant coverage
  • Screening applicants based on relevant data points
  • Making recommendations on the type of risk the insurer is willing to take on and at what cost

How Does An Insurance Underwriter Work?

Insurance underwriters take on a potential future risk and charge a premium for the promise that they will compensate you if damage or losses occur. Essentially, underwriters are a critical link between insurance companies and insurance agents. Although insurance agents sell policies, the underwriters decide whether or not coverage can be extended to customers.

Insurance underwriters use a combination of software calculations and actuarial data to determine risk levels. This software takes customers’ information and calculates the best premiums and policy pricing based on that information. 

What Are the Types of Insurance Underwriting?

There are as many types of underwriters as there are types of insurance. Types of insurance underwriters could include:

  1. Health insurance underwriters
  2. Life insurance underwriters 
  3. Property and casualty insurance underwriters
  4. Workers’ compensation insurance
  5. Long term care insurance

Although there are different types of insurance, the primary function of underwriters is the same—assessing and pricing for risk. The only difference comes in the level of risk, actuarial models and required documentation. 

What’s the Difference Between an Insurance Underwriter and a Broker or an Agent?

In essence, insurance agents and brokers sell you insurance coverage, while underwriters analyze the risk of insuring you. Your agent will collect your information and supporting documentation for the underwriter. Then, the underwriter makes the final decision as to whether or not a customer is insurable and, if they are, what the cost will be.

Although agents and brokers are salespeople, they also perform some customer service functions for clients.  When you start the journey of obtaining an insurance policy, your first point of contact will likely be with an insurance broker or agent. They are the customer-facing employees that bridge the gap between the customer and underwriting process. 

The insurance broker or agent’s duties also include:

  • Helping applicants complete the correct paperwork and tender required documents
  • Helping applicants understand the insurance products they might need
  • Educating the applicant on their insurance options
  • Clarifying customer details with the underwriter

What Else Should I Know about Insurance Underwriters?

In the grand scheme of things, it’s not very likely that you will ever have to interact directly with an insurance underwriter. They will, however, judge you based on your paperwork, so make sure you are not portraying yourself as someone who engages in high-risk activities. Of course, you will be truthful in your application, but your broker or agent can help you complete your application so that it’s more likely to be approved and at a reasonable price.