How insurance underwriters evaluate the risk of offering a policy

Do you know how it is decided how much you need to pay for an insurance policy? When you approach an insurance company to purchase a policy, it may take help of an insurance underwriting company (such as, Universal Underwriters Service Corporation, Universal Underwriters Insurance Company, etc.). An underwriting company assesses the risk of offering a policy to a client. This risk calculation helps an insurance company to decide the cost of the policy; that is, how much it should charge for the coverage.

Insurance underwriting – What it means 

As already stated, underwriting can be simply defined as risk assessment. An underwriter assesses whether or not an entity should receive the desired coverage; if the entity is eligible to receive the coverage, then the amount the person/business needs to pay for the policy. Though the guidelines for assessing risk may differ from one company to the other, yet the purpose is same – to make profit; that is, the insurance company should make more money that what it is supposed to pay out on the specific policy.
For example, a person with not so satisfactory driving record may be denied auto insurance coverage; even if the coverage is offered to him/her, he/she will have to pay high premium for it.

Insurance underwriters – How they calculate the risk 

Insurance underwriters usually carry out several investigations (such as, background and credit checks) depending upon the coverage the entity has requested for. The underwriters often use several computer technologies to review the insurance applications in order to calculate the risk factors. In most cases, the documents and applications (supplied by the client) provide supplemental information that helps the underwriters to assess the risk in offering a policy to the entity.
For example, in order to provide health insurance coverage, underwriter/underwriters assess the age, health history, present health condition of the client and whether or not the person smokes. Based on these factors, the underwriter decides about the type of coverage and the amount the client has to pay for it.
Insurance underwriters usually work with specific companies, (such as, Universal Underwriters Service Corporation, Universal Underwriters Insurance Company, etc.). However, the insurance companies can have their own underwriters, too.

The job of an insurance underwriter is quite difficult. It is their sole responsibility to determine the conditions of policies and to set the premium rates. If they’re not able to assess the actual risk of offering a policy to a customer, then the company may have to bear the cost of settling a large claim. Similarly, if the underwriters assess high risk, then it may result in getting relatively fewer clients. So, the underwriters have to offer the coverage and set policy rates in such a way that they prove beneficial both for the entity and the insurance company.

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