Importance of Underwriting in Insurance

Larry Anders
3 min readFeb 24, 2022

Underwriting is the backbone of the insurance industry. Insurers often have to make complex decisions that involve assessing the risk of a particular request for cover against a loss and then determining the appropriate premium. When faced with such complex decisions, insurance companies turn to underwriters.

The phrase “underwriting” refers to the process of assessing and measuring a person’s or a company’s financial risk. Underwriters essentially provide the technical know-how needed to formulate a fair insurance policy. Specifically, the underwriter analyses the risk factors specific to a particular case and then defines standards for the premium and claim. Underwriters base their calculations on market rates while ensuring that their clients generate returns from the insurance transaction.

Underwriting professionals undertake responsibilities that include insurance applicant vetting, which involves conducting a detailed assessment of personal income and financial assets. Underwriters use a combination of computer analytics tools and applications to review and evaluate risk. However, underwriting still utilizes physical checks despite advances in analytical technology.

In practice, insurance underwriting provides the means to determine the level of risk that a candidate presents based on life and health in health insurance or financial assets in other forms of insurance. An underwriter is often concerned with assessing the risk of a significant or sustained claim in the future. For example, an underwriter could assess factors such as the risk of a liability claim on a home fire policy. The scope of hazards identified forms the grounds for setting the monthly premium paid by the applicant. The underwriter’s decision then forms the basis for the premium rate implemented for the policy.

For most people, the underwriting process can appear unnecessarily complex. Underwriters ask about a range of issues that include personal background, income, health, and wellbeing. Despite their intrusive nature, underwriting questions serve a particularly vital role in helping to decide the terms of the insurance contract. Moreover, the questions have become simplified to only include those questions that help inform the risk assessment undertaking. Therefore, underwriting should be viewed as a central part of the insurance policy.

For insurance companies, underwriters provide the information needed to determine whether to indemnify against a particular risk. Whenever the underwriter deems a specific applicant to be especially high-risk, the insurance company will adjust the premium accordingly or refuse to cover such a risk. It is essential to ensure that insurance applicants provide underwriters with accurate information because this forms the primary basis for the insurance policy. Most people believe that concealing some information from underwriters could benefit their cause by lowering premiums. However, concealing a fact material to the insurance relationship could complicate the process of making claims.

In summary, underwriters are essential to the insurance industry because they help to continuously assess the level of risk attendant to insurance relationships. Insurance risks are subject to constant review. This review activity results in a constantly shifting risk profile. Underwriters help to progressively track these risk changes by applying statistical and probabilistic methods. Often, insurance companies increase or decrease insurance premiums depending on the costs they assume due to changing risk profiles.



Larry Anders

Larry Anders — Summit Alliance Financial Chairman and CEO