Insurance Underwriter

Article byKhalid Ahmed
Edited byprarthana Khot
Reviewed byDheeraj Vaidya, CFA, FRM

What Is An Insurance Underwriter?

An insurance underwriter (or underwriter) refers to an insurance professional working on behalf of an insurance company to assess the potential risk of providing insurance to an individual or business. They help to prevent any loss to the insurer from unverified claims by the insured so that the insurance companies remain profitable.

Insurance Underwriter

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The insurance underwriter represents the insurance company selling and buying its products. They work alongside actuaries to create future loss models that determine an applicant’s insurance amount eligibility. Underwriters also quantify the risk and claim amount and set the insured’s insurance and premium accordingly. They moderate agents to oversell insurance to all instead of just profitable clients.

Key Takeaways

  • An insurance underwriter is a professional who assesses the risk involved in insuring a person or entity to determine the corresponding insurance amount or premium and claim amount.
  • Underwriters play an important role in controlling excessive and fruitless insurance selling to risky clients.
  • An underwriter’s role is to minimize the risk for the security-providing firms/companies, process the applicant’s claim, and accept or reject the applicants based on the software model and other criteria.
  • The four main types of underwriters include – general, life, banking, and medical stop-loss insurance.

Insurance Underwriter Explained

An insurance underwriter is a person who determines the amount of risk the security-providing company is ready or willing to take for insuring a person or entity based on computer risk assessment models. The underwriter works on behalf of the insurance company (carrier) in overseeing that the right policy gets sold to the right person at minimum risk to the carrier. The underwriter also has to calculate the total cost of claim payment using various software and data.

Once an entity or individual applies for insurance with the companies through the agent, the underwriter feeds the data into the software and matches it against the company’s policy. After the assessment of the applicant ends, the underwriter decides whether the applicant may or may not get covered under the insurance policy. If the underwriter finds that the risk of paying claims to the applicant is quite high at a great cost to the company, the application gets rejected.

However, if the underwriter finds that the applicant is less likely to claim in the future and the cost of the claim will be lower, they approve the applicant for insurance coverage. In such a case, the underwriter calculates the total insurance coverage the applicant will get. After this, the underwriter also calculates the insurance premium associated with the coverage. Furthermore, risky customers get insurance at a higher cost and vice-versa.

One can summarize that the underwriter’s primary task is to balance new policyholders, minimize the company’s present and future risks and maximize the profit generated for the company. Finally, the sole aim of the underwriter is to reduce the the insurance claim number on the security companies so that they generate profit and sustain their business.

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Role Of Insurance Underwriter

The primary role of an underwriter is to evaluate and minimize risk for their parent company. However, their role is not limited to only these duties. If one goes by the schedule of the Bureau of Labor Statistics, they have a variety of roles, as mentioned in the following list:

  • Moderating excessive selling by agents and filtering out applicants that they provided.
  • Assessment of the insurance applications based on sex, age, medical background, creditworthiness, and vehicle driving history.
  • Determining the involved risk in insuring a new insurance applicant.
  • Putting all the necessary data into a software model to assess an applicant’s eligibility.
  • Carefully analyzing the results of the software models to judge the application.
  • In case of requirement for more information about the applicant, they reach out to the traffic department, credit bureau, banks, and medical professionals.
  • After obtaining all information and assessments, determining the applicant’s insurance coverage, premium, and claim amount keep the carrier’s benefits in view.
  • Keeping the software models software updated with time and changing requirements.

The most important aspect of the underwriter’s role is that every underwriter specializes in casualty, property, health insurance, or banking. Hence, one can find various underwriter types in the insurance sector. Moreover, a person should consider applying for an insurance underwriter certification to get an insurance underwriter job.

Type Of Insurance Underwriters

Based on the specialization of underwriters, they are of the following types:

  1. General Insurance Underwriter – They cover the sector of pet, motor, mortgage, and house. It includes the health insurance underwriter.
  2. Life Insurance Underwriter – It involves working in the life insurance sector.
  3. Banking Underwriters These underwriters often work for an investment and commercial bankers. Investment bankers guarantee a fixed amount to businesses during initial public offerings. Underwriters of commercial bankers deal with analyzing the creditworthiness of borrowers in case of a mortgage, housing, or vehicle loan.
  4. Medical Stop-Loss Underwriters  Under this type, underwriters ensure that the employer that undertakes the group insurance policy gets protection from unnecessary claims.

Example

Here is an example to understand the topic better.

Let’s assume that person X buys a new electronic vehicle. X approaches an insurance proving firm to get new policies to secure the vehicle. Once X submits all the required documents, an underwriter accesses the driver’s records, studies the history of the electronic vehicle’s company, uses various risk assessment models, and then determines to provide a policy with an estimated premium amount. The underwriter considers a driver with a good driving record low-risk customer, so the company may charge X a lower compensation premium after insuring.

Frequently Asked Questions (FAQs)

What does insurance underwriter do?

The insurance underwriter’s primary duty is to analyze an individual’s application for insurance with its insurance company for possible risks, the scope of profit for the carrier, the amount of insurance coverage, and related premiums. They also mediate between agents willing to sell insurance to everyone for profit and carriers’ need to minimize risks.

How to become an insurance underwriter?

A person interested in becoming an underwriter must have a graduate degree. In addition, that person must be adept at math skills, law knowledge, economics, or finance management. Nowadays, many companies provide underwriting training to aspirants for employability in the underwriting field.

How much does insurance underwriter make?

At present, underwriters in America earn an average salary of $77000 per month.

What is a life insurance underwriter?

A professional wo act as an underwriter on behalf of a life insurance company. The process involves assessing the risks of health, creditworthiness, age, sex, and other details of an insurance applicant. Then, it gets done to assess the applicant’s eligibility to grant the insurance coverage by the carrier without any risk on the returns on coverage.

This has been a guide to What is Insurance Underwriter and its meaning. Here, we explain its role, types, and example. You may also find some useful articles here:

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