What is insurance underwriting?
Underwriting is how insurance companies determine a business’s risks and decide whether to sell it a policy. If the underwriting process shows that it is acceptable to cover a business, the insurer will use the risk profile to help recommend policy types and set premium costs.
Since all insurance carriers assume their customers’ risk, the underwriting process applies to all types of policies. Businesses pay premiums in exchange for the insurance provider’s financial help if they suffer a loss or are named in a lawsuit.
An insurance underwriter gauges a business’s risk and decides whether to provide coverage and how much to charge. The underwriter works for the insurance company and represents their interests – not that of the customer.
How do underwriters assess a business’s risk?
When determining whether to cover a business and how much to charge for insurance premiums, underwriters evaluate several factors. Depending on the policy, these can include:
- Business structure and industry
- How long a business has existed
- Credit score and bankruptcy filings
- Physical condition of business location
- Insurance claim history
- Security and safety practices
- Loss prevention practices
- Lawsuit history
- Driving record and accident history
Underwriters vs. agents: What’s the difference?
While insurance underwriters and agents both work for a brokerage or insurance agency, they perform different functions.
Insurance underwriters work behind the scenes. Underwriters and actuaries create statistical models to assess a business’s future losses and determine whether to provide coverage.
Insurance agents work directly with customers. Agents help business owners understand what policies their business might qualify for and assist with completing forms. If an insurer offers coverage, agents will answer questions to help a business understand the terms of the policies.
Agents also help underwriters interpret information about a business, then negotiate coverage types and premiums on behalf of the customer.
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