What do underwriters do?
Insurance Underwriters are qualified persons who evaluate an insurance proposal to assess the kind and degree of risk involved. The underwriting process determines how much premium, or money, an insurance company should charge for that policy when it comes to the process of insuring someone or something.
As the first task of any insurer, is to price risk and charge a premium for assuming it as part of the reliance of the insurance business is on its policy insurance premium income.
This is where insurance underwriting is critical. Without good underwriting, the insurance company would charge some customers too much and others too little for assuming risk. This could price out the least risky customers, eventually causing rates to increase even further. If a company prices its risk effectively, it should bring in more revenue in premiums than it spends on conditional payouts.
Underwriters balance the losses insurance carriers may derive from their client’s potential risk of potential claims. Premiums, based on rates filed in your area, also reflect personal claims experience of, and the risk of incurring future claims based upon, that risk.
Therefore Underwriters look at things like
• Claims Experience – If your claims experience is low, your premiums can be low. Underwriters frown on applicants with many frequent small claims. When possible, take higher deductibles on your car and home insurance and pay small claims yourself.
• Credit Rating – Credit score is a factor in underwriting. A history of paying your bills on time means lower premiums.
• Type of Vehicle – It’s less expensive to insure a mid-sized sedan than a turbo-charged convertible.
• Driving Record – A clean driving record and attendance at a defensive driving class makes you a better risk.