Underwriting
Definition
The process of evaluating, selecting, and pricing insurance risks. Underwriters determine whether to accept or reject applications and what premium to charge.
Example
An underwriter reviews an application for commercial property insurance, assessing the building's construction, location, fire protection, and loss history. Based on this evaluation, they decide to offer coverage with a $5,000 annual premium and a $2,500 deductible.
In Practice
Underwriting balances risk selection with market competitiveness. Underwriters use guidelines, rating models, and experience to evaluate risks. Factors considered include loss history, property characteristics, financial stability, and compliance with underwriting guidelines. Underwriting decisions affect both profitability and market share.