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What Do Insurance Underwriters Do?

Thu, 30/11/2017
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Often when you receive your car insurance policy, it will state that your policy is underwritten by a different company, but what does this mean? Who are these underwriters and what do they do? Here we unravel the mysteries of insurance underwriting.

What Is underwriting?

Underwriting is the process of evaluating the risk of insuring something, such as a house, a person or a vehicle. This process helps an insurance company to determine whether it is profitable for them to offer insurance. Once this risk is determined, the underwriter will decide what cover the person will receive and set an insurance premium for this. Essentially, an underwriter decides who or what the insurance company will insure and at what cost.

What is the relationship between underwriters, insurance companies and customers?

The underwriting process takes place behind the scenes, and while an insurance company might offer policies, provide customer service and deal with claims, they may be underwritten by a different company whose job it is to do this behind the scenes work. Underwriters will all offer different terms, and insurance brokers may shop around in order to find the best terms for their customers. Each insurance company sets guidelines to help the underwriter decide whether the company should accept the risk for each customer. Underwriters themselves do not communicate directly with the customer.

Why is it called underwriting?

The term ‘underwriting’ is believed to have come from insurer Lloyd’s of London, which would accept some of an event’s risk in exchange for a premium. In the early days, this might have been a sea voyage which carried the risk of a shipwreck. The people paying the premiums would literally sign their names under the text describing the risk, which is where the term ‘underwriting’ is thought to have come from.

What factors do underwriters consider?

You’re probably aware that when you apply for car insurance, a number of factors determine the cost of your premiums. Your age, previous claims, and the age, speed, make and model of your car can all influence how much you will pay for your car insurance. Underwriters use this information, as well as historical data, to decide whether they will insure you and how much for. For example, vehicles designed to reach higher speeds may be deemed to be more of a risk and therefore cost you more to insure, while your premiums may also decrease as you get older and more experienced, compared to when you first started driving.

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