An insurance underwriter works for an insurance company to determine whether to extend insurance to an applicant or group of applicants. The underwriter will also set insurance rates or determine how much an applicant should be charged for the policy. In making these determinations, underwriters rely on risk management assessments and on surveys of statistical data.
Insurance involves the transfer of risk. For example, if a person buys a car insurance policy, he transfers the risk that he will be in a car accident to the insurer. The insurance company then must pay his financial damages if a car accident occurs.
For insurance companies to be profitable, they must determine how likely it is that the applicant will cause an accident. This will allow them to charge an appropriate price for transferring the risk. The underwriter helps the company in making this determination.
When a candidate applies for an insurance policy, he provides personal data and information about himself. The underwriter looks at this information and compares it to statistics about similar individuals that have been collected. The underwriter then decides whether this individual is so likely to cause an accident that it would not be profitable to insure the person no matter how much he paid. If the underwriter decides to grant insurance, he also decides how much that person should pay so the company does not lose money.
An insurance underwriter must understand how to do statistical analysis. He must be able to use numbers and data available him to make a prediction on the risk of insuring a given individual or group of individuals. The data may be an aggregate of information on existing policyholders and existing claims. Often, insurance companies have huge pools of data with thousands of statistics on all sorts of details about insureds, from their ages to what they drive. The demographic statistics on the pool of clients insured is then compared to determine which individuals are most likely to cause accidents based on a variety of factors.
The price of all policies for a given type of individual may be set by an insurance underwriter. Alternatively, the insurance underwriter may review a single application and set the price just for that person. Underwriters who set general policy prices for all groups of similar insureds generally have more responsibility.
An insurance underwriter may work for one of several types of insurance companies. He may work for a life insurance company, a homeowners insurance company or an auto insurance company, for example. The nature of the data the underwriter will review varies depending on the type of insurance he is pricing.