Definition
Underwriting
Underwriting is the process by which an insurer evaluates a risk, decides whether to accept it, and on what terms and premium.
Underwriters assess factors such as age, health, occupation, lifestyle, financial standing and the requested sum to classify the applicant's risk. Based on this, they may accept the proposal at standard rates, apply a loading (extra premium), impose exclusions, postpone, or decline cover.
Life insurers may require medical tests for higher sums, while health insurers use proposal-form declarations and sometimes pre-policy check-ups. Sound underwriting protects the risk pool from adverse selection, keeping the product sustainable and premiums fair for the wider group of policyholders.
Related terms
- ActuaryAn actuary is a professional who applies mathematics, statistics and financial theory to price insurance, value liabilities and assess long-term risk.
- Adverse SelectionAdverse selection is the tendency for higher-risk individuals to seek insurance more eagerly than lower-risk ones, skewing the risk pool.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.