Insurance 101: What is Underwriting?

Insurance 101: What is Underwriting?

Insurance can seem like a strange form of financial sorcery to most people. Even while we know we’ve bought coverage, do we know exactly what insurance agents do and how our policies are formed?  One common question that many consumers have is: what is underwriting? You may have seen this word in fine print or heard it mentioned by your insurance agent or advisor, but did you know that underwriting plays a major part in determining how much you’re actually covered for?

In this article, we’ll take a look at what underwriting is and how you can make sure you’re covered for.


The Definition of Underwriting

In terms of insurance, underwriting refers to the process of determining risk for possible clients. This process, however, is largely behind-the-scenes. In fact, the one doing the underwriting—the underwriter—typically never interfaces with clients. Instead, brokers and agents traditionally use the terms set by the underwriter(s), presenting them to potential customers.

Just like insurance agents and brokers, most underwriters focus on a specialized subset of insurance, whether it’s car insurance, corporate liability, life insurance, and so forth.Typically, an underwriter takes into consideration historical data and empirical evidence to efficiently complete their tasks. As an example, a person seeking car insurance but has a history of multiple DUI/DWI instances would alert the insurer, via the underwriter, that the company is being exposed to a larger risk than normal. In addition, other factors that may not seem obvious could be taken into account, including:

  • credit score
  • vehicle type
  • domestic situation
  • education level

And so forth. Because each company has their own guidelines, that’s why certain companies can quickly produce rates quickly but vary widely from their competitors.

On the other hand, underwriters are also tasked with creating new models to assess risk on a case-by-case basis. For instance, if an insurer is asked to provide insurance for a new beach-front property in the Hamptons, the underwriter would have to take into account recent weather patterns, construction protocol, security of the property, threats of wildfire, possibility of vandalism/theft, and so forth. Essentially, the company that underwrites the property would have to balance the amount of risk with the premium amount. Not an easy task.

Put yourself in their shoes. How would you insure a client to make sure they’re covered for:


If you found yourself saying, “well, what if that XYZ happens…,” then you can see how malleable an underwriter must be to underwrite a policy that a) protects their company from loss, and b) adequately insures the policy holder for mishaps.

The Role of an Advisor

As mentioned before, underwriters do not interface with the public. Instead, brokers, agents, and insurance advisors  manage accounts and handle customer service issues; in the case of an advisor, they shop on behalf of a client for the best rates from particular underwriters to satisfy their clients’ demands.

Of course, this is just the beginning to understanding the role of underwriters. As you can see, underwriting is a very important part of the puzzle when determining how your insurance premiums are calculated and the extent in which you are covered. That’s why an insurance advisor—someone who works on your behalf—can lead to not only the cheapest rates, but also the most adequate coverage. Contact the insurance advisors at RiskBlock today to ensure that your needs are met at most fairly-priced market rates.


Author: Liam Dai
Lead Insurance Advisor for RiskBlock. Disclaimer: This Blog/Web Site is made available by the author or insurance agency for educational purposes only as well as to give you general information and a general understanding of the insurance coverage, not to provide specific insurance advice. By using this blog site you understand that there is no professional advice and professional client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for professional advice from a licensed professional insurance agent in your state. All scenarios are different and unique to the situation.