Who is the Underwriter?

In the early days of marine insurance, the details of a ship or cargo to be insured would be described on a slip. This slip would be taken to Lloyd’s and the person who was to carry the risk would read the details and the sign the slip under the details of the risk. In this way the person carrying the risk became known as the Underwriter. The underwriting process is far more complicated nowadays but the term still applies.

Insurance companies protect individuals and organizations from financial loss by assuming billions of dollars in risk each year—risks of car accident, property damage, illness, and other occurrences. Underwriters decide whether insurance is provided and, if so, under what terms. They identify and calculate the risk of loss from policyholders, determine the appropriate premium, and write policies that cover this risk.

Thinking of the role of the underwriter in this way we could say that they have to:

§   Assess the risk which people bring to the company

§   Decide whether or not to accept the risk or how much to accept

§   Determine the terms, conditions and scope of cover to be offered

§   Calculate a suitable premium

An insurance company may lose business to competitors if risk underwriting is too conservative, or it may have to pay excessive claims if the underwriting actions are too liberal.

Source: Insurance Practice (P01) – Prof. Dickson