An insurance underwriter assesses risk on behalf of an insurance company and decides whether to insure a person or business, what coverage and terms to offer, and how much premium to charge.
Insurance underwriting is the process of evaluating risk and determining whether that risk fits within an insurer’s appetite. The underwriter is the insurance professional responsible for making that assessment.
What Is an Insurance Underwriter?
An underwriter is defined in the dictionary as:
- A person or a company that underwrites an insurance risk.
- A bank or other financial institution that pledges to buy all the unsold shares in an issue of new shares.
Insurance professionals are more concerned with the first definition: the insurance underwriter.
Have you ever filled out an application to buy insurance? An underwriter is the person who receives and analyzes the information provided on that application.
The underwriter uses a series of questions and related information to determine the level of risk presented, whether the risk is suitable for coverage, and the premium and terms that should apply.
Depending on the type of insurance, an underwriter may review financial information, claims history, business operations, property details, cybersecurity controls, management experience, or other factors relevant to the risk.
Insurance companies employ insurance underwriters to assess the risk of insuring people, businesses and assets. They are responsible for determining a premium based on the risk exposure and potential loss to the insurance company.
What Does an Insurance Underwriter Do?
The underwriter determines:
- If a risk is worth insuring or not.
- The scope of the coverage the insurance company is willing to undertake.
- The terms, conditions, limits, exclusions, deductibles or retentions that should apply.
- The premium that will appropriately compensate the insurance company for taking on the risk.
Essentially, the underwriter determines whether the insurance company should accept a risk and, if so, the terms under which it is willing to provide coverage.
Underwriters balance two important objectives: writing profitable business for the insurance company and providing competitive insurance solutions that brokers and clients are willing to accept.
How Does Insurance Underwriting Work?
Depending on the specifics of the role, the underwriting process may be highly systematic. For example, an underwriter may have formal guidance, underwriting rules, pricing models or checklists for determining eligibility and pricing.
Other underwriting roles give the underwriter more discretion in analyzing and making a case to insure a risk or not, including determining appropriate pricing and coverage terms.
Complex commercial risks may require an underwriter to analyze financial information, operations, loss history, emerging exposures and other qualitative factors before deciding whether and how to offer coverage.
In addition, an underwriter may also have business development responsibilities, such as building relationships with partner brokers and explaining the insurer’s risk appetite.
The insurance broker is responsible for advising insurance buyers. Nevertheless, an underwriter may at times meet with the insurance buyer together with the broker to provide added expertise and better understand a complex risk.
An underwriter’s year-end performance may be evaluated not only on the profitability of the book of business they handle but also on the growth of that book.
Read about the broker role: What is a broker? (an insurance broker)
Insurance Underwriter vs. Insurance Broker
The simplest distinction is that an insurance broker advises the insurance buyer, while an insurance underwriter evaluates the risk on behalf of the insurance company.
The broker presents the risk to insurers and helps the client evaluate available coverage. The underwriter reviews that risk and determines whether the insurance company is willing to provide coverage and on what terms.
In commercial insurance, brokers and underwriters often work closely together, particularly when a risk is complex or requires a customized insurance solution.
Types of Insurance Underwriters
Insurance underwriters specialize by gaining in-depth knowledge of a specific category of risk and can advance their careers by becoming subject matter experts.
There are several different areas of specialization. Some of the primary areas include life, health, property and casualty insurance. Within commercial and specialty insurance, underwriters may specialize even further.
Examples include:
- Property insurance
- Casualty insurance
- Directors and officers liability insurance
- Cyber insurance
- Professional liability insurance
- Employment practices liability insurance
- Commercial crime insurance
- Construction
- Marine
- Energy
- Technology
- Entertainment
ITC offers specialized training in several of these areas for insurance professionals looking to deepen their technical underwriting knowledge.
As an insurance underwriter, you can develop your career to match your interests and expertise. For example:
- A sports fanatic may start in general commercial underwriting and then build expertise in sports programs and associations.
- A finance and business graduate may start as a financial lines underwriter and have the opportunity to analyze businesses of different sizes and potentially specialize in mergers and acquisitions.
- Entertainment and health experts may underwrite the risk of an actor getting hurt while performing stunts for an upcoming thriller.
What Skills Does an Insurance Underwriter Need?
Insurance companies look for bright, business-minded and analytical individuals with strong interpersonal and commercial skills to become underwriters.
Important underwriting skills include:
- Risk analysis
- Financial and numerical literacy
- Attention to detail
- Decision-making
- Negotiation
- Communication
- Relationship management
- Industry and product knowledge
Commercial insurance underwriters also benefit from understanding how an insurance company makes money, how claims affect profitability, and how changing market conditions influence pricing and capacity.
Is Insurance Underwriting a Good Career?
Insurance supports virtually every sector of the economy, creating underwriting opportunities across industries ranging from aviation and construction to technology, healthcare and financial services.
Underwriting offers extensive opportunities for specialization. Alternatively, managerial and leadership positions are also options for advancement.
Although many insurance professionals have a university degree, underwriters do a lot of their learning on the job by assessing risk in real time with the guidance of a more senior underwriter.
Some progressive organizations have strong learning and development programs. This enables them to advance underwriters’ knowledge systematically and according to the appetite and views of the employer.
Insurance underwriters have a broad range of career options across specializations and geographies. Insurance underwriting jobs may be located in company headquarters or regional offices in primary and secondary markets.
Some insurance brokerages employ underwriters as in-house specialists on proprietary programs. Some insurance companies also offer underwriters international assignments.
It’s a rewarding profession and can be a strong fit for people who enjoy problem-solving, big-picture thinking and working in an analytical and collaborative environment.
An underwriter’s compensation typically includes salary plus a year-end bonus based on performance.
Learn More About Insurance Underwriting
Underwriting sits at the centre of the insurance business. Underwriters determine which risks an insurer accepts, how those risks are structured and priced, and ultimately whether the insurer can grow profitably.
Understanding underwriting is useful even if you do not work directly in an underwriting role. Brokers, claims professionals, risk managers and insurance buyers can all benefit from understanding how underwriters evaluate risk and make decisions.
Learn more: What is Insurance Underwriting
Make a plan: Download a free career development plan template
Get started: 8 Steps to Interview Success: Insurance Underwriter
